EU Green Deal

We have the deal in our pockets

Our article presents and explains the initiatives of the European Green Deal. The European Green Deal affects all member states of the European Union and includes a series of legislative changes and new regulations and rules designed to change the way business is done in Europe. We at FutureBusiness.Partners believe that the European Green Deal offers many opportunities for businesses. The challenge will be to identify and use the potential of the green deal. The main thing here is not to wait until the laws and regulations are passed and possibly become mandatory before dealing with them, but to prepare for the changes now. This creates more opportunities to use the regulations to your own advantage and stay ahead of the competition.

The concept of the Green Deal

The European Green Deal was presented as a new concept by the European Commission under Ursula von der Leyen in 2019. It can be understood as a strategy to help Europe achieve its climate targets by 2050. The European Union’s goal is to be the first continent to become climate neutral by 2050. The European Union is thus also fulfilling its obligations under the 2015 Paris Climate Agreement. In order to reduce greenhouse gas emissions accordingly, the climate plans developed to date must be adapted to the new target.

An interim goal is to emit 55% fewer greenhouse gas emissions by 2030 compared to 1990 levels. Germany is pursuing an even more ambitious goal by committing to emit 65% fewer emissions by 2030.

The European Green Deal is thus a collection of policy initiatives designed to trigger a transformation process of the European economy and society for a sustainable future. In addition, the European Commission argues that the European Green Deal is intended to ensure a better and healthier life for future generations. The political initiatives contained in the European Green Deal are dedicated to the areas of financial market regulation, energy supply, transport, trade, industry, and agriculture and forestry. The improvements that the European Green Deal is supposed to initiate range from more biodiversity and healthy soils, to refurbished and energy-efficient buildings and more public transport. In addition, there are aspects such as healthy and affordable food, clean energy and state-of-the-art technologies, as well as more durable products and sustainable jobs.

The future of Europe also depends on an intact earth. This means creating a modern, resource-efficient and competitive economy whose transformation must be cost-effective, equitable and socially balanced. To achieve this, a coherent, holistic and cross-sectoral approach is needed. After all, the European Commission sees the greatest challenge in shifting the growth of the European economy away from limited and climate-damaging resources without causing a reduction in wealth.

Climate protection financing

One-third of the investment (€1.8 trillion) comes from the NextGeneration EU (NGEU) reconstruction plan (about €750 billion) and the remaining two-thirds from the EU- 27 annual budget (€1074.3 billion). The NextGenerationEU – Recovery Plan is the largest EU-funded stimulus package ever. The main task of the package is to strengthen the economy and society in Europe after the pandemic. At the same time, this is intended to make Europe greener, more digital and more crisis-resistant in order to be able to meet the future challenges and potentials of ecological and digital change. The NextGenerationEU Reconstruction Plan can thus be understood as a capital provider for the European Green Deal; it finances the investments required by the Green Deal initiatives.

The EU taxonomy

The EU taxonomy regulation also plays a decisive role in the acquisition of the required investment funds. The taxonomy is embedded in the EU’s Sustainable Growth Financing Action Plan (Sustainable Finance). The taxonomy supports the goal of the European Green Deal with the incentives for sustainable investments. The main aim here is to channel investments into sustainable projects and activities and to create transparency. The Sustainable Finance Taxonomy Regulation adopted in 2021 classifies different economic activities according to their degree of sustainability. An investment is considered sustainable if it contributes to one or more of six environmental goals.

The primary goal of the action plan is to create a framework by bringing aspects such as environment, social and governance (“ESG”) into the focus of the financial system.

The “Fit for 55” package – from strategy to reality

In the coming years, the main task will be to create the conditions to achieve the ecological and economic goals.

A key initiative of the European Green Deal is the “Fit for 55” package, which was published as a proposal by the European Commission in July 2021. It aims to translate the ambitious goal of Europe emitting 55% fewer greenhouse gases by 2030 into practice. The package of measures now transforms the strategy developed in the European Green Deal into concrete commitments, regulations and laws.

The “Fit for 55” package is several thousand pages long and includes a variety of new or modifications to existing state instruments and includes a large number of legislative revisions. The core elements are a revision of EU climate, energy and transport related legislation and also proposals for new initiatives. This is to ensure that the measures are consistent with the objectives.

In the following, the contents of the “Fit for 55” will once again be discussed in more concrete terms in order to provide an overview of possible future developments and changes.

The Carbon Boundary Adjustment Mechanism (CBAM)

The CO2 border adjustment mechanism is of particular importance, also for non-EU countries. The aim of the mechanism is to prevent companies with CO2-intensive production from relocating their manufacturing to countries with less ambitious climate protection targets (carbon leakage). At the same time, the CO2 border adjustment mechanism is intended to ensure the competitiveness of European companies by imposing a climate tariff on certain non-EU products. The CBAM (Carbon Border Adjustment Mechanism) balances the CO2 price between EU and non-EU products. Here, EU importers buy certificates that correspond to the CO2 price that would have been paid if the product had been produced according to EU rules. If an importer can prove that it has already paid for its CO2 emissions, it can take full credit for it. The level of the climate tariff is therefore based on the amount of CO2 emitted in the production of goods and operates in parallel with the EU Emissions Trading Scheme (EU ETS).

Greenhouse gas reduction targets

In addition, the “Fit for 55” also contains proposals for revising how the GHG reduction targets (greenhouse gas reduction targets) of the member states can be ensured in the sectors that are not covered by the EU emissions trading system.

The Burden Sharing Ordinance currently establishes mandatory targets for annual GHG emission reductions in the relevant sectors. Furthermore, the regulation on land use, land use change and forestry (LULUCF) is to be revised in particular. Here, emissions caused by agriculture and their elimination or reduction are to be organized.

Changes and importance of the energy sector

In addition to taking a closer look at agriculture, the “Fit for 55” package also includes changes to the Renewable Energy Directive. The overarching goal here is to source 40% of the electricity mix from renewables by 2030. As a result, another component is the Energy Efficiency Directive. This is to be recast and bring about an increase in energy efficiency of approximately 5-6%. Based on this, the revision of the Energy Performance of Buildings Directive will take place. In addition, the Energy Taxation Directive is to be revised in this course. The energy sector therefore has a special role to play, as it is responsible for around 80% of Europe’s energy-related greenhouse gases. These energy-related greenhouse gas emissions result from the conversion of fossil fuels into electrical or thermal energy. Germany, for example, mainly relies on imported energy raw materials such as mineral oil, natural gas and coal for its energy supply. In addition, the methane emissions generated in the energy sector are to be reduced. Methane is a powerful greenhouse gas and is 21 times more potent than carbon dioxide. The largest source of methane in the EU is the energy sector, agriculture and waste management. Methane emissions can best be saved cost-effectively in the energy sector, for example, by imposing repair obligations on gas infrastructure. Likewise, the revision of the third energy package for gas is intended to facilitate the penetration of renewable and low-carbon gases into the energy system and to initiate a shift away from natural gas.

The change in movement

The “Fit for 55” package has also produced a number of designs in the field of air, water and transport mobility. One aspect relates to the establishment of an infrastructure for alternative fuels. In this context, the European infrastructure is to be adapted to the goal of climate neutrality in order to support the European economy during its transformation in the long term. Following on from this, the regulation on CO2 standards for passenger cars and light commercial vehicles is also to be amended to bring about a reduction in emissions in this sector that is in line with the 2030 targets. Transportation is the only sector that is experiencing increasing greenhouse gas emissions. In particular, GHG emissions from road transport account for approximately 20% of the EU’s total GHG emissions. Another goal of the revision of the above standards, is to create more benefits for consumers through zero-emission vehicles and thus improve air quality in cities. The third objective is to stimulate new innovations in zero-emission technologies in order to strengthen the technological leadership of the automotive industry in the EU and create new jobs. With regard to Germany, it should not be neglected that German companies occupy a real leading position in environmental and climate protection in the development of innovative products, services and production processes. As a result, these companies will enjoy higher demand in the future, driven by increasing interest in environmental technologies. In aviation, the ReFuelEU draft regulation aims to ensure that demand is stimulated by gradually increasing the quota of Sustainable Aviation Fuels, for European aviation. The FuelEU Maritime Initiative is similar. It aims to increase the use of sustainable alternative fuels in Europe’s shipping and ports by removing market barriers and testing alternatives for market viability. Shipping accounts for around 11% of transport-related emissions, which is equivalent to around 4% of EU CO2 emissions.

The final overarching point of the “Fit for 55” package is devoted to the proposal to establish a climate social fund. That’s because as more regulations come in, private households are being encouraged to invest in clean transportation, good insulation and alternative energy sources.

The Climate and Social Fund is intended to relieve vulnerable groups in society that are particularly financially affected by the energy transition.

By implementing the adjustments now executed, the way Europeans do business will change. The innovations will also be incorporated into the national legislation and regulations of the European member states. The start of transposition into national law is scheduled for 2023. But in addition to the central “Fit for 55” initiative, there are other initiatives included in the European Green Deal.

The European Climate Act

Another initiative is the European Climate Change Act, which is legally binding for all EU member states and includes a legal obligation to emit 55% less GHG by 2030 compared to 1990 levels.

With the law, the EU creates the legal foundation for the implementation of the EU strategy.

This EU climate change adaptation strategy is also part of the European Green Deal initiatives and aims to help society become more climate resilient. In addition to improved knowledge exchange on the consequences of climate change, sustainable solutions for strengthening and protecting ecosystems will also be developed. As a result, disaster management must also be adapted to an extreme climate event.

The EU Biodiversity Strategy

Climate change is also reflected in Europe’s biodiversity. Biodiversity has declined sharply in recent years. It plays a central role in maintaining the balance of nature. Biodiversity is essential for protecting our health and sustaining economic activity. According to the EU, almost half of the world’s GDP (gross domestic product) depends on the environment and its resources. To protect ecosystems and ecosystem services, the EU Biodiversity Strategy for 2030 aims to improve the restoration and conservation of biodiversity in Europe. Measures include expanding land and marine protected areas in Europe, reducing the use of harmful pesticides, and increasing funding, coupled with improved monitoring of developments.

From the farm to the table

Very closely linked to the biodiversity strategy is another initiative of the European Green Deal: From farm to table . The overarching goal of the initiative is to develop a sustainable food system in the EU. Topics in this area include food safety, establishing sustainable food consumption, and healthier diets within the Earth’s carrying capacity limits.

The EU Forest Strategy

The EU Forest Strategy, which is a focal point of the European Green Deal, is based on the EU Biodiversity Strategy. The aim is to establish sustainable forest management and provide financial incentives for environmentally friendly practices. Other measures in the forest strategy include increasing forest areas and planting 3 billion new trees by 2030. Europe’s forests play a key role in the goal of becoming climate neutral by 2050.

Industry and the establishment of a circular economy

Furthermore, the EU Industrial Strategy, as part of the European Green Deal initiatives, aims to strengthen the European economy as an accelerator and enabler of change, innovation and growth. The initiative is complemented by the Circular Economy Action Plan. This is the crucial piece of the puzzle for sustainable growth. This is because, in addition to developing new and sustainable products and services, the aim is to close the product life cycle by implementing a circular economy. Aspects such as resource efficiency, recycling, reuse, repair and product longevity are coming to the fore.

Another proposal under the European Green Deal is to establish mandatory requirements for batteries in all sectors. A sustainable circular European value chain for batteries should provide consistency and promote the green transformation of the industry. The EU sustainability strategy for chemicals is also designed to protect the environment and people and is part of the European Green Deal and, at the same time, the zero-pollutant target. It is intended to contribute to a more pollution-free environment and strengthen the competitiveness of the industry. Among other initiatives such as clean, affordable and secure energy and sustainable and smart mobility initiatives, the Just Transition Initiative will be highlighted.

A Just transition

The Just Transition Initiative aims to support regions that are particularly dependent on fossil fuels. The regions are to be relieved by financial as well as technical means and thus create the way to clean energy. This is not limited to large-scale levels, such as those of EU member states and companies, but also affects private households in the form of retraining opportunities and new employment opportunities. In general, the aim is to mitigate the negative effects of the green transition in these regions, and the supports will play an important part in ensuring that social and equitable change can take place.

All of the above initiatives are anchored in the large network of the Green Deal and are designed to provide opportunities for action, approaches and knowledge to drive the decarbonization of the European economy and fully exploit the potentials.

What German entrepreneurs think of the European Green Deal

Now that the main initiatives of the European Green Deal have been explained, the question may arise as to how German entrepreneurs assess the impact of the Green Deal.

According to a survey of companies by the Institut der deutschen Wirtschaft (Institute of the German Economy), around three quarters of all companies say that they can successfully implement the transformation required by the Green Deal. Nevertheless, around 40% of companies state that their own business model will be affected by cost increases as a result of the Green Deal.

In terms of green investment activities, over 50% of companies express having the incentive to invest in the development of climate-friendly products and technologies through the Green Deal.

In addition, many companies from all sectors see new sales opportunities for climate-friendly products as a result of the Green Deal.

Potentials and advantages for sustainable companies

Another potential of the European Green Deal is the previously mentioned circular economy system. This can help companies become less dependent on international supply chains and shield themselves from price fluctuations on the world market. In addition, a company with such an approach increases its chances of receiving government funding, and the lower resource consumption is ultimately profitable.

General benefits for sustainable companies aligned with the planned developments of the European Green Deal include: increased employee satisfaction, a reduction in energy expenditures and a better position in recruiting young employees, as well as promoting a positive image. In general, well-implemented sustainability management leads to higher sales in the long term if this is linked to the core business.

See you in the future…

The European Green Deal includes many initiatives and has an impact on every industry. However, it is not only companies and the state that are addressed, but also society as a whole.

The various Green Deal initiatives take a holistic approach. In fiscal policy, an EU taxonomy should encourage green investment, the circular economy approach should conserve resources, sustainable agriculture should ensure food security, and clean industry should protect nature and favor the preservation of biodiversity. The focus is now on the future. The old paths are now being repaved and, at the same time, a path is being taken for Europe to get closer to nature again.

The European Green Deal offers us the chance to establish green as usual and to set an example as a continent.

Because we are not only Fit for Net- Zero, but also Fit for Green Future Business!