On Monday, in a live video address, French President Emmanuel Macron and German Chancellor Angela Merkel restarted the European Union’s Franco-German motor by proposing that the EU disperse a total of €500 billion ($545 billion) in recovery money, borrowed by Brussels on financial markets, to the bloc’s hardest-hit nations and regions. The entire 27-member union must still approve the EU package, which is not guaranteed: Austria, the Netherlands, and Finland have complained that the borrowing program is a form of debt mutualization that they, unlike Germany, still oppose.
But Monday’s press conference at least offered some glimmer of reassurance to one increasingly anxious group in European civil society: climate activists. It’s just not yet clear how long that reassurance will last.
Climate experts have feared Europe’s climate goals could get drowned out in the cacophony of panicked calls amid the coronavirus pandemic for rekindling conventional industries. Macron explicitly underscored that the rescue program would buttress the European Green Deal, the sweeping program of economic reforms advocated by European Commission President Ursula von der Leyen that would enable the bloc to go carbon neutral by 2050, a key target of the 2015 Paris climate accord. Macron and Merkel, but also other European leaders and even major industries, have recently professed a newfound commitment to a green transition at this most complex of times.
But the decisive battles are still to be fought, and Europe’s traditional economic forces are not backing down quietly. Across Europe, as lockdowns are cautiously being lifted, many businesses and industries are now reopening. But the economic fallout in Europe is vast—as many as 59 million jobs could be lost and trillions of dollars in revenue and taxes. There’s a broad consensus that economic stimulus of historic proportions—from the EU budget and European Central Bank, as well as from nation-states—will be required to fight recession and put devastated economies back on their feet. Less certain is to what degree the stimulus and recovery will take climate policy into account.
The most recent precedents are not encouraging. Though the post-financial-crisis measures lifted many European countries out of recession—and rescued others from insolvency, though burying them in debt—they did very little to accelerate the transition to more sustainable, climate-friendly economies. In many ways, they did the opposite, rewarding polluting industries that only caused Europe’s carbon footprint to swell. Case in point was Germany’s gift to its auto industry: a €5 billion ($5.5 billion) “cash for clunkers”—or scrapping bonus—program that refunded car owners €2,500 ($3,560) for selling their old cars and buying new ones. The result was a huge boon for carmakers, which sold record numbers of heavy luxury cars, including a new generation of SUVs, the kind of notorious gas guzzlers that Germany’s auto industry has specialized in for decades and continues to do so—and which for years left it lagging badly in the global electric car market.
This train wreck, though, happened before the Paris climate accord in 2015 and the mass climate protests last year led by Fridays for Future, among other events such as record droughts and wildfires, drove the climate crisis to the fore in Europe and beyond. Today in Germany, for example, even in those political circles that devised the clunkers program—namely those of Merkel and von der Leyen, though not the whole of their conservative Christian Democratic Union (CDU)—there’s a growing consensus that a post-coronavirus recovery program must look much different than that during the debt crisis of 2009. The trillions of dollars in investment, grants, and loans will again go toward kindling economic activity and job creation, but this time they must have a “transformative” function, setting Europe on a new path of technical modernization.
Indeed, even in Northern Europe the recovery measures of 2009 are viewed more critically than one might assume. As upside-down as it might sound, the Europeans are even invoking the Obama administration’s post-Great Recession American Recovery and Reinvestment Act as a much better model to follow. The measures directed $90 billion in investment toward sustainable sectors such as renewable energies and green tech, as well as research projects. And a new U.S. study shows the act’s renewable energy investments successfully stimulated job creation in the energy sector.
Aside from the lofty promises and high price tags of the various EU and nation-state recovery efforts, however, their content is still very much up in the air, said Olga Chiappinelli, an economist at the German Institute for Economic Research (DIW), a Berlin-based research institute. “At the moment there’s really a lot that we still don’t know,” she said, though it’s expected that there’ll be more investment in green sectors than in 2009, when in Germany only 13 percent of the recovery funds went to green projects.
A DIW report on post-pandemic green stimulus efforts argues that the recovery packages must include clearly defined climate targets in order to motivate the private sector to invest and to leverage the impact of the fiscal stimulus. “This can lead to the creation of markets similar to those in the US renewable energy industry,” the report reads. “Furthermore, short-term stimulus measures should be integrated into a long-term energy and climate policy framework, so that the investments in climate-friendly technologies and businesses are attractive for the private sector.” A green recovery strategy “can not only give the economy a temporary bump,” said Chiappinelli, a co-author of the report, “but also set it on a low-carbon transformative path.” For this, significant carbon pricing has to apply across Europe’s economies, she said.
Until recently, Macron has been more forward thinking than his cautious colleague in Berlin on Europe’s low-carbon transformation. But Merkel has of late been ever more outspoken on climate crisis issues. “Like a lot of politicians in the twilight of their careers,” said Toby Couture, the director of E3 Analytics, an energy consultancy in Berlin, “Merkel seems to be thinking about her legacy, and she wants to go down as a leader on climate change. There’s a shift in her positions that you see in Germany’s schedule to phase out the coal industry and new laws to encourage the expansion of wind and solar energy, which had been on hold for years.”
In Germany, Merkel’s rekindled interest in the climate crisis has an unlikely new ally in the form of Foundation 2°, an initiative of German businesses and CEOs, including the likes of Deutsche Bahn, Puma, Deutsche Telekom, and others committed to limiting global warming to 2 degrees Celsius. In April, 68 large German and international companies signed a letter drafted by the organization committing themselves to the Paris climate agreement and urging governments to supply “urgently needed investment security with climate friendly long-term economic stimulus programmes.”
There also remain vocal naysayers, mostly in the free market wing of Merkel’s own CDU. They, backed by Germany’s powerful industrial lobby, the Federation of German Industries, say that given the proportions of the crisis, the more ambitious climate goals should be set aside for the moment and traditional Germany industries supported as directly and quickly as possible. Pushing the emissions reduction target from 40 percent up to 50-55 percent, the CDU parliamentary group charged, would cause Germany massive damage.
But the chancellor has thus far stuck to her guns, even in the face of fierce lobbying, for example, by Germany’s automobile sector, an employer of 840,000 and until now the coddled liebling of Merkel and her party. Not surprisingly, German carmakers—as do their French counterparts—want another scrapping bonus like that in 2009. But Merkel turned them down. Germany’s major airline Lufthansa, too, was denied a no-strings-attached bailout. The French government’s aid to Air France commits the airline to slashing its carbon emissions for domestic flights by 50 percent by 2025. Austria’s demands go even further: Air Austria must cut its domestic flights, cooperate better with the rail system, and sink emissions using alternative fuels.
This time around, it seems, Europe’s recovery funds will be used to transform the economy, not reinforce bad habits.