Green Deal, Greener World

Unlike the U.S. Democrats’ Green New Deal, the European Union’s version is technically feasible. Because of that, it could do much more to pave the way for future environmental gains.

Steam and exhaust rise from different companies on a cold winter day in Oberhausen, Germany, on Jan. 6, 2017.
Steam and exhaust rise from different companies on a cold winter day in Oberhausen, Germany, on Jan. 6, 2017. Lukas Schulze/Getty Images

Last week, the European Commission issued its “Communication on the European Green Deal”—the European Union’s legislative roadmap to carbon neutrality by 2050. But in a world in which emerging markets keep increasing greenhouse gas emissions and the United States is pulling out of the Paris agreement on climate change, one may well ask: What’s the point? After all, the EU accounts for only 10 percent of global emissions—and any gains made there would be more than wiped out elsewhere. Can the EU’s call to climate action actually have an impact?

There is no doubt that the European Green Deal is ambitious: It aims to decarbonize the world’s second-largest economy within three decades. Moreover, the deal’s long but still visible horizon—slightly longer than one generation—means that this goal is technically achievable while still addressing activists’ concerns. Contrast this with the Green New Deal proposed by U.S. Democratic Rep. Alexandria Ocasio-Cortez and Democratic Sen. Ed Markey this year, which envisaged the complete decarbonization of the U.S. economy within 10 years. Anyone familiar with the history of energy transitions, including experts who are supportive of the plan, will attest that this is just not scientifically possible.

But the EU plan is, and proving the feasibility of decarbonization is the first way in which it can help spread climate action policymaking beyond Europe’s borders. The Green Deal is no longer the hazy aspiration of a few climate action enthusiasts; it is a detailed mainstream policy document affecting every sector in one of the richest, most sophisticated economies in the world. If the EU succeeds in its ambitions, it will be able to tell the world that prosperity is not incompatible with climate sustainability.

The past 30 years have already given observers a taste of that: From 1990 to 2018, the EU’s emissions were down 23 percent. Its GDP was up by 61 percent. Getting richer does not have to mean polluting more. By driving the economy toward carbon neutrality, EU climate policymaking can prove as much for others.

The second way in which the Green Deal could succeed is by lowering the costs of the energy transition for everyone. The aggressive pursuit of decarbonization across the EU will provide the funding support and the economies of scale for innovation in clean technologies.

Recent history shows how impactful such investment can be: The final cost of solar photovoltaic installations has declined by over 70 percent since 2010. The decline was doubtless helped by the early, heavily subsidized installations in Europe, which in 2012 accounted for 70 percent of total solar installed capacity. Only seven years later, that is down to 30 percent, with the Asia-Pacific region (including China) now accounting for over half of installed capacity. The European Green Deal could have similar technological spillovers, not just for renewable energy but also for complementary technologies such as energy storage. These will make it cheaper for other geographies, including emerging markets, to decarbonize.

Finally, to be successful, the EU will need to use its economic size and influence in trade and foreign policy if it is to drive climate action worldwide. To do so, it first needs to shed any illusions that climate action is going to be a cooperative process in which the world harmoniously decarbonizes. The failure of the Kyoto Protocol and the intended U.S. withdrawal from the Paris agreement amply demonstrate that decarbonization cannot rely on multilateralism alone. To succeed, the EU must embrace climate unilateralism.

Because of the size of its market, the EU has substantial clout to drive its climate agenda through trade. The Green Deal takes a carrot-and-stick approach. To begin with, it proposes that the bloc only agree to new comprehensive trade agreements with countries that are parties to and are effectively implementing the Paris agreement—most obviously excluding the United States if President Donald Trump is reelected next year. Given how popular the climate agenda is in Western Europe, it seems likely that the EU will commit to this rule.

But in driving its climate agenda, the EU is also taking a leaf out of Trump’s playbook: It suggests a provision for a “carbon border adjustment mechanism”—in other words, a carbon tariff. Although that will likely be one of the most contentious aspects of the Green Deal, it is hard to imagine how else the EU could combat carbon leakage, where products that fall foul of environmental regulations if produced in the EU are simply imported from elsewhere, creating the same carbon emissions with none of the economic benefits.

The EU’s Green Deal will come with substantial costs—which is why Poland, a member state, has yet to sign up to it. But by being the first major economy to take the plunge, Europe has decided to pay the high costs of early adoption for the uncertain promise that it will benefit others in the future. In foreign-policy terms, too, a unilateral approach will increase the risk of confrontation with traditional allies and trading partners that do not share its ambition on climate action.

In presenting her Green Deal last week, Commission President Ursula von der Leyen described it as Europe’s “man on the moon moment.” It is an apt metaphor for the endeavor: The United States put a man on the moon on its own, paying the full cost for Neil Armstrong’s giant leap for mankind. The EU is doing the same thing for sustainable living here on Earth. If it succeeds, the benefits will spread far beyond the borders of Europe.

Dimitris Valatsas is the chief economist at Greenmantle.

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