A New Green Economy

A New Green Economy

Teresa Ribera
In the new international setting marked by the withdrawal of the U.S. administration from the Paris Agreement, it is now up to the European Union to set the pace in terms of goals and implementation. Bruxelles' policy must be more flexible and innovative

The main achievement of the Paris Agreement on climate, adopted in 2015, was to set the risk threshold we collectively committed not to trespass, together with the main pieces of the toolbox to make this goal possible. The message is clearly stated: we need to reach carbon neutrality in the second half of the century, acknowledging that developed countries would need to achieve this goal earlier. This defines a new paradigm for the way we produce and consume, and challenges the traditional manner of understanding economic growth and development. The implications are huge: it will require the transformation of the structure of our economies on a massive scale, impacting all economic sectors far beyond energy or power.

A complex and radical change

After 20 years of international negotiations, it is obvious that such a systemic change is not easy. Therefore, the Paris approach intends to promote a different way to improve climate action performance, based on the idea that the most powerful way to succeed is to enhance domestic engagement. This system is based on two main principles: action is nationally driven, on one hand and, a regular catch up overtime that will allow on the other hand acceleration of the learning process. So, climate action is intentionally stated as nationally driven (“determined” is the word used in the text). Countries are not forced into one precise framework, but able to choose the development path that meets their priorities (i.e., poverty alleviation, energy independence) and generates new opportunities (employment, energy access reducing trade deficit...) and choose a clear goal to achieve in the long run. The coherence between the long-term vision and the short-term pressures is facilitated by a system that counts on the regular assessment of progress, the use of backcasting scenarios and the scheduled calls to enhance action over time. These provisions will be important to ensure the trustfulness of engagements. The starting point provided by the contributions announced in 2015 was far too low to achieve global goals, so a ratchet up tool was constructed to ensure the progressive ramp up of efforts to correct course and remain below 1.5°C/2°C. But to succeed, countries must plan and own their transition over the long run. Deeper emissions cuts at an early stage are required from all countries to achieve long-term goals. Such a massive structural economic shift cannot be planned in five-year increments. Decisions made today will impact the feasibility of future decisions, so it’s necessary for a country to know where it’s headed to avoid what may look like a good idea today but can soon become a future challenge, such as carbon lock-in or the substitution of gas for coal.. Second, in order to operate differently and invest massively in new industries or infrastructures, long-term investors need clear signals coupled with policy consistency and credibility. Both a cross-sectoral approach and mainstreaming climate in any decision are crucial. Tremendous progress has been made in decarbonizing the energy sector over the last decade, but it’s far from enough. Low-hanging fruit has been picked, and lessons have been learned and shared. The challenge now is to address high-emitting sectors that are not ready to be quickly decarbonized, areas such as industrial processes (e.g. steel and cement), agriculture and urban planning and design. All sectors need to develop specific long-term decarbonization plans.

It is up to Bruxelles to set the pace in terms of goals

The challenge for the EU is to build the new green economy of tomorrow. In this new international context, one marked by a retreat of American leadership and where more is expected from the EU on driving both ambition and implementation, getting this right will be critical. It will ensure the EU’s ability to deliver on its commitments and to lead international efforts by keeping together a coalition of progressive countries that can drive the process forward.

What is expected from the EU to drive action and ambition and to keep the momentum from dissipating? The short answer is that the EU can do a lot. However, to do so, it will need to govern its internal climate and energy transition in a way that is compatible with the logic and ambition of the Paris Agreement. It is not only critical to achieve its commitments but also to speak with a consistent and credible voice to drive ambition on the international stage. The EU is not doing this yet, but there are some important opportunities to move in that direction.  As a first move, the EU can deliver two major new blocks of legislation currently being negotiated in this regard. The first is “Clean Energy for All Europeans” and the second is the “Mobility Package.” Negotiations on these packages are relatively advanced, and the European Commission’s goal is to finalize their adoption before the next European elections in mid-2019.  The purpose of these two blocks of legislation is to provide the legislative and policy framework for the EU to implement its contribution under the Paris Agreement. That means that the EU will need to reduce its emissions by 40 percent below 1990s levels in 2030, ensure that at least 27 percent of gross final energy demand comes from renewable sources, and achieve energy saving of 30 percent below a pre-existing baseline set in 2008. It is likely that the package, as designed, will lead to meeting the 2030 goals. This is partly because several larger member states, among them France, Germany and the United Kingdom, have relatively ambitious national climate governance frameworks and will steadily work to close the implementation gap to pursue their national objectives. Moreover, the new package will extend several existing EU legislative tools that will force both member states’ governments and energy companies to continue making incremental improvements in a variety of areas. These include elements from carbon market reform, new emissions performance standards for light and heavy-duty vehicles, continuation of energy saving mandates for energy suppliers and building retrofits and new national targets for non-carbon market sectors. However, if these targets are met, it is also because they are not up to the level required to fix the climate challenge and to meet the goals of the Paris Agreement. Essentially, the EU’s current approach to governing the energy transition is to proceed in 10-year cycles, by setting broad cross-sectoral targets and then providing a large degree of flexibility to member states on how to meet them. The problem with this approach is that it allows for the low-hanging fruit of the transition to be picked, while leaving many of the more fundamental structural changes for a later day. For example, the EU largely overlooks the question of how to design an effective innovation and industrial policy to decarbonize energy intensive industries like steel and cement production, by placing these sectors under the EU carbon market cap and giving them free emissions allowances for the coming decade. Similarly, in the non-carbon market sectors, emissions reductions from transport, light industry, buildings, and land use can be traded off against one another to meet an aggregate target. In reality, 2°C means that each sector needs a dedicated strategy and policy framework enabling deep decarbonization through transformations of technology, behavior, funding patterns and streams, and institutions. Moreover, in some cases, important loopholes exist in the way targets are defined so that they do not reflect the EU’s best effort. For instance, the EU carbon market still suffers from a large surplus of allowances that inflate the actual stringency of the 2030 target, while the non-ETS sectors have several ways to offset emissions from these sectors (e.g., banking old allowances, forestry credits and ETS transfers). These weaknesses ultimately reflect the limitations of the EU’s existing governance framework for climate and energy policy: simply put, the EU is good at creating a relatively effective legal framework so that almost all member states are compelled to make incremental improvements, one ten-year step at a time. However, the Paris Agreement requires more than just a guarantee of incremental change. It requires that member states undertake the transformational change of specific sectors to implement a long-term vision of a decarbonized economy.  However, the current governance framework does not create the necessary conditions for that to happen.

Energy transition must be underpinned by a common plan

Specifically, the process is, for practical purposes, driven by the Commission’s vision of what Europe needs to do to decarbonize, rather than an aggregate vision of the member states and the Commission. There is thus a fundamental lack of ownership in many member states of the EU’s climate and energy objectives and the strategy for reaching them. In particular, only a handful of member states have developed their own 2°C-compatible long-term decarbonization strategies. Thus, many of them do not realize that they could feasibly decarbonize their economies by 2050 and that it would not compete with other priorities such as economic development and energy security. On the other hand, these efforts by some countries have occurred in isolation from the rest of their EU partners and don’t lead to increased cooperation. The use of legally binding instruments, especially in the context of “effort sharing” for the non-ETS sectors, now risks becoming a problem. Effort sharing negotiations create a zero-sum game where the “effort” is divided between unwilling member states. It puts member states in the negative posture of insisting on what they cannot do and on their insurmountable barriers to ambition, rather than opening up a dialogue on what is possible and under what conditions, or with what help, they could do more. In fact, this is contrary to the very spirit of a European Energy Union, and the spirit of cooperation that is one of the foundations of the climate regime established by the Paris Agreement. Finally, there are purely practical problems. For instance, passing big 10-year legislative packages which take 5-years to negotiate is simply too slow for the EU to signal ambition and effectively show leadership in international negotiations. The EU needs to find a way to be more nimble while maintaining important parts of its legislative agenda.

When looking into the details of the Clean Energy Package, it is possible to identify important opportunities to substantially reform the way the EU governs its climate and energy policy. First of all, the Commissioner for Energy Union, Marius Sefcovic, has introduced the idea of a less technical and more political project based on the idea of a European “Energy Union.” The form the Energy Union will take institutionally is still being worked out, but in principle it provides an opportunity for the EU to confront the genuinely political nature of deep decarbonization and to reconcile the different visions, opportunities and challenges for each of the 27/28 member states. Secondly, the Energy Union has in turn led to the development of a much-needed “Regulation for the Governance of the European Energy Union.” This draft regulation is currently being negotiated between the Commission, Council and Parliament. However, in the discussion, several tools are proposed that could help make EU energy governance more Paris-compatible. These elements include: a greater role of nationally-developed climate and energy plans (NECPs) and Long Term (2050) Low Emissions Strategies, one based on extensive domestic stakeholder consultations, with plans revised on a timeframe that is consistent with the 5-year ambition cycles of the Paris Agreement; an “iterative revision process” so the Commission can review collective progress on EU targets and discuss with member states the opportunities to improve both ambition and implementation; and the establishment of “investment plans” that would help ensure EU funds spent on climate are consistent with genuine long-term decarbonization strategies. By creating an opportunity to put member states more in the driver’s seat of their national energy transitions - but under the coordinating guidance of the Commission - these tools present a golden opportunity for the EU to promote greater domestic ownership of the low carbon transition. They also allow the Commission to reshape its role from one of binding and policing member states via legislation to one enabling and helping member states unlock the barriers to higher ambition and enhanced implementation. If the EU does this, it will be in a far stronger position to be ambitious, to implement effectively and thus to send relevant and anticipated signals to the international community. However, while it currently seems likely that many of these tools will be adopted in the Governance Regulation, they will take some time to meaningfully change the nature of EU climate and energy governance.  In the short term, the EU can nevertheless do three things to signal ambition and provide international leadership on climate.

Three moves that Bruxelles can make to establish its leadership

First, the EU can take advantage of the request from the European Parliament to increase its collective energy efficiency and renewable energy targets for 2030. In the context of economic recovery, low interest rates, and declining costs of renewables, if the political context becomes supportive, the EU could be in a position to resubmit a new NDC to the Paris Agreement, one that goes beyond its 40 percent GHG target, by 2020.

Second, the EU should ensure that the next EU Budget (to cover the period 2021-2028) preserves a significant share to help key member states improve implementation capacity and raise ambition of their national low carbon strategies. Finally, the EU can answer the invitation from the Paris Agreement to develop a new roadmap towards full decarbonization consistent with the aim of net zero emissions by mid-century. Based on the political calendar, this needs to be done before this Commission leaves office in 2019. Given the new approach to the Paris Agreement, the EU is well placed to play a constructive role and contribute to the collective learning process, but we need to overcome the difficulties we still face to stay flexible, progressive and united. The EU and its member states have a long track record of promoting the common interest over domestic ones, but the process is lengthy and challenging. We can rely on a number of opportunities to provide international leadership on climate and help to maintain a coalition of actors that are willing to fulfill the promise of the Paris Agreement. However, to do so, the EU will need to be more flexible and innovative in the way it governs its climate and energy policy internally. Much still remains to be determined, but the clock is ticking down quickly to the next EU elections and the arrival of a new Commission in late 2019. It would be excellent news for all if the EU moved quickly to seize these opportunities and to exercise the international leadership that the international community awaits.  It’s worth a try.



Teresa Ribera is director of the Institute for Sustainable Development and International Relations (IDDRI). Previously, she was Senior Advisor for international politics on climate at IDDRI and Secretary of State for Climate Change in the Spanish Government between 2008 and 2011.