ourEconomy: Opinion

Curtain time for an EU budget without fossil fuels

Europe’s trillion euro budget can drive the European Green Deal, but only if it excludes spending on fossil fuels.

Raphael Hanoteaux
9 June 2020
Nicolas Economou/NurPhoto/PA Images

Once every seven years, a uniquely European courtship ritual takes place. Member States iron out the details of the bloc’s seven-year, long-term EU budget, outlining how much to spend on everything from railroads to farming and space exploration.

Typically the waltz includes infighting between the ‘frugal’ northern states who argue against a perceived transfer of wealth to ‘profligate’ members in central and eastern Europe. The debate is a zero-sum game focused solely on the size of the pot.

But now more than ever, the debate about the future budget must set aside squabbles over size and instead ensure quality spending in line with the principles of the European Green Deal. As a start, EU leaders should ban fossil fuels from the regional development and cohesion funds, two parts of the EU budget meant to close the gap between richer and poorer parts of Europe.

The background music for this dance is different. Europe now finds itself in the throes of a public health pandemic that has induced economic stagnation of historic proportions, right at the moment when the EU was set to embark on the ambitious European Green Deal and transform its economy to reach climate neutrality by 2050.

Reaching the goals of the deal will be especially difficult for the energy-intensive economies of central and eastern Europe that are the largest recipients of these cohesion funds and have historically relied the most on burning fossil fuels. Significant parts of the population in these places also depend on decaying fossil fuel industries for their livelihoods, so safeguarding an equitable and socially-‘just transition’ away from dirty energy is an additional challenge.

This has raised the stakes for Commission President Von der Leyen when she unveiled a new-look EU budget at the end of May, as part of the 750 billion euros EU pandemic recovery package. Cohesion funds figure centrally to the Commission’s plan, with another 55 billion euros planned and an increase up to 40 billion euros for the Just Transition Fund, money earmarked to help move EU regions, especially those in central and eastern Europe, away from fossil fuel-dependency.

But just as the debate over the size of the EU budget misses the mark, so too does the Commission’s proposal in that it lacks an explicit ban on fossil fuel investments. Indeed the proposal promises leeway in how such funds can be spent. If funding for fossil fuels are not excluded outright from the EU budget, the danger is that member states will continue business as usual with climate-wrecking investments.

As we saw during the early days of the pandemic, in spite of a growing chorus calling for the European Green Deal to be at the ‘heart of the recovery’, some urged the EU to abandon the deal altogether.

While the Czech Republic would later reverse its stance in favour of the deal, the ink was yet to dry on a statement from eight mostly central European Member States supporting burning fossil gas as a ‘transition fuel’. These calls are clearly incompatible, as the International Energy Agency (IEA) has said explicitly that fossil fuels have no place in the energy mix if governments are to meet emissions future reductions targets.

In neighbouring Poland, the government enthusiastically welcomed the Commission’s proposal for additional recovery funds, as the country is set to be the third largest beneficiary. President Andrzej Duda went as far to claim credit for the amount Poland would receive, chalking up the success to a letter he had sent recently to Brussels.

But while happy to receive all the cash, Poland is hardly committed to the goals set out by the Commission: it is still the only country yet to adopt the EU’s goal of climate neutrality. Warsaw cheers the six billion euros it will receive from the Just Transition Fund to restructure its coal regions, all while counting on coal to power its energy needs for decades to come.

Cohesion funds have the potential to radically transform Europe. Funding for small-scale energy producers that directly generate local economic revenues, or community-driven solutions to move away from fossil fuels show the potential that these have for imaging a different future. Evidence is also mounting that the surest road to economic recovery from the pandemic will be through stimulus measures that simultaneously address the threat of climate change.

The Commission’s budget proposal is meant to put Europe on a path to resilience, in a manner which political leaders in central and eastern Europe have yet to grasp, nevermind agree to and internalise. But unless the Commission clearly excludes fossil fuels and sets out ambitious climate spending goals for the EU budget, there are no guarantees that countries in the region won't continue moving to the same fossil fuel tune and hold back the promise of the European Green Deal for the rest.

This is a dance that Europe cannot afford to sit out.

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