The European Commission recently unveiled a list of policy priorities that are supposed to help save the environment. In a previous article on this page, I had looked more specifically at the carbon border tax (which isn’t technically a tax), and which would add further problems of an already struggling European industrial sector. In this piece, my intent is to take a closer look at the government spending implications of the European Green Deal.
Just Transition Fund
From a Brussels perspective, one country is particularly hesitant when it comes to fighting an ideological EU war against climate change. In Poland, which is itself heavily reliant on its industrial sector, the ambitious (or rather destructive) goals of the European Union are neither welcomed nor understood. To Warsaw, pandering to Greta Thunberg is not electorally beneficial or economically justifiable.
The European Union happened to have been the only large emitter at the climate change conference COP25 in December, which set itself a mid-century net zero carbon-dioxide emissions target, notably over the objection of Poland. This objection and discussion also avoided a midway market, meaning no specific goals until 2030 or 2035. That said – EU legislation can still set different mid-way targets in directives regulating certain industries.
The European Green Deal itself will not be able to be accepted as a single piece of legislation, but rather as a package of proposal, all to be accepted individually under different provisions. If Poland manages to rally support in the European Council, it could be the instigator to block significant parts of the EGD.
In order to avoid that, the von der Leyen Commission is suggesting a Just Transition Fund (JTF) (which by the way, you can fill out a consultation form about, to contribute your opinion as an EU citizen). With some early objections coming out of Germany and the Netherlands, the Commission geared communication a little, and added the Just Transition Fund under the umbrella of the Just Transition Mechanism, which is part of the Sustainable Europe Investment Plan. Long story short:
- The JTF will be filled with €7.5 billion of your money. These are fresh and direct funds.
- Member states will be mandated to commit to match each euro from the Just Transition Fund with money from the European Regional Development Fund and the European Social Fund Plus. Meaning they will also need to add €30-50 billion in funding.
- A transition scheme under the already existing InvestEU plan, formerly known as the Juncker Plan, which would mobilize up to €45 billion, mostly private money, through attractive loans and advantages.
- A public sector loan facility through the European Investment Bank which could release between €25-30 billion of investments.
Environmentalist NGOs are obviously over the moon. “The lack of financial means can no longer be used as an excuse for not committing to increase climate ambition. On the contrary, this fund should pave the way for raising the EU 2030 climate target to 65 percent emissions cuts in line with the Paris Agreement,” Wendel Trio, the Director of Climate Action Network (CAN), said.
However, a number of EU member states have already shown their criticism towards the plans, with a number rejecting it altogether. Their argument is easily comprehensible: Central European nations already receive financial support through the fund granting money for regional development, and with the commitment of the European Commission to make farming subsidies “greener,” the chances are quite good that Central and Eastern Europe will further benefit from progressively increased subsidies in the realm of farming in the 2021-2027 budget.
In essence, the European Commission is buying consent, whether through direct payments or advantages loans. This has two major repercussions: for once, the loans given to a country like Poland to build wind farms (which ought to replace coal power plants) aren’t real market-valued loans. This means that if the green subsidization of these renewables were ever to stop (as it has happened with electric vehicles in countries like Hong Kong and Denmark), then the government will have to bail out private investors or even countries. On the other hand, the system of paying countries off to buy their consent is light years away from anything that pretends to be a “European value,” nor does it represent good policy.
This article was first published by the Austrian Economics Center.
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