The European Union is set to propose a massive economic stimulus plan, complete with a 15-gigawatt renewable energy tender and auctions for green hydrogen, that will transform the European Commission’s Green Deal into the world’s greenest recovery package, according to leaked documents released last week by Bloomberg News and Euractiv.
While it may take months of negotiations to finalize, “the plan is part of the package the [European Union] executive will unveil on May 27 for the bloc’s jointly-financed response to the pandemic-induced recession,” Bloomberg reports. “The package will include a proposal for the EU’s next trillion-euro budget for the years 2021-2027 and a ‘recovery instrument’ of at least half-a-trillion euros specifically designed to cushion the economic blow from the outbreak.”
Greentech Media says the Green Deal Recovery package is a rework of a plan that was “initially structured as a roadmap for the bloc to achieve its goal of net-zero status by 2050. But early progress has been hampered since the Green Deal was revealed by European Commission President Ursula von der Leyen. The coronavirus outbreak and a failure to agree on the EU’s next seven-year spending framework have created division among some member states that are nervous about the economic fallout of COVID-19.”
Highlights in the draft document include €60 to €80 billion to accelerate electric vehicles sales, with a Value-Added Tax (VAT) exemption for EVs, doubled funding for EV charging networks, €91 billion per year and a green mortgage plan to support building energy retrofits, €10 billion over the next two years to leverage financing for 7.5 gigawatts per year of new solar and wind projects, €10 billion per year to support renewables and hydrogen infrastructure, and up to €30 billion in innovation funding to support green hydrogen development.
Greentech calls the green hydrogen fund a “particularly striking” feature of the plan, pushing far beyond research and development by creating a stable revenue flow for systems to produce the emerging fuel from renewable energy.
“The EU package contemplates the adoption of a contract for difference (CFD) system for carbon for green hydrogen projects, effectively acting as a hedge against carbon prices,” the U.S.-based industry newsletter explains. “Such a system would see green hydrogen users bid the level at which they can offset a tonne of carbon with their project and still make a return. If the carbon price moves above that strike price, they would pay back the difference. If the carbon price fell below that level, the EU would make up the shortfall, just like a renewable CFD system based on power prices.”
That approach “would give investors stability and allow them to leapfrog the current phase of lower CO2 prices,” Greentech adds. “Research by Standard & Poor’s suggests Europe’s carbon prices, currently around €21 per ton, could rise seven-fold by 2030.”
The strategy begins by tackling “grey” hydrogen, which is currently produced from natural gas for use in refineries and chemical plants. “Focusing first on converting that grey hydrogen to green creates an immediate demand—and immediate emissions reductions,” Greentech says.
“Industry is the right sector to focus on in terms of hydrogen,” and the CFD approach is the right one to take, said E3G Senior Policy Advisor Lisa Fischer. While hydrogen “is expensive if you want to produce it sustainably, and the volume we can produce is limited,” she added, “there are quick wins to be had by focusing on those already using grey hydrogen. Much of the infrastructure will already be in place, so that’s the sweet spot for a starting place,” as long as the supporting tax regimes avoid double taxation on the hydrogen and the electricity from which it’s produced.
While the 15 GW of solar and wind tenders would come at a time when wholesale power prices are low and deployment has been lagging, Fischer warned the plan could leave behind the EU countries in greatest need of economic stimulus. “We need to think about who this tender is going to benefit,” she told Greentech. “Is it all going to go to North Sea offshore wind? How can you make sure it’s balanced in terms of the job creation and the manufacturing supply chain?”
Taken as a whole, the investments envisioned in the new plan “would dwarf any green stimulus announcements to date and signal that the EU really wants to align its economic recovery strategy with the Green Deal,” said Victoria Cuming, head of global policy at BloombergNEF, formerly Bloomberg New Energy Finance.
“We need an economy that is more resilient, better equipped to use digitalization, and above all, greener,” said EU Environment Commissioner Virginijus Sinkevicius of Lithuania.
“As governments around the world move from health-crisis management to plotting an economic recovery path, they’re under pressure to invest in measures that can scale up rapidly and create jobs for the millions who now find themselves out of work,” Bloomberg writes. While the plan assumes a major role for private capital, “the details from the plans under consideration send an important signal for investors.”
Before the pandemic, the news agency adds, the EC calculated Europe would have to invest €250 to €300 billion per year to reach its climate neutrality goal. Now, “the EU’s executive is seeking to strike a fine balance between kick-starting the economy and greening it at the same time. The proposal to be unveiled [this] week is subject to unanimous approval by the EU’s 27 governments in a process of tough negotiations that could take months to conclude.”
So far, 17 of the 27 countries have agreed in principle to link the pandemic recovery to the European Green Deal.
While the focus this week will be on the European Commission, a different discussion will be coming up when governors of the European Central Bank meet June 4. Last week, Reclaim Finance reported the ECB’s pandemic relief activities have included significant relief for fossil fuel companies, including 10 beneficiaries with combined coal capacity of 66,000 megawatts.
And “coal is not the only problem: major oil and gas companies, including Shell and Total, that plan on increasing their productions respectively by 38% and 12% from 2018 to 2030, are on the list of assets bought by the ECB,” the group states. And “beyond fossil fuels, high-carbon activities are prominent in the ECB’s portfolio. Polluting companies account for 63% of corporate assets purchases, which could mean up to €132 billion for COVID-related asset purchases alone.”
“While billions deployed in response to the COVID crisis should go to the construction of a just and sustainable future, our research shows that the ECB is locking us in a high-carbon trajectory,” said Reclaim Finance campaigner Paul Schreiber. “The ECB needs to immediately exclude the most polluting firms from its asset purchases and to require commitments to phase out coal and fossil fuels.”
“Our report demonstrates the urgency to put an end to the principle of ‘market neutrality’ that guides asset purchases. Preserving this dogma means refusing to acknowledge the political dimension of monetary creation and is anachronic in a context of climate emergency,” added Director Lucie Pinson. With €1100 billion to be spent on quantitative easing in 2020, the ECB “must exclude corporations whose practices are incompatible with the Paris Agreement from its asset purchases.”
The Rocky Mountain Institute is also noting that controls on climate-busting methane emissions are “conspicuously absent” from Europe’s recovery plan.
“The European Green Deal presents an unprecedented opportunity for Europe to lead in tackling methane emissions with an outsized global impact,” writes CEO Jules Kortenhorst. “As the world’s largest net importer of natural gas, Europe’s unique market position gives it disproportionate sway in the global gas market, influencing major gas suppliers including Russia, Algeria, Qatar, and the United States.”