EU new climate torchbearer: The challenge to stick to the plan

Now that the EU has a new head of Clean, Just and Competitive Transition, sticking to the previously floated 90% carbon reduction target by 2040 demands addressing issues on climate politics, environmental sustainability, green technology advancement, social empowerment, and domestic and international trade. Spain’s Teresa Ribera Rodriguez’s confirmation hearing in mid October or early November 2024 is expected to kick off her journey on a critical but familiar path.

Decisions to Make: The EU needs to decide on measures to enhance its climate action by 2030, balancing sustainability, competitiveness, and justice. This involves setting legally binding targets for reducing emissions and making investments in renewable energy.

Cost of Action: Implementing climate measures will require significant financial resources, with a focus on ensuring a just transition that supports vulnerable industries and regions. Funding mechanisms and financial solidarity within the EU will be crucial.

Potential Impact: The actions aim to significantly reduce emissions, promote green technology, and ensure EU leadership in the global climate agenda. The socio-economic impact includes job creation in green sectors and the transformation of the EU’s industrial base.

The Top 5 Issues To Tackle

1. Financing carbon capture technology

To meet the Paris Agreement’s target of limiting global warming to 1.5°C, scaling carbon capture and storage (CCS) technologies is imperative. The EU faces challenges in the commercialization and scalability of these technologies, which are crucial for decarbonizing high-emission sectors such as steel, cement, and energy.

What’s on the agenda:

• Increase Investments: Prioritize EU funding and private-sector partnerships for large-scale CCS projects
• Policy Incentives: Implement tax breaks and subsidies for industries adopting CCS technologies
• Strategic Focus: Target high-emission sectors in countries heavily reliant on fossil fuels, including Germany, Italy, Poland, and France for CCS deployment

Decisions to make:

• Establish a targeted funding model: This should prioritize high-impact sectors for CCS deployment and focus on optimizing capital allocation to projects with the greatest potential to scale
• Design sector-specific incentives: Work closely with industries to establish tailored incentives that address the unique challenges of high-emission sectors, ensuring financial support aligns with their decarbonization targets
• Constantly adapt strategies: Set up a dynamic evaluation mechanism that assesses the effectiveness of CCS projects and adjust financial and policy strategies based on real-time data and emerging innovations to maximize long-term success

Cost of actions:

• Estimated investment: CCS development will require an estimated €50 billion globally by 2030
• Long-term savings: Investments in CCS have the potential to avert trillions in climate adaptation costs through significant emission reductions

Potential Impact:

• Emission reduction: CCS can play a vital role in helping the EU achieve its 2030 emission reduction targets by decarbonizing key industries
• Tech innovation: Position the EU as a leader in green technology and carbon management
• Economic benefits: Boost green job creation and ensure competitiveness in the transition to a low-carbon economy

Next steps: 

• Establish EU-wide investment frameworks: Create pan-European financing mechanisms to support CCS, ensuring alignment across member states. Leverage funds from the Innovation Fund and Just Transition Mechanism for rapid deployment
• Foster private-sector partnerships: Encourage collaboration between governments and private industries to co-fund CCS projects, focusing on shared risks and rewards to accelerate commercialization
• Monitor global advancements in CCS: Stay updated on international CCS advancements, and adjust EU strategies based on lessons learned from global leaders, such as the U.S. and Canada
  

2. EU’s quest for energy security and independence

Since 2022, the EU has intensified efforts to decrease its dependence on Russian gas. Austria remains among the most dependent EU countries, with 83% of its gas imports coming from Russia, highlighting the urgent need for diversification as EU-wide reliance has decreased to 15%.

What’s on the agenda:

• Strengthening energy diversification: The EU must accelerate efforts to phase out Russian gas by 2027
• Increasing investment in renewable infrastructure: To ensure reliable energy sources before the winter season, the EU must significantly expand its renewable energy capacity. With European natural gas prices recently rising to €39.20 per megawatt-hour, the urgency for large-scale and strategic investment in renewables is undeniable
• Enhancing energy security policies: Developing robust funding mechanisms for energy transition projects, such as EU Green Bonds, the Innovation Fund, and a strengthened Just Transition Mechanism, is crucial to reduce risks from over-reliance on a single supplier

Decisions to make:

• Negotiate alternative supplier contracts: The EU should initiate negotiations to secure long-term contracts with alternative energy suppliers, focusing on establishing reliable agreements with countries like Norway and Azerbaijan
• Implement risk management strategies: Develop specific strategies to assess and address vulnerabilities in the EU’s energy supply chain, ensuring preparedness for potential disruptions and enhancing overall energy resilience

Cost of actions:

• Increased economic strain: Switching from Russian gas to alternative energy sources can lead to higher costs, placing immediate financial strain on consumers and potentially driving up inflation. For instance, a complete halt in Russian gas supplies could drive wholesale gas prices up by 20% for two to six months

Potential impact:

• Strengthened energy security: Enhanced energy diversification will bolster the EU's overall energy security, minimizing exposure to geopolitical conflicts
• Support for sustainability goals: Increased investments in renewable energy will address immediate energy demands and promote long-term sustainability; however, nations like Austria may experience economic challenges during this transition

Next steps: 

• Accelerate energy diversification efforts: Fast-track negotiations with alternative suppliers to secure multi-year agreements
• Establish an EU-wide energy resilience strategy: Develop a coordinated energy resilience plan across member states, to improve cross-border energy infrastructure and storage, to mitigate supply disruptions and manage volatility in gas markets

3. Pro-nuclear or anti-nuclear: EU policy direction 

Nuclear and renewables are key drivers of energy transition in the EU and worldwide. As of 2022, nuclear energy provided approximately 25% of the European Union's electricity, with 13 of the 27 member states operating nuclear reactors. With Teresa Rodriguez now leading the Clean, Just, and Competitive Transition, concerns are growing about nuclear energy being deprioritized in EU policy, given her strong opposition to it.

What’s on the agenda:

• Nuclear safety: Focus should be on regular peer reviews, boosted transparency, enhanced risk preparedness for extreme events, and stronger, independent regulatory bodies. The Nuclear Safety Directive, established in 2014, emphasizes the need for stringent safety measures across all EU states​, ensuring the highest levels of nuclear safety across all EU member states
  
• Aging reactors: A significant portion of EU reactors are aging, requiring updates or decommissioning to meet modern safety standards. While focusing on generating electricity by using controlled nuclear reactions, other key factors include maintaining safe operational standards, reducing risks of accidents, and efficiently managing nuclear waste
• Environmental and public safety: There is a public concern over nuclear waste disposal and potential accidents, which has made transparency and safety oversight essential​

Decisions to make:

• Investment in new technologies: Decisions must be made regarding investment in Small Modular Reactors (SMRs), which are considered safer and more flexible alternatives to traditional nuclear reactors​
• Decommissioning vs. extending lifespan: The EU and its member states need to decide whether to invest in upgrading older plants or begin decommissioning them. This decision involves balancing costs with energy needs and safety concerns​
• Public communication and transparency: Governments must ensure greater transparency about nuclear plant operations and incidents to maintain public trust​

Cost of actions:

• Upgrading existing infrastructure: Retrofitting old reactors to meet modern safety standards involves significant financial costs, both in terms of technical updates and ensuring staff competency
• Developing SMRs: Investing in the development and deployment of SMRs requires substantial upfront capital but offers long-term benefits in terms of safety and operational efficiency​
• Decommissioning costs: Shutting down old reactors and handling nuclear waste require long-term financial commitments, especially as decommissioning is a complex and time-consuming process​

Potential impact:

• Energy security: Nuclear energy currently accounts for over 20% of the EU’s electricity generation. Maintaining and enhancing nuclear energy production can help meet the EU’s low-carbon goals while ensuring energy security​

Next steps:

• Evaluate the role of Small Modular Reactors (SMRs): Launch a comprehensive feasibility study on the deployment of SMRs, assessing their potential to address energy security and safety concerns while meeting EU decarbonization goals. This study should include input from industry stakeholders, regulators, and member states with pro-nuclear stances
• Develop a clear decommissioning strategy: Create an EU-wide framework for decommissioning aging nuclear reactors, balancing the need for energy continuity with strict safety standards. This plan should prioritize transparency and public trust, ensuring that nuclear waste management aligns with environmental and safety imperatives

4. Bridging the EU divide on China's green tech tariffs

The EU’s stance on promoting fair competition in the Green tech market has been confirmed, imposing tariffs on Chinese EVs. The decision is a pathway to ignite growing  geopolitical tensions between the two parties while intensifying internal division amongst its member states. The tariff ranges from 17.4% to as high as 38%, depending on the manufacturer.

What’s on the agenda:

• Growing Trade Imbalance: The GreenTech trade imbalance is growing as the EU investigates wind turbines trade. In 2023, bilateral trade reached €739 billion, resulting in a €292 billion deficit, largely due to cheap Chinese GreenTech products that lower prices but threaten European industries by undercutting competition and violating the principle of a level playing field in the EV market
• Geopolitical Implication of Proposed Tariff: Protectionist trade policy may protect domestic industries from cheaper imports but can raise costs for consumers and slow the adoption of green technologies, such as solar panels and electric vehicles. However, as China demonstrates its willingness to negotiate, the government is returning the compliment and showing its prowess as an economic powerhouse
• Climate Goals over Trade Protection? Both? The EU must assess the levies' impact on its climate goals. Affordable green technology from China is important to the EU's efforts to meet its Green Deal targets, such as a rapid move to renewable energy sources
• Continued Trade Discussions: China and Brussel are engaging in talks to avoid the trade war. Teresa’s role, which includes championing EU’s Just Transition and Competition policies, will require working in liaison with the Commission's Chief of Trade, Valdis Dombrovskis to ensure European economies are “protected”

Decisions to make:

• Final Vote on Tariff: The EU must decide whether to impose tariffs on Chinese GreenTech imports to protect local industries or maintain access to affordable products that support the green transition. France supports tougher trade defenses, while Germany is more cautious
• Response to Member States’ Resistance and Non-compliance: The EU is divided. Countries like Germany abstained from voting on Green tech tariff saying the government has no intention to close its markets to foreign companies
• The Extent of the Tarif: The EU may choose a more aggressive stance by increasing tariffs or enforcing stricter anti-subsidy measures, but negotiations with China for fairer competition could also reduce the tariff as discussion and negotiations are underway

Costs of actions:

• Economic Burden on Local Industries: China ranks as the eighth-largest market for EU dairy exports with a trade volume of €1.7 billion ($1.89 billion) last year.  Italy, the Netherlands, Denmark and France are the biggest EU dairy exporters to China

Potential impact:

• Reduced Reliance on Chinese Imports: This shift will encourage the EU to bolster its domestic production capabilities, promoting local industries and reducing vulnerability to external market fluctuations
• Increased Costs for Renewable Technologies: Higher tariffs could lead to elevated prices for consumers, potentially slowing down the transition to renewable energy sources, which may hinder the EU's ability to meet its climate targets
• Strengthened European GreenTech industries: By fostering a more competitive environment for local manufacturers, the EU could stimulate innovation and technological advancements in its green technology sector, ultimately leading to greater energy independence

Next steps:

• Continue Negotiation after Vote - Brussels strategy outlines it is open to negotiations with China even after imposing duties. The discussions will center on setting agreed minimum prices to avoid undercutting struggling European manufacturers, according to POLITICO. Biejen’s next steps are anticipated after a second failed attempt to strike a deal before the Friday (4 Oct.) vote.
• Build Resilience - Tariffs may raise the cost of GreenTech for EU consumers but are necessary to protect jobs and industries in Europe. Notwithstanding, the EU has a responsibility to accelerate effort towards building resilience in its domestic supply chain

5. Implementation of EU biodiversity strategy for 2030

The EU's policy agenda on deforestation and nature focuses on halting deforestation, enhancing biodiversity, and ensuring sustainable land use. Major areas include implementing the New EU Forest Strategy 2030 and advancing the EU Green Deal's Biodiversity Strategy.

Teresa Rodriguez new role as EU Climate Chief will cover the continent’s goal to reduce its impact on global deforestation by regulating supply chains and promoting nature-based solutions in climate and environmental policies emphasizing the following: 

What's on the agenda:

• New EU Forest Strategy for 2030: Building on the EU biodiversity strategy for 2030, the strategy aims to ensure forest resilience, restoration, and biodiversity conservation
• EU Deforestation Regulation: A key element of this framework is the EU Deforestation-Free Products Regulation (EUDR). The regulation will restrict imports of wood and palm oil products, among others, that are linked to deforestation or violations of laws on human rights, land use, and labor, requiring companies to ensure their supply chains are free from deforestation-linked products. As of January 2025, relevant products cannot be sold on the EU market if they originate from land deforested after 2020
• Member states’ compliance with the Nature Restoration Law: The EU wants to plant 3 billion additional trees by 2030. With more than 80% of habitats in poor condition, how fast can she ensure the improvement and re-establishment of biodiverse habitats on a large scale. A key target is to achieve zero net loss of green urban space and tree cover by 2030, and a steady increase in their total area from 2030 scale
• Anti-deforestation law - Addressing human rights violation: EU decisions and steps in dealing with Forest-related human rights issues are being closely monitored. REcent calls to declare

Decisions to make:

• Enforcement of sustainable commodity sourcing: Decisions are required on enforcing deforestation-free supply chains for products like soy, palm oil, and beef
• Forest restoration: Commitments are needed to restore degraded forests and expand protected areas, especially in Natura 2000 zones
• Biodiversity funding: Policymakers are poised to decide on increasing funds for biodiversity and forest conservation projects, aligning with the EU Biodiversity Strategy

Costs of actions:

The costs associated with halting deforestation and restoring nature are substantial but necessary for long-term sustainability.

• Restoration: The European Environment Agency estimates that restoring natural ecosystems could cost the EU €20 billion per year by 2030
• Compliance: Enforcing sustainable supply chains will lead to compliance costs for businesses, particularly in sectors like agriculture and timber
• Carbon storage: Increased investment in nature-based solutions and forest carbon storage programs will require additional funding but will save costs from future climate impacts

Potential impact:

• Biodiversity conservation: The full implementation of the EU Forest and Biodiversity strategies could lead to a significant reduction in biodiversity loss and help Europe meet its 2030 biodiversity targets
• Deforestation: Strict enforcement of deforestation-free supply chains would greatly reduce the EU’s contribution to global deforestation, preserving ecosystems in regions like the Amazon and Southeast Asia
• Human rights protection: Tracking the source of logging resources and forest based products will promote informed decision making process in ensuring ethical sourcing of the aforementioned products
• Climate change mitigation: Restored forests act as carbon sinks, helping the EU meet its climate neutrality goals by 2050 and mitigate global warming

Next steps:

• Operationalization by member states: EU member states will be required to establish operational procedures, compliance mechanisms to the Nature Restoration Law, and enforcement bodies to monitor adherence to the law by 2024
• Target delivery: Ensure member states submit National Restoration Plans to the Commission within two years of the Regulation coming into force (so by mid 2026), showing how they will deliver on the targets
• Expand at-risk regions directive: The EU’s primary executive body is set to designate more areas as “low, standard, or high risk” by the end of 2024. Recent engagement with the Malaysian government seeks to designate Sarawak as ‘High Risk’ Under New Anti-Deforestation Law. 

The EU’s ambitious climate agenda, led by Teresa Ribera Rodriguez, faces a lot of complex challenges on multiple fronts. As the EU works to meet its climate targets and strengthen its energy resilience, balancing environmental sustainability with economic competitiveness and social justice will be key to ensuring a successful and just transition.


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