Europe targets a green pandemic recovery

10 July 2020

5 minute read

As European governments look to resuscitate their economies, incorporating climate change measures into these efforts is proving popular, potentially creating opportunities for investors into the bargain.

Key points:

  • Europe’s Green Deal targets 50-55% cuts in greenhouse gas emissions by 2030, while stimulating economic growth
  • Many European governments’ state bailouts for industries are linked to achieving green objectives
  • The pandemic may be an opportunity to help encourage the switch to a low-carbon world
  • The transition to a zero carbon emissions economy will create investment opportunities.

Having suffered the initial health and economic shock of the coronavirus outbreak, governments are turning to encouraging recovery. Within this, some want to stimulate new growth and deliver on nationally determined climate commitments.

Europe’s Green Deal

The European Commission (EC) published its European Green Deal in December, establishing a plan for the bloc to achieve carbon neutrality by 2050. Its main ambition is for Europe to become the first climate-neutral, industrialised continent. It aims to do so by reviewing each existing European law on its climate merits.

The deal calls on the EU bloc to restore biodiversity, cut pollution levels and boost the efficient use of resources by moving to a clean, circular economy. Overall, it has targeted to cut greenhouse gas emissions by 50-55% by 2030 compared with 1990 levels.

Transitioning to a low-carbon world

While the pause of most economic activity seen in many countries during the pandemic gave a glimpse of a less-polluted world, the need for employment and economic activity meant emissions would always rebound. However, rather than simply focus on general economic stimulus, many European governments and the EC seek to use the crisis as an opportunity to enable their transition to a low-carbon economy.

In France, an €8bn incentive programme for battery and electric vehicles was introduced to help rescue the country’s car industry. The underlying aim is to have one million French-made electric cars a year by 2025. Meanwhile, Air France has been asked to cut domestic flights and agree to target becoming the world’s “most environmentally friendly” airline, to satisfy the conditions of its government bailout.

In Germany, financial support to Lufthansa has also been tied to environmental goals, resulting in the reduction of the national airline's access to free landing slots at major German airports.

Promoting renewable energy

In the clean-energy sector, the German government has approved its 2030 National Energy and Climate Plan (NECP) and adopted a new National Hydrogen Strategy – both critical in shaping the EU green recovery. The NECP targets 65% renewable electricity and 30% renewable energy by 2030, while the Hydrogen Strategy aims to make Germany the “global number one” for renewable hydrogen applications and production.

More widely, the French president, Emmanuel Macron, and German chancellor, Angela Merkel, proposed an EU budget increase of €500bn to fund the Green Deal. This includes proposals to establish a recovery roadmap for each industrial sector and to increase the EU’s 2030 reductions target for greenhouse gas emissions. Thereafter, the EC launched a €750bn Next Generation EU fund on 27 May, aimed at helping Europe’s recovery from the COVID-19 crisis.

Win-win opportunity

Despite some of the headwinds to Europe’s Green Deal and arguments it could do more, the approach of the EC and European countries appears to show the benefits of placing its green agenda at the heart of a region’s stimulus. Not only does it provide support for recovery in response to the pandemic; it also shifts economic output to lower carbon intensity in response to the climate breakdown. Clearly a win-win for these countries. And for investors who can position their portfolios effectively, it is an opportunity for the same.

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