The EU is being urged to ensure that financial stimulus to help industry survive the crisis should be compliant with its newly published Green Deal. Angeli Mehta reports

“Europe’s man on the moon moment.” That’s how EU president Ursula von der Leyen has described plans to achieve a climate-neutral Europe by 2050.

The European Green deal means every EU law and regulation will be reviewed to bring them into line with the goal of net-zero emissions, and no business or industry will be untouched.

It’s a vision for a different type of Europe: an opportunity, the Commission says, to tackle three big challenges: the climate crisis, the need for a growth strategy to address the fourth industrial revolution, and to provide citizens with the skills needed to operate in a restructured economy.

Earlier this month, the Commission presented a proposal to enshrine the commitment to net-zero in law. As a staging post to 2050, the EU’s climate ambition for the next decade will have to be ramped up from the current target of a 40% reduction in emissions (compared with 1990), to a cut of 50-55% by 2030. It has launched an impact assessment in which it notes that being more ambitious sooner “would result in a more gradual annual reduction path and distribution of efforts between now and climate neutrality in 2050”. The EU has cut emissions by 23% since 1990, which gives an idea of the scale of the challenge ahead.

There will be delays now, especially with the legislative files – it’s very unclear what the exact timeline is looking like

Given it takes 25 years to transform an industrial sector and all the associated value chains, to be ready in 2050 means decisions and actions need to be taken within the next five years. So industry will have to move swiftly.

The Commission has published a roadmap of key actions planned for this year and next. A broad industrial strategy and revised circular economy action plan, were also published in March

However, with governments’ efforts now focused on tackling the coronavirus outbreak it’s clear the timetable will be affected, especially with Commission staff now working remotely.

The EU will have to ramp up cuts in emissions to 50-55% by 2030 to meet its net-zero target. (Credit: Wolfgang Rattay/Reuters)
 

“Of course there will be delays now, especially with the legislative files – it’s very unclear what the exact timeline is looking like,” says Ursula Woodburn, head of EU relations for Corporate Leaders Group (CLG) Europe. But “the point will be to make sure that any stimulus is a Green Deal stimulus.”

This was underscored in a Green Recovery call to action earlier this month by 180 signatories, including CEOs from L’Oréal, PepsiCo, Coca-Cola, Microsoft, INGKA, Danone and Signify, NGOs, MEPs, trade unions and academics, which called for the Commission to put the fight against climate change at the core of its economic recovery strategy and committed “to working together, sharing knowledge, exchanging expertise and creating synergies to deliver the investment decisions we need.”

Others are encouraged that the current crisis shows “how an entire society is readily prepared to support political decisions by accepting severe restrictions that are based on elementary scientific findings.” In on open letter to Von der Leyen last month, the F20 Foundations, a platform of more than 50 foundations and philanthropic organisations called on the EU to look at the interdependencies between the climate and coronavirus crises.

All businesses will have to align their operations with net-zero. “They’ll have to look at what is [their] climate or carbon risk; look at their supply chains and products. They’ll also have to consider how are they advocating around climate ambition in their trade associations,” suggests Woodburn.

The goal is to increase the share of materials we recover, and turn waste from a cost into an opportunity

However, they now “need clarity on the ambition and clear timelines for policies,” adds Signe Norberg, public affairs manager at the Aldersgate Group. “Business needs to understand the targets, and thresholds [for emissions limits] that will determine the trajectory of action.”

Securing the supply of critical raw materials to boost Europe’s industrial autonomy and the setting up of a Clean Hydrogen Alliance are just two of a raft of proposals outlined in a new industrial strategy. There will be legislation on green public procurement, as well as a new small to medium-size enterprise (SME) strategy to enable the sector to tackle both decarbonisation and digitalisation. The industrial strategy will offer support to strategic industrial value chains, including clean mobility; sustainable battery recycling to spur on the clean cars of the future; and clean steel that uses hydrogen for its production. The Commission wants to see zero-carbon steel-making by 2030.

But it will analyse the risks and needs of “industrial ecosystems” and set up an industry forum by September 2020.

The EU wants to see zero-carbon steel-making by 2030. (Credit: Wolfgang Rattay/Reuters)
 

The circular economy plan will focus on resource-intensive sectors such as textiles, construction, electronics and plastics, with an overall aim of achieving around half of the carbon cuts needed to reach net zero. All industries will have to look at how they make their business models more circular.

The goal is to increase the share of materials we recover, and “turn waste from a cost into an opportunity”, says EU executive vice president Frans Timmermans, who is leading the Commission’s work on the Green Deal. Europe accumulates e-waste at a rate of 12m tonnes a year: literally a waste of scarce resources and precious metals that wouldn’t otherwise have to be imported.

The Commission intends to set policy together with industry. Based on the performance data of products, they’ll work towards coherent product requirements and standards, including reducing carbon footprint and energy consumption. A sustainable product policy will set out how products are made. The Commission wants to see more durable products, and a right for citizens to have products repaired. Options being considered to tackle the challenge of electronics waste include having a common charger and cables; and acting against the planned slowdown or obsolescence of devices to force consumers to buy the next product generation. There is already some legislation, with the EU’s Ecodesign directive coming into force in 2021, whereby product designers will have to think about disassembly and repair.

We have to provide the regulatory environment to create long term predictability and stability … and then you can unleash more investment

“There are really two areas that need to be considered. [The first is] low regret, where we know the technological solutions or we have innovations in place. The second is where we need more R&D and to look for innovation,” suggests Norberg. “The strategy needs to touch on both – business needs to know what’s coming.”

A lot is already being done, according to Alexandre Affre, director of industrial affairs at BusinessEurope, which represents national business federations in 35 European countries. “But there’s room for acceleration, and industry has a lot to gain.” He also sees further potential for industrial symbiosis, where one industrial waste material becomes another’s feedstock, creating value and competitive edge. Businesses are already exploring options. Current applications use industrial waste heat to warm homes or heat greenhouses for food production. In future, carbon dioxide from power plants could be used to cure concrete or make polymers.

Timmermans told the European Parliament that “we don’t need to invent the technology we need; most is there, but lacks the scale and the support to be of immediate use.” He argues that the money is also out there, as the investment community is looking for good opportunities as it divests from fossil fuels.

The EU's Ursula von der Leyen with Frans Timmermans, who is leading the Green Deal. (Credit: Vincent Kessler/Reuters)
 

“We have to provide the regulatory environment to create long term predictability and stability … and then you can unleash more investment.”

He estimates Europe needs some €260bn (£225bn) of investment every year to make the Green Deal happen. That may be a huge sum, says Timmermans, but the cost of not acting is “mind-boggling”.

The Green Deal covers everything from renovation of existing buildings for energy efficiency to smart grids and energy storage. Major companies are already investing heavily in renewable energy, with new commitments being made for factories and offices. But while renewables are ramped up, storage infrastructure is distinctly lacking at present and needs to be developed.

One million charging and refuelling stations will be needed by 2025, compared with 140,000 today

Eighty percent of buildings that will exist in 2050 are already standing. Europe needs to at least treble buildings renovation, to cut energy consumption through (for example) insulation and district heating systems. The current rate of renovation is around 1.2% a year.

The Commission’s renovation initiative will bring companies in the buildings and construction sector together with architects, engineers and local authorities to develop financing prospects, promote investments into energy efficiency in buildings, and pool renovation efforts to take advantage of economies of scale. Businesses will have to invest to develop the skilled workforce that will be required.

Energy production and use account for more than 75% of the EU’s greenhouse gas emissions, so the Commission proposes action on getting more renewable energy sources onto the grid, as well as boosting the energy efficiency and eco-design of products.

Eighty percent of 2050's buildings are already standing. (Credit: ZGPhotography/Shutterstock)
 

Affre notes that many sectors are engaged in delivering on existing EU directives, and while they’re looking ahead to 2050 “it’s not easy to prepare without having full clarity.”

The Green Deal envisages a 90% reduction in emissions from the transport sector by 2050. Digitalisation is seen as key to developing smart traffic management systems, as well as smart grids that will make possible the roll out of electric vehicles on the scale required. One million charging and refuelling stations will be needed by 2025, compared with 140,000 today, for the 13 million zero and low-emission vehicles expected to be on Europe’s roads.

Food and agriculture businesses will be impacted by a “farm to fork” strategy that aims to cut the use of fertilisers, chemical pesticides and antibiotics in farm animals. This will help tackle soil and water pollution, which impact on biodiversity. Measures to address the unprecedented biodiversity loss will also include tree-planting and support for deforestation-free supply chains, through new labelling regulations.

I think the market signal is important at this stage, because it demonstrates deep intent behind the climate commitments

Summer 2020 should see the unveiling of a chemicals strategy for sustainability, followed next year by a revision of measures to tackle pollution from large industrial plants and a zero-pollution action plan for water, air and soil. It will have to address gaps in the EU’s current chemicals policy.

The key component of unlocking the investment needed to deliver the green deal is the Sustainable Finance Taxonomy, a classification system for sustainable economic activities. This so-called “green list” will create a common language that investors will be able to use to help them decide on where to put their money, and determine the climate impacts of their portfolios. It should also allay concerns about “greenwashing”, with financial products able to use a national label identifying them as environmentally sustainable.

“It’s certainly important [in terms of] the ability to deliver the Green Deal, but I think the market signal is more important at this stage, because it demonstrates deep intent behind the climate commitments,” says Will Martindale, head of policy and research at the Principles for Responsible Investment (PRI), an international network that works with investors on ESG issues. “Markets are not pricing in climate risk,” he said, adding that business-as-usual policies by FTSE100 companies would result in 3.5C-8C of warming.

Digitalisation is key to developing smart traffic management systems that help cut emissions. (Credit: Ralf Gosch/Shutterstock)
 

The taxonomy will set science-based performance thresholds for activities that provide a “substantial contribution” to one of six environmental objectives: climate change mitigation (such as using or distributing renewable energy); climate adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems. They must also be able to demonstrate that they won’t cause problems elsewhere; and comply with minimum social and governance safeguards.

The sectors initially impacted by the taxonomy are agriculture, forestry and fishing, manufacturing, ICT, construction, transport and water. These are core to how the EU economy performs, and “will be on an emissions trajectory…. with regulatory thresholds tightened over time, as ambition is ramped up to 2030,” suggests Martindale.

He adds that “the taxonomy is a tool – so investors are expected to use their knowledge and experience around investment activity, but they won’t necessarily have deep knowledge around climate change. That’s the gap the taxonomy will be filling. It allows them to understand whether different economic activities are consistent with net-zero.”

Investment will become more and more directed to deliver the transition

An investor in a steel or cement company would want to look at what level of energy performance is acceptable in that sector; or if investing in transport, what level of emissions are permissible.

Martindale anticipates that investors will work with companies on stewardship, and in an engagement process to improve their sustainability performance.

Large companies (both financial and non-financial) will have to report on climate-related key performance indicators such as turnover, and capital or operational expenditure associated with environmentally sustainable activities. It’s anticipated that smaller companies might voluntarily choose to provide this information.

Companies will have to expect to report further on their exposure to climate risk. (Credit: OMMB/Shutterstock)
 

It’s not yet clear exactly when companies will have to make disclosures – although it will certainly be by the end of 2021.

CLG’s Woodburn thinks business will have to expect to report further on climate risk. “Investment will become more and more directed to deliver the transition.” But, she adds, “a large quantity of money is available. A lot of investors are interested in talking to businesses to find out what types of investment they might need.”

For its part, the EU wants to mobilise at least €1tn of public and private funds for sustainable investment over the next decade. It has to be hoped that the billions now being committed to support European industries as a result of the coronavirus will not divert effort from achieving the broader climate goal.
 

Main picture credit: only_kim/Shutterstock
 
Ursula von der Leyen  Frans Timmermans  #deliverydecade  #EUGreenDeal  CLG  F20 Foundations  Clean Hydrogen Alliance  zero-carbon steel  circular economy  biodiversity loss  deforestation  labelling 

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