The Future of EU’s Economic Policy - Restarting the Economy while Maintaining Green Standards

30 April, 2020

The Coronavirus-crisis is hitting the world in an unprecedented manner, with health and economic sectors across different regions risking collapse at a moment’s notice. Furthermore, two long-standing and equally alarming global predicaments are also underway: climate change and biodiversity loss.

In this context, a group of Environmental Ministers is calling for the EU and its Member States to mobilise efforts towards a joint environmental and economic recovery plan, arguing that EU laws, in this sense, might still be equipped with the right blueprints. Indeed, in an open letter (April 2020), Ministers agreed that ‘The European Green Deal (“EGD”) provides us with a roadmap to make the right choices in responding to the economic crisis while transforming Europe into a sustainable and climate-neutral economy’.

Their contribution intends to answer questions on what this means in concrete terms, as well as how the EU should steer the transition towards a circular green economy. This will build on current predicaments faced by global healthcare and economic systems, with experts and stakeholders presenting their views and making recommendations for further actions.

Lessons from the past and a look into the future

One of the key aspects that emerged during and after the 2008 financial crisis was that early action was essential, but not sufficient. A forward-looking, comprehensive and inclusive approach, which focusses on health, people and the environment – rather than on big corporate interests – constitutes the best strategy to not only win today’s battle against the COVID-19 pandemic, but also ‘to guarantee a safe future for everybody’ and ‘to ensure that economic recovery out of this crisis is sustainable’, as well as resilient to future shocks.

In an endeavour to achieve the goal of economic recovery, the EU has recently launched financial measures intended to support national businesses and workers, among which is the decision to temporarily loosen the strict State aid rules. This way, for the duration of the emergency, Member States can enjoy maximum flexibility when granting money to their industries, so that the latter can stay in business and continue to pay their employees.

It is argued, however, that to ensure the effectiveness of the measures, green conditions should still be attached to the provisional State aid rules. For instance, money should be granted only to companies which commit to adopting low-carbon technologies, or to producing in compliance with the material usage targets or energy levels outlined in the European Green Deal (“EGD”) and Circular Economy packages. Furthermore, governments should put an end to subsidising industries with an elevated and unbearable ecological footprint.

A complementary strategy is to stimulate Research and Innovation in all sectors of the economy; for example, the Investment Plan set out in the EGD is a helpful tool to direct funding towards achieving green targets. This means, notably, that money should be invested in research projects exploring new technologies, such as producing with renewables, or for creating innovative 100% eco-friendly means of transport.

Besides new production methods, the EU and Member States should also act upon people’s consumption behaviours to encourage the transition to a green sustainable Union. One possible strategy in this sense would be to significantly lower VAT and other taxes on eco-friendly products and food. In this way, consumers would be incentivised to adapt their preferences towards sustainable products, hence further accelerating the shift to a fair and just economy.

Successful implementation requires compliance

An additional suggestion on how to ensure a successful post-COVID-19 emergency recovery is to put monitoring mechanisms in place that oversee the correct compliance of the rules, as well as evaluating the various actors’ conducts both during and after the emergency.

As far as green conditions attached to State aid rules are concerned, the EU Treaties already require approval by the European Commission on the national decision to grant State aid (according to Article 108 of the Treaty on the Functioning of the European Union). In a similar vein, the European Commission should carry out an ex post control and examine whether companies who benefitted from State aid during the crisis actually respected the attached green conditions.

When it comes to the consumers’ behaviours, pan-European market analyses and surveys could be conducted to assess whether policies designed to incentivise the purchase of bio and green products are effective. For example, the Eurobarometer surveys are a valuable tool in this sense, with the outcomes in turn helping to ameliorate future EU policies.

Recommendations and concluding remarks

Many lessons can be drawn from the management of the 2008 financial crisis. First, timely action and foresight are vital. In this context, the EU should desist from continuing to put merely economic interests before health and environmental ones – as has been the status quo. On the contrary, it should employ a new strategy for growth, namely the European Green Deal and the Circular Economy Action Plan, to foster the Union’s health and economic recovery while setting the path towards the envisioned Green and Fair Transition.

In fact, it is argued that past actions taken at both the EU and national level are far from delivering Paris Agreement’s targets – and rather accentuating the climate predicament – due to an almost complete disregard for environmental issues.

It is hence commendable that European Commission’s Vice-President Frans Timmermans, in a hearing with the Environment Committee (21st April 2020),  made a vigorous statement on making the Green Deal a central instrument in creating a resilient and sustainable economy. Timmermans further insisted that ‘the European Green Deal is not just a way to confront the climate crisis and the biodiversity crisis, but also a way to give Europe a growth strategy that is a winning strategy, not just for Europe itself but also globally’.

In particular, the support that is now accorded to healthcare systems, companies and people under EU interim measures should be employed with a forward-looking approach. At all levels of governance, the strategy should be to help the hardest hit economic and productive sectors in a way that triggers the shift towards a circular economy. Benefits would include a stimulus towards research and creating employment, ‘while accelerating the green transition in a cost-efficient way’.

Hence, it is now time for the EU and Member States to seriously consider their post-crisis future in a spirit of solidarity by intervening in every sector of the economy and turning it ‘green’, while simultaneously creating new job opportunities and ensuring that no one is left behind. The measures adopted by both European and national institutions can – and should – reconcile economic and environmental needs, with a focus on both the people’s and the Earth’s health.

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