A post-pandemic, greener, recovery

Key points:

• Europe’s Green Deal aims to cut greenhouse gas emissions by 50-55% by 2030, versus 1990 levels, while promoting economic growth
• Europe has reduced emissions by roughly a quarter since 1990
• Many view the pandemic as an opportunity to help their transition to a low-carbon economy
• The switch to a low-carbon world 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, laying out the blueprint for the bloc to achieve carbon neutrality by 2050. Its overarching ambition is for Europe to become the first climate-neutral, industrialised continent in less than thirty years. 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.

Europe has reduced emissions by roughly a quarter since 1990, according to the European Environment Agency. Despite this achievement, the results are not enough to put the EU on track to its net zero target by mid-century. The Green Deal was set out to bridge this gap, encouraging more fundamental review of economic activity and disruptive innovation to accelerate decarbonisation.

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.

For example, 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. To this end the Hydrogen Strategy provides €7bn to ramp up domestic production and related value chains.

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.

Digging deeper

Delving into the Green Deal and associate stimulus packages highlights potential climate risks from policy changes or attractive investment sectors that enable decarbonisation goals. Among the major initiatives in promoting clean-energy technologies, the EC plans to:

• Renovate buildings and infrastructure to increase energy efficiency and build out a more circular economy
• Roll-out more renewable energy projects, especially wind, solar and clean hydrogen energy
• Promote cleaner transport and logistics, including the installation of one million charging points for electric vehicles and a boost for rail travel and clean mobility
• Strengthening the Just Transition Fund to support re-skilling of displaced workers and helping businesses create new economic opportunities.

Understandably, with the pandemic’s economic and societal effects, the Green Deal activity may not meet the same timeline as initially planned. However, the continued efforts show political willingness not to forgo the climate agenda in the midst of economic recession.

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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