1. Introduction: The Policy Framework for Implementing the European Green Deal

This introductory section provides an overview of the EU policies published since 2020 in support of the implementation of the European Green Deal. For each policy document, the most critical points are described, emphasizing those that facilitate either directly or indirectly the performance of the seventeen Sustainable Development Goals of the UN Agenda 2030.

The European Commission introduced the European Green Deal at the end of 2019 (European Commission, December 2019). It serves as Europe’s long-term growth plan and as a roadmap for establishing new policies and strategies at both EU-wide and national levels. It is a comprehensive strategy to make the European continent carbon-neutral by 2050 and resource-efficient, cutting-edge in terms of technology, and socially just. The EU is not alone in this endeavour; Box 1 outlines other Green Deals announced worldwide.

To support the implementation of the European Green Deal and the achievement of its ambitious goals, the European Commission published a series of Policy and Strategy texts for important sectors of the economy during 2020 and 2021, with a significant impact on the way the financial markets operate, as well as the social and everyday life of European citizens. Below we provide a list of the most important policies and strategies published in the past two years and accompany each one with a brief description highlighting their main points. The Policies are mentioned in chronological order based on the date they appeared publicly.

Box 1 — Other Green Deals around the world

The EU was the first continent to implement a Green Deal committing to carbon-neutrality by 2050. However, other countries have started to follow this example, as well.

About US$144 billion will be invested in creating 1,901,000 employment by 2025 as part of the South Korean government’s New Deal. The Digital New Deal and the Green New Deal are at the heart of the strategy, including policy support aimed at bolstering the economy and social safety nets. Ten significant projects have been identified in Korea, spanning from green transportation to healthcare innovation. Governments from Seoul and across the country are working together to promote innovation and jobs in the region’s economy. The Green New Deal focuses on renewable energy sources, green infrastructure, and the industrial sector’s role (Chowdhury, 2021).

The Green New Deal in Canada is a four-pillared plan to retool the national economy to address the climate issue radically and rising inequality: 1. Listen to the science: The Intergovernmental Panel on Climate Change (IPCC) calls for a global warming restriction of 1.5°C to prevent catastrophic consequences, and prompt action must lead to the transition of fossil fuels, 2. Respect Indigenous rights & sovereignty: Reconciliation must be more than a slogan. In terms of climate and energy policy, that means fully implementing the UN Declaration on the Rights of Indigenous Peoples and continuously listening to Indigenous communities to seek their just climate solutions, 3. Create millions of good jobs: Fighting climate change will necessitate an economic mobilization, and millions of decent, well-paying union jobs for workers across Canada must be generated to achieve 100% renewable energy. These initiatives are widely supported, mainly when funded by taxing the wealthy and having significant banks and businesses pay their fair amount, 4. Finally, enshrine dignity, justice, and equity for all: climate action must be connected to inequality and injustice and present actual solutions that leave no community, no family, and no one behind (MacArthur[^1] et al., 2020).

Crucial for achieving climate neutrality by 2050 is the bilateral agreement between China and the US during the 2021 United Nations Climate Change Conference (COP26) in November at Glasgow (US Department of State, 2021). The world’s two most powerful economies vowed to work together to slow global warming. In addition to the tremendous geopolitical importance of this agreement, the tone is given to smaller countries to follow their example and join the fight against climate change. The agreement provides for establishing a joint working group in the first half of 2022 to intensify efforts to reduce emissions, notably by combating methane and illegal deforestation, in the 2020s, which will be a critical decade for climate action globally. In a joint statement, China and the United States confirmed their commitment to the Paris Agreement’s objective of minimizing global warming to no more than 1.5 degrees Celsius and declared that climate finance and rules for the global carbon market are priorities.

Nonetheless, China remains unwilling to engage in signing on to a global agreement to reduce methane emissions by 30% by the end of the decade from 2020 levels, as proposed by the United States and the European Union. Instead, China will come up with its national strategy in this regard. With its massive emissions of greenhouse gases, China has a unique opportunity to assist the world in averting the most damaging effects of climate change.

Admittedly, the messages regarding the implementation of Green, Sustainable policies internationally are optimistic, as nations, in one way or another, are “forced” to implement such policies. The global health crisis due to COVID-19 has forced states to draw up recovery plans from the effects of the pandemic, and many of them have seized the opportunity and even drawn up such programs with a view to Sustainable Development.

Thus, even if a country does not implement itself or does not belong to a group of states governed by a Green Deal like EU countries, it can establish green policies and draw up a National Strategy oriented through a National Recovery Plan toward sustainable development.

A New Industrial Strategy for Europe

Europe’s new industrial strategy was published in March 2020 (European Commission, March 2020). Its key priorities are:

[Supporting the business case for the green and digital transitions]. This involves a resilient regulatory framework, infrastructure, finance for innovation financing, raw materials innovation, clean energy, demand-side measures for climate neutrality, circular economy, up-skilling in labor potential, and synergies between the sustainable and digital transitions. Digital solutions, such as digital twins in advanced manufacturing can help optimise processes in all ecosystems.

[Investment in skills] is a highly appreciated component of investing in labor. The European Skills Agenda supports the green and digital transitions. Mobilization of the private sector is a critical parameter. Large-scale skills partnerships per ecosystem, skilling commitments in the essential industry fields (automotive, microelectronics, aerospace, defence industry).

Circular Economy Action Plan

The Circular Economy Action Plan was in March 2020 (European Commission, March 2020). It creates a framework for new patterns of production and consumption governed by circular economy principles. The Circular Economy will provide high-quality, clean and affordable products and services that will positively affect the achievement of a climate-neutral, competitive and inclusive economy and represent a potential for innovation and digitalization. New circular value chains will also contribute to restoring biodiversity (e.g. addressing the problem of marine plastic pollution) by addressing food waste issues and increasing the sustainability of food distribution and consumption; encouraging a circular approach to water consumption in agriculture, and making drinkable tap water accessible to prevent packaging waste. In addition, a new production process and new secondary raw material will be characterized by the absence of substances of health concern.

EU Biodiversity Strategy for 2030

EU Biodiversity Strategy for 2030 was published in May 2020 (European Commission, 2020). It directly promotes the protection and restoration of biodiversity and the well-functioning of terrestrial and marine ecosystems, which are crucial for human health and economic growth. Notably, the EU has identified three key sectors highly dependent on biodiversity, namely construction, agriculture and the food and drink industry. Biodiversity is of paramount importance in safeguarding global food security by providing safely sustainable, nutritious and affordable food. At the same time, the prevention of biodiversity decline requires the support of sustainable agricultural production practices that respect the diversity and resilience of natural capital. Moreover, biodiversity is vital in the fight against the climate crisis. Indeed Nature-based solutions are essential for emission reduction and climate adaptation and mitigation. This will also include strengthening renewable energy production, i.e. offshore and onshore wind, solar PV plants, biofuels, tidal and wave energy.

In this context, investments in energy infrastructure and research and innovation knowledge are needed. As part of its global action, the EU will define a global framework that will include, among the others, the International Ocean Governance to identify and manage marine protected areas effectively; the NaturAfrica initiative to preserve the ecosystem in developing regions; and biodiversity coalitions around the world. Overall, the biodiversity strategy will be implemented following human rights, gender and health protection.

Farm to Fork Strategy

Farm to Fork Strategy was published in May 2020 (European Commission, 2020). It addresses the challenges of food security and access for all citizens by implementing a sustainable food system, thus promoting healthy people status, a healthy society and a healthy planet. Sustainable food environments facilitate the choice of healthy diets, which translates into increased consumer health, reduced health-related costs for society while preserving the environment from degradation, and enabling reduced GHG emissions from food processing, packaging, and transportation. At the same time, creating a new food system, new food supply chains, and a fresh food market presents an economic opportunity. The circular bio-based economy represents a potential for farmers while supporting the transition to a climate-neutral economy. The EU also intends to promote global change to a sustainable agri-food system through external policies such as trade policy and international cooperation.

EU Hydrogen Strategy

Europe’s Hydrogen Strategy was published in July 2020 (European Commission, July 2020). The establishment of a resilient and Sustainable Eco-system for Hydrogen in Europe consists of:

  • Electricity-based hydrogen through water electrolysis. If the electricity used for electrolysis comes from renewable sources, this can be characterized as green hydrogen.

  • Renewable hydrogen may also be produced by reforming biogas (instead of natural gas) or biochemical conversion of biomass if in compliance with sustainability requirements.

  • ‘Fossil-based hydrogen with carbon capture’ means that greenhouse gases emitted during hydrogen production can be captured. The variable effectiveness of greenhouse gas capture (maximum 90%) needs to be considered.

  • ‘Hydrogen-derived synthetic fuels’ refer to a variety of gaseous and liquid fuels based on hydrogen and carbon. For synthetic fuels to be considered renewable, the hydrogen part of the syngas should be renewable. Synthetic fuels include, for instance, synthetic kerosene in aviation, synthetic diesel for cars, and various molecules used in the production of chemicals and fertilizers.

  • Demand-side measures to ensure the uptake of hydrogen in end uses (e.g. hydrogen-based steel and hydrogen-based fertilizers)

Stepping up Europe’s 2030 climate Ambition

Stepping up Europe’s 2030 climate ambition was published in September 2020 (European Commission, 2020) to mobilize a 55% reduction in greenhouse gas emissions by 2030. This will significantly contribute to EU people’s well-being by providing essential co-benefits in terms of health, improved air quality, and reduced environmental damage. Furthermore, the Ambition aspires to have a positive impact on economic growth and the overall employment in the EU and calls for radical policy reforms that, among others, will provide the appropriate education and training that can help the EU economy to recover and get greener, address skill mismatches, and will encourage competition in the markets.

It can be argued that the transition to climate neutrality and the increase in the climate target could create inequalities in the European area or intensify the existing ones because a more ambitious climate objective is expected to be more difficult for the Member States and regions where fossil fuels make up a more significant part of the energy mix. Likewise, in comparison to wealthier households, low-income households endure a more substantial burden of heating costs. For this reason, compensation policy measures should be implemented to avoid an increase in inequalities[1]. However, “Stepping up Europe’s 2030 climate Ambition” is a holistic framework covering many issues. Apart from decarbonising energy supply and demand and developing cleaner and more energy-efficient infrastructure (e.g. heat networks, hydrogen pipelines, electric recharging stations) and buildings, the “Ambition” also refers to the balance between the economic and social transition to climate neutrality. Thus it is consistent with the principles of the European Green Deal and is compatible with the European Climate Law, the Multiannual Financial Framework (MFF), the Next Generation EU recovery fund, and other flagship EU actions.

The Annual Sustainable Growth Strategy of 2021 (7 technology flagship Areas)

The Annual Sustainable Growth Strategy (ASGS) of 2021 for Europe was published in September 2020 (European Commission, September 2020). The green and digital transformations required unprecedented expenditures in re- and upskilling. Furthermore, reforms to direct public and private investments toward climate and environmental initiatives are needed to complete the green transition. In addition, the EU-ID and other critical digital public services, including the legal and medical systems, need to be revitalized and be accessible by all and the public administration and services, in general, will be improved by Digitalization.

The established Recovery and Resilience Facility will help rebuild and prepare the next generation, but the transition process must be equitable for all Europeans to avoid further inequalities, ensure societal support, and promote social, economic, and territorial cohesion. Reskilling and upskilling are essential to advancing the green and digital transitions, boosting innovation and growth potential, and assuring quality employment and social inclusion. The issues addressed by the ASGS 2021 include employment, skills, health, and education. Building renovation projects will help the economy by creating jobs, lowering energy costs, improving living conditions, and reducing energy poverty. Also, by setting the European Green Deal as its cornerstone, it aspires to promote global health and prosperity.

In the face of Energy, the EU should speed up the deployment of renewable energy and hydrogen and intensify efforts to improve building energy efficiency. Furthermore, promoting future-proof clean technologies to accelerate sustainable, accessible, and intelligent transportation will make European cities and regions cleaner. In this context, the EU’s Recovery and Resilience Facility is relevant for green energy and will help the Member States meet the Paris climate goals. Similarly, cross-border and multi-country projects are necessary to promote specific investments, such as energy interconnectors, transportation networks, and forward-thinking digital and green projects. At the same time, economic and environmental challenges of the European energy sector have been particularly evident during 2021 and early 2022, as Box 2 illustrates.

Box 2 — The Energy Crisis, the Energy Transition and the role of gas and nuclear power

In 2021, a severe energy crisis occurred that shook the global economy. The outbreak of this crisis was due mainly to the drastic reduction of economic and commercial activities due to the coronavirus pandemic (COVID-19) and the demand increase after economies started to reopen. The turmoil in energy markets was exacerbated by the fossil fuel supply shock as a result of the war in Ukraine in early 2022.

This is not the first time a global energy crisis has appeared, as there have been similar ones in the past, mainly due to geopolitical turmoil in oil-producing countries. However, the current energy crisis is different from the previous ones, both in terms of the causes that triggered it and the timing of the return of the prices of energy resources to “normal” levels. In previous energy crises, sharp increases in oil prices were corrected after some time through appropriate policy action. However, the issue now is that the policy actions required must be reoriented and focused on shifting the effort from the correction of oil prices towards the search for ways of producing green energy. Otherwise, achieving the objective of global climate neutrality will be put in doubt, given the limited time horizon. This poses several challenges for policymakers and governments, as the provision of greener energy is still ongoing while demand is growing.

To meet the Paris Agreement’s goal of limiting global average temperature rise to 1.5 degrees Celsius over pre-industrial levels, the global economy will need to undergo significant transformations that will drastically reduce or eliminate greenhouse gas emissions.

One of the key ways to make this happen is through carbon pricing, as a significant increase in the carbon price would make new investments in fossil fuel-dependent sectors less attractive. Based on some estimates, to achieve climate neutrality by the middle of the century, the carbon price should be at least $75/t CO2 equivalent (IMF, 18 June 2021), while there are opinions even for at least $100/t CO2 equivalent (Reuters, 2021).

Through its Emissions Trading System, Europe is approaching these price levels (Figure 1). For example, early in December, ETS prices reached a new record high of about €90 per ton of carbon, nearly three times the level at the start of 2021 and more than a multiple of their level just a few years earlier.

Another factor that increases the pressure on carbon price is the transformation of the financial market operations. Investing in sustainable sectors is no longer considered a formal requirement but constitutes a critical component of most investors’ portfolios. As a result, many institutional investors have dramatically reduced their exposure to fossil fuel energy producers and have shifted funds to greener alternatives.

Moreover, the introduction of policies such as Fit-for-55 proposes to revise several existing energy and climate policies in the EU (broadening the scope of the EU ETS and raising the minimum excise tax rate for polluting fuels) will lead to higher carbon prices.

The current energy crisis has exacerbated tensions between the Member States over nuclear energy expansion. On December 31st, the European Commission launched a plan proposing to consider both nuclear power stations and gas-power stations as “green”, as the Commission believes that these two energy sources can play a role in facilitating the transition to a renewable-based future, taking into consideration scientific advice and current technological progress, as well as the differing transition problems faced by the Member States (European Commission, 2022). Taxonomy would imply identifying various energy sources (for example, the gas must come from renewable sources or have low emissions by 2035) under clear and strict rules.

Figure 1 Emissions Trading System (ETS) spot price developments. Source: ECB (Schnabel I., 2022)

Figure 1 Emissions Trading System (ETS) spot price developments. Source: ECB (Schnabel I., 2022)

The ecological transition presupposes an industrial revolution of unprecedented extent. It also assumes a race of different energy sources to raise capital, and according to the Commissioner for Internal Market Thierry Breton, new-generation nuclear facilities in Europe will require decades to be developed and more than € 500 billion in investment in 2050 (Euractiv, 2022).

However, nuclear power’s role in the energy transition has caused much discussion among the EU’s 27 members. Several countries, including France and Poland, argued that the EU’s green taxonomy should include nuclear energy. The campaign, also supported by Belgium, Sweden, Estonia, and the Netherlands, included Bulgaria, Romania, Hungary, Croatia, Slovakia, Slovenia, and the Czech Republic. Conversely, Cyprus, Germany, Hungary, Greece, Romania, and Malta are lobbying the EU Commission for gas energy projects. Austria, Luxembourg, and Denmark have clearly opposed both natural gas and nuclear power development (Balkan Green Energy News, 2022)

Chemicals strategy for Sustainability

Chemicals strategy for Sustainability was published in October 2020 (European Commission, October 2020). Human Health and a toxic-free environment are the keywords summarizing the Chemicals Strategy - an ambitious approach to tackling pollution from all kinds of sources in our ordinary life and activities.

During the entire lifecycle of new chemicals and materials, their safety and sustainable utilization and disposal must be ensured. The complexity and global context of manufacturing and supply chains for critical chemicals (i.e. pharmaceuticals) should be treated with resilient value chains and diversified sourcing towards climate-neutral and circular economy pathways. Toxic-free material cycles and clean recycling from the EU should lead to a world-wide benchmark. Any substances of concern in products and recycled materials should be minimized.

Financial instruments regarding Innovation Calls of the EU Commission aspire to support the deployment of the necessary infrastructure to develop the use, transport and storage of electricity from renewable/carbon-neutral energy sources for the production of chemicals. Another dimension is the priority for KPIs of measurement of the industrial transition. The support of investments in sustainable innovations will anticipate the contamination of waste. In that mode, increasing recycling will become safe. The exports of waste (plastics and textiles) will be reduced. Cleaner production process and Technologies and Process approach will be supported to be cleaner, with regards to innovative Business Models and financial access with priority to Start-ups.

EU Strategy to reduce methane emissions

The EU Strategy to reduce methane emissions was published in October 2020 (European Commission, October 2020) to address the challenge of Agricultural Transition. Dietary changes will be promoted through the Farm to Fork (F2F) Strategy actions. Biogas production will be supported for agricultural waste via National Strategic Plans under the Common Agricultural Policy. The gas market regulatory framework will be under review to promote the facilitation of distributed and locally connected biogas production. Best practices and technologies, feed and breeding changes, will be enabled to reduce agricultural emissions. Improvement of leak detection and repair (LDAR) regarding leaks on fossil gas infrastructure, production, transport and use will be an obligation.

Future legislation will include venting, flaring and standards for the overall supply chain and support for the World Bank ‘Zero Flaring’ initiative. An expert group will develop life-cycle methane emissions methods, especially for the agricultural sector. Partner countries shall be engaged in the global coordination of energy-sector methane emissions concerning diplomatic action of the EU. Methane emissions from international partners will be reduced under standards, targets (of emission reduction), and incentives for any (fossil) energy carrier imported to the EU.

A Renovation Wave for Europe

Europe’s Renovation Plan was published in October 2020 (European Commission, October 2020). The main Priorities in Renovation Wave and initiations on Energy Poverty are: Waste and renewable heat and cool into energy systems; Extension of the use of emission trading to emissions from buildings; Minimum proportions of renewable energy in buildings; Green public procurement criteria related to life cycle and climate resilience; Eco-design and energy labeling; Creating green jobs, upskilling workers and attracting new talent within the Frame of European Skills Agenda; Deep renovation standard; Horizon Europe and the R&I co-creation space; Building Information Modeling; 2050 whole life-cycle performance roadmap; Public buildings and social infrastructure showing the way; Tackling energy poverty and worst-performing buildings; Launching the Affordable Housing Initiative piloting 100 renovation districts; Reviewing the General Block Exemption Regulation and Energy and Environmental Aid Guidelines; European Bauhaus platform (combination of sustainability with art and design); digitalization in the construction sector.

EU Commission Recommendation on Energy Poverty

The Recommendation on Energy Poverty was published in October 2020 (European Commission, October 2020). Energy Poverty has become a real challenge for the European Union since almost 34 million citizens are estimated to suffer from a lack of access to affordable energy. The Recommendation outlines specific indicators for the proper assessment of energy-poor households, such as a) indicators for the comparison of energy expenditures versus income, b) a self-assessment on which is the current access of each household to energy services (ability on heating, cooling, warming), c)  explicit monitoring by actual measurements of physical parameters/figures, such as room temperatures, as a feedback of the current situation and potential or implemented interventions, d) monitoring of the ability for households to pay for their energy bills, the quality of their home, the number of energy disconnections, as a measurement of people’s weakness to finance their energy consumption/ needs, e) the electricity/fuels prices faced by end-users.

According to the residential profiles seeking energy upgrades, long-Term Renovation Strategies in every Member State should consider erasing barriers to investments relevant to energy efficiency. Furthermore, EU funding programs that enhance cohesion policies should be included to develop their distributional effects concerning energy transition models and the support of vulnerable society profiles. Finally, Energy Service Companies (ESCOs) and the relevant contracts with customers can play a crucial role in providing reliable financing solutions for necessary energy performance interventions in vulnerable households.

EU Strategy to harness the potential of offshore renewable energy for a climate-neutral future

The offshore renewable energy Strategy of Europe was published in November 2020 (European Commission, November 2020). The EU has the great advantage of having the most comprehensive variety in sea basins, so the EU is in a position to develop offshore renewable energy. Spatial planning in maritime space is necessary, and there are successful pilot projects specialized in identifying the environmental benefits of offshore wind and aquaculture (MERMAID, TROPOS, Edulis, Wier en Wind). On the other hand, coordination between Transmission System Operators and Regulatory Authorities is necessary to support offshore renewables interconnection between local and central grids. Integration of large scale or distributed offshore energy systems into the grids should follow the regulatory rules. EU Sustainable Taxonomy and Grids development, innovation applications and technical maturity can support private capital investment.

Research and innovation can also support the choice of the proper materials, such as corrosion resistance, and ensure high-capacity rates and long-term efficiency and “sufficiency”. Re-skill and Up-skill is a fundamental challenge with the potential of high-quality employment opportunities for skilled workers affected by the transition. The Circular Economic approach is critical to focus on recycling and reusing renewable machinery equipment components (i.e. wind turbine blades), affecting modern design and provoking niche and non-generic applications. New technologies and methods should be developed and deployed to increase the value retention of products and services within the manufacturing sector. Last but not least, through Green Deal diplomacy, the EU is engaged with its international partners to develop an ecosystem of offshore renewables in cooperation with low-income countries and emerging markets.

The European Climate Pact

The European Climate Pact was introduced in December 2020 by the European Commission (European Commission 2020) as a European Union-wide initiative to encourage people and organizations to engage in climate action and develop a more sustainable Europe by offering space to share information and spread knowledge, debate, good practices and solutions on climate action. It invites citizens, communities, and organizations to connect and share information, learn about climate change, and build, implement, and expand existing solutions that directly tackle climate change and its impacts.

The Pact prioritizes actions based on green mobility, efficient building, and training for green jobs, and then it will expand to the areas of sustainable consumption and production, quality of land and oceans, and food security. In addition, the direct involvement of people creates co-creation activities that unlock technological and social innovation. As part of its action, the Pact will encourage the consideration of social well-being, inclusion, equality, and diversity to protect the most vulnerable areas and individuals, which will benefit citizens’ health and well-being.

Smart Mobility Strategy

The Strategy of Europe for Smart Mobility was published in December 2020 (European Commission, December 2020). Mobility is crucial in the social life of citizens, but it must reduce its environmental impact as it adversely affects human health, well-being and biodiversity. To protect these public goods, especially the non-market goods, the mobility sector has to become sustainable and serve the energy transition towards a clean, low carbon, green fuels or other energy carriers. Charging and fuel infrastructure for zero-emission vehicles and ensuring a proper supply chain for renewable and low-carbon fuels are critical.

On the other hand, digitalization and Artificial Intelligence services can enhance circularity and efficiency in mass production and travel for vehicles, aircraft and shipping, considering mobility as a service (MAaS). Therefore, safe, comfortable, reliable, interconnected (for both urban and rural areas) and affordable for all mobility, especially for the vulnerable groups, should be maximized via digitally powered competitive advantages and logistic chains with increased resilience. All these provide good chances for all in social life, the development of new skills and, as a result, new and better opportunities for attractive jobs.

The European Commission has set specific milestones for European Smart and Sustainable Mobility: By 2030, at least 30 million zero-emission cars and 80 000 zero-emission heavy-duty vehicles should be in operation; by 2050, only these vehicle types should be on the roads. Zero-emission ocean-going vessels and large zero-emission aircraft should be introduced by 2030 and 2035, respectively. High-speed rail traffic should be twice by 2030 and three times higher by 2050. Finally, transport by inland waterways and short sea transport systems should increase by 25% in 2030 and by 50% in 2050.

The European economic and financial system: fostering openness, strength and resilience

The European economic and financial system Policy was published in January 2021 (European Commission, 2021). EU climate and environmental goals rely on financial markets, as the Green Deal objectives like biodiversity protection and a circular economy will require vast amounts of investments. The European Commission will enhance Global sanctions coordination. In addition, it will promote euro-denominated investments and has already urged banks and other financial institutions to use the euro wherever possible to ensure that EU money and economic resources are not exploited to bypass EU sanctions. Regarding the effects of sanctions on persons and enterprises, the Commission may invite NGOs and civil society to ensure that humanitarian concerns are addressed.

Especially after the UK’s exit from the EU, there is an urgent need to develop local financial market infrastructures. These issues require strategies that promote growth and efficiency. By November 2020, the Commission had issued 39.5 billion euros in social bonds using the EU SURE instrument. Discussions with key players in commodities, aerospace, healthcare, and vital raw materials for renewable energy are underway, and it is expected that the European Green Deal will lead to new markets for renewable energy and other technologies, as well as the need for robust strategic supply chains for renewable energy and other technologies. The euro has made considerable strides in the energy sector, especially renewable energy. The Commission will encourage derivatives for energy and raw commodities, benchmark indices, and trading venues for new energy markets like hydrogen.

EU Strategy on Adaptation to Climate Change

The EU Strategy on Adaptation to Climate Change was published in February 2021 (European Commission, 2021). Climate change disproportionately affects vulnerable people and human rights, and we need a better grasp of the health threats posed by climate change. Adaptation is a significant component of the EU’s long-term budget for 2021-2027, as it can help prevent and resolve these conflicts. Adaptation benefits must be widely and equitably shared, and the Commission needs to guarantee that funds reach the poorest communities in developing countries, especially those in unstable and conflict-affected governments.

Nature-based solutions will benefit adaptation, mitigation, disaster risk reduction, biodiversity, and health. Priority will be given to climate-vulnerable countries and proactive climate partners. At least 37% of the plans should be allocated to climate action, including mitigation and adaptation. Increasing the social dimension of the EU budget will help protect the most vulnerable.

The Commission will help increase the availability of high-quality plant reproductive material for agriculture, forestry and land ecosystem management and improve water efficiency and reuse by boosting regulations for eco-design and energy labelling products, energy generation, housing and agriculture, as well as industrial plants. Water is an essential part of many areas of the economy, yet excessive rains and floods may cause havoc on populations and infrastructure. A reliable and safe supply of drinking water is vital, but water scarcity in the EU has also impacted agriculture, aquaculture, tourism, power plant cooling, and river cargo shipping.

The UN Sustainable Development Goals and the European Green Deal must be the cornerstone of EU external adaptation action to climate change. The Commission will encourage the inclusion of climate resilience criteria in building and critical infrastructure construction and renovation. However, it will also continue to enforce current employment and social laws and, where appropriate, propose new actions to safeguard employees from climate risks as adverse effects on manufacturing capacity may harm economic growth. Furthermore, the EU will promote long-term economic diversification initiatives and policies by ensuring an adequate and highly skilled workforce.

Directing finance towards the European Green Deal (The EU Taxonomy and CSRD)

Directing finance towards the European Green Deal Policy was published in April 2021 (European Commission, 2021).

Under the European Green Deal, Business models and strategies for transitioning to a sustainable and carbon-neutral economy have to be reported according to specific rules. Compliance with the EU Taxonomy screening criteria and “do-no-significant-harm” restrictions will be mandatory for Corporate Sustainability Reporting compliance. This is based on the ambition of the European Green Deal goals, including climate neutrality. The EU Taxonomy Climate Delegated Act, a proposal for a Corporate Sustainability Reporting Directive (CSRD), covers four environmental objectives outlined in the EU Taxonomy Regulation (sustainable use and protection of water and marine resources, pollution prevention and control, conservation of biodiversity and ecosystems).

The proposed Corporate Sustainability Reporting Directive requires corporations to report sustainability information on the full range of environmental, social, and governance issues relevant to their business, including forced and child labor, in a standardized and comparable manner, increasing transparency and ensuring a consistent flow of sustainability information for all stakeholders.

Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery

The European Commission published an update of its Industrial Strategy in May 2021 (European Commission, May 2021). This relies on a) the monitoring of industry trends and Key Performance Indicators (KPIs) of competitiveness; b) making the Single Market more resilient to anticipate crises and support the recovery; c) the toolbox development for the release of strategic dependencies; d) the boost of the twin (green and digital) transition.

More specifically, a Single Market Scoreboard will monitor the leading indicators of the competitiveness of the European economy and the boost of the innovation ecosystems. For the resilience of the Single Market, key actions are the Single Market Emergency Instrument and the surveillance mechanism for European and imported products. On strategic dependencies, the Commission is preparing an Alliance on processors and semiconductor technologies, an Alliance for Industrial Data, Edge and Cloud, an Alliance on Space Launchers for the autonomous European access to space, an Alliance on Zero Emission Aviation for the future fuels and energy carriers for aircraft, as a complementary group to the Renewable and Low-Carbon Fuels Alliance. Finally, the Digital and Green Transition strategy involves, among others, the development of Digital Twins for the development of digital copies, historical data, and predictive analytics to assess the performance of assets of critical industrial equipment. Furthermore, an investment in skills will support the green and digital transition to enhance the just recovery. The Pact for Skills is a tool of The European Skills Agenda to improve the European labor force by mobilizing private enterprises, institutes, academia and all the relevant stakeholders.

The EU’s Blue Economy for a Sustainable Future

The EU’s Blue Economy for a Future Sustainable Policy was published in May 2021 (European Commission, 2021). This policy aims at integrating the recovery and protection of ocean health into the EU economic policy set by the European Green Deal. The marine environment’s protection will also contribute to biodiversity conservation and restoration and drive the path toward climate neutrality and zero pollution by creating offshore renewable energy and decarbonizing maritime transport and ports. Besides, it helps alleviate the pressure on natural resources, encouraging waste prevention into the sea, thus increasing circularity and striving for more responsible food production. This will be enabled through the development of green infrastructures and innovation activities and bridging the skills gaps for marine technologies, which on the other side, will generate economic returns and employment potential by also accounting for gender balance in the maritime professions. To achieve a sustainable blue economy, the EU will foster cooperation within and outside the EU boundaries to increase the value of protection of global common goods and services.

European Climate Law

The Climate law (European Commision (2021), Regulation (EU) 2021/1119) strengthens EU efforts and commitment to tackle climate change. It operates within the framework of the EU Green Deal, hence supporting a new strategy of growth that combines economic prosperity with sustainability and increases society and ecosystem resilience against climate change. In accordance, addressing climate-related risks means strengthening the action against health crises, guaranteeing water and food safety, and improving conditions in impacted areas. On the other hand, the EU Climate Law enables the protection of the integrity of maritime and terrestrial ecosystems, hence preserving biodiversity against the threat of climate change. For these purposes, a new energy system (characterized by the deployment of renewables, internal energy market and improvement of energy efficiency) must be created to effectively reduce the level of greenhouse gas emissions generated by at least 55% compared to 1990 levels by 2030, and reach climate neutrality by 2050. Together with research and development investments, technological and digital transformation are critical drivers for joining climate-neutral objectives. The EU action contributes to the global response against climate change as established in the Paris Agreement.

The Fit-for-55 package

The Fit-for-55 package was published in July 2021 (European Commision (2021)). To achieve the goal of carbon neutrality by 2050 as part of the European Green Deal, the EU must significantly reduce its greenhouse gas emissions over the following decades. Therefore, it has increased its 2030 climate ambition, aiming to cut emissions by at least 55% by 2030 compared to 1990. For this purpose, the EU is revising its climate, energy, and transport legislation under the ‘Fit-for-55 package’ to match it with the 2030 and 2050 goals. The European Commission released most parts of this package on 14 July 2021, the starting point for a two-year round of political negotiations. The package supports the implementation of the European Green Deal and proposes either the revision of existing or the introduction of new policies to reduce net greenhouse gas emissions by at least 55% by 2030. Furthermore, while maintaining and strengthening the EU industry’s innovation and competitiveness, the package attempts to ensure a level playing field for third-country economic operators and reinforce the EU’s leadership role in the global battle against climate change.

The Fit for 55 package includes the following legislative proposals and policy initiatives:

  • a revision of the EU emissions trading system (EU ETS), including its extension to shipping,

  • a revision of the rules for aviation emissions and establishing a separate emission trading system for road transport and buildings

  • a revision of the effort sharing regulation on member states’ reduction targets in sectors outside the EU ETS

  • a revision of the code on the inclusion of greenhouse gas emissions and removals from land use, land-use change and forestry (LULUCF)

  • a revision of the renewable energy directive

  • a recast of the energy efficiency directive

  • a revision of the directive on the deployment of alternative fuels infrastructure

  • an amendment of the regulation setting CO2 emission standards for cars and vans

  • a revision of the energy tax directive

  • a carbon border adjustment mechanism

  • ReFuelEU Aviation for sustainable aviation fuels

  • FuelEU Maritime for a green European maritime space

  • a Social Climate Fund

The EU Emissions Trading System (ETS) is strengthened by increasing its ambition to reduce emissions from specific economic sectors up to 2030. The Commission also proposes phasing out free aviation emission allowances up to 2027 and harmonizing with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), including shipping emissions in the EU ETS for the first time. To complement the significant climate expenditure in the EU budget, the Member States will have to devote all their revenues from emissions trading to climate and energy-related projects. A new ETS is proposed to be created for fuels used in road transport and buildings, which can be merged with the existing ETS after 2030. A part of the revenues of this new ETS will be devoted to a new Social Climate Fund, which will essentially re-distribute financial resources between EU Member States to address the potentially adverse social impact on vulnerable households, micro-enterprises and transport users.

The Effort Sharing Regulation (ESR) sets out more stringent emission reduction targets for buildings, road and inland waterway transport, agriculture, waste, and small industries in each Member State. Recognizing the different starting points and capabilities of each Member State, these objectives are based on their per capita GDP. By 2035, the EU should pursue climate neutrality in land use, forestry and agriculture (LULUCF), including non-CO2 agricultural emissions, such as those from fertilizers and animals. Energy production and use account for 75% of EU emissions, so accelerating the transition to a greener energy system is vital. The Renewable Energy Directive (RED) will increase the goal of producing 40% of our energy from renewable sources by 2030. To reduce overall energy use, reduce emissions and tackle energy poverty, The Energy Efficiency Directive (EED) will set a more ambitious binding annual target for reducing energy use at the EU level, almost doubling the annual energy saving obligation for the Member States.

The revision and tightening of CO2 emission standards for cars and trucks will accelerate the transition to zero emissions, requiring a reduction in average new car emissions of 55% by 2030 and 100% by 2035 compared to 2021 levels; all new cars registered from 2035 will have zero emissions. To ensure that drivers can charge or power their vehicles on a reliable network across Europe, the revised Alternative Fuel Infrastructure Regulation (AFIR) will require the Member States to extend the charging capacity according to the volume of zero-emission cars sold and install charging and refueling points at regular intervals on significant highways: every 60 kilometers for electric charging and every 150 kilometers for hydrogen refueling.

The ReFuelEU Aviation Initiative will force fuel suppliers to use increasing levels of sustainable aviation fuel on aircraft refueled at EU airports. Similarly, the FuelEU Maritime Initiative will encourage the adoption of sustainable fuels in shipping. Moreover, the revision of the Energy Taxation Directive (ETD) proposes the alignment of energy taxation with EU energy and climate policies, the promotion of clean technologies and the removal of outdated exemptions and reduced rates that encourage fossil fuels. Finally, a new Carbon Border Adjustment Mechanism (CBAM) will set a carbon price on imports of selected products to ensure that ambitious climate action in Europe does not lead to carbon leakage.

Strategy for Financing the Transition to a Sustainable Economy

The Strategy for Financing the Transition to a Sustainable Economy was published in July 2021 (European Commission, 2021). The financial industry must be more resilient to climate change and environmental degradation to comply with the European Green Deal objectives regarding water usage, circular economy, pollution prevention, and biodiversity. However, climate change and biodiversity loss create systemic risks that aren’t always visible. In the future, the Commission intends to review the banking macro-prudential framework to assess the ability of the existing macroprudential measures to address climate change-related financial stability risks and create a Sustainable Finance Research Forum to enhance academia-industry collaboration. In addition, 23 million SMEs in the EU need easier access to custom sustainability guidance. Thus, more transparency and coherence in financial instrument labelling could help future sustainable finance markets.

Financial institutions are increasingly subject to rapid biodiversity loss, resource depletion, and water, air, and soil contamination. Therefore, according to the relevant April 2021 communication, the European Commission will explore legislation to recognize and assist certain economic activities that help reduce greenhouse gas emissions, particularly in the energy sector, including gas.

Synergies are crucial in the context of the Strategy for Financing the Transition to a Sustainable Economy. For example, public-private risk-sharing can solve ineffective market failures, and common standards can help firms, investors, and issuers adopt sustainable practices. Moreover, through a partnership with the OECD’s International Network on Financial Education (INFE), the Commission improves financial literacy.

At the same time, the EU is taking significant steps to counteract financial greenwashing. For example, the Commission will examine supervisory powers, capabilities, and obligations with the help of the European Supervisory Authorities and will encourage international standard-setters like the IFRS Foundation to develop ambitious disclosure rules and principles. In addition, aligning financial flows with European Green Deal goals demands investors to consider sustainability consequences in their strategies and investment decisions. The Commission will perform a public consultation and impact assessment to strengthen the reliability, comparability, and transparency of ESG ratings. Further, to help corporations manage sustainability risks and profit from opportunities resulting from the path to sustainability, the Commission will present a proposal on Sustainable Corporate Governance.

Footnotes

  1. https://www.enelfoundation.org/all-news/news/2020/06/discussing-e-quality-in-the-context-of-energy-transition ↩︎