Uma estratégia de investimento para manter o Acordo Verde Europeu no bom caminho

Econômico

Resumo:

Neste Policy Brief, avaliamos o investimento necessário para atingir o objetivo climático para 2030 e a neutralidade climática até 2050.

De quanto investimento verde necessita a UE?

Não há transição verde sem investimento verde. Estimular isto será o principal desafio do Pacto Ecológico Europeu nos próximos cinco anos, aumentando ou diminuindo as hipóteses da União Europeia de atingir as suas metas climáticas e de reforçar a sua competitividade e segurança.

Mas quanto investimento verde é realmente necessário para atingir as metas climáticas da UE? Para avaliar isto, são necessárias informações de boa qualidade a nível nacional. Mas, apesar do Pacto Ecológico Europeu e das muitas iniciativas que desencadeou, este continua a ser surpreendentemente incompleto e inconsistente. Na melhor das hipóteses, alguns dos planos nacionais em matéria de energia e clima (PNEC) dos países da UE fornecem estimativas gerais do montante de investimento necessário para atingir a meta para 2030, sem especificar como essas estimativas foram calculadas, tornando impossível avaliar a sua fiabilidade e compará-las de forma consistente ou monitorizar os progressos no sentido da descarbonização (ECA, 2023).

Na ausência de informações nacionais oficiais fiáveis, as necessidades de investimento verde da Europa podem ser melhor compreendidas analisando as estimativas ex-ante da Comissão Europeia para a UE como um todo, nas avaliações de impacto subjacentes às metas climáticas para 2030 e propostas para 2040 ( Comissão Europeia, 2020 , 2024).

De acordo com a Comissão, entre 2011 e 2020, os investimentos totais no fornecimento de energia (ou seja, centrais eléctricas e rede eléctrica), na procura de energia (ou seja, edifícios, indústria, agricultura) e nos transportes (ou seja, automóveis, camiões, transportes públicos) representaram em média 5,8% do total. Para atingir a meta climática da UE para 2030 serão necessários investimentos anuais adicionais de cerca de dois por cento do PIB entre 2021 e 2030, um nível que deverá ser sustentado durante duas décadas para atingir o valor líquido zero (Quadro 1). Uma estratégia de investimento para manter o Acordo Verde Europeu no bom caminho_1

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Estas estimativas estão amplamente alinhadas com as conclusões de Pisani-Ferry e Mahfouz (2023) para França e com as estimativas globais da Agência Internacional de Energia (IEA, 2023b), da Agência Internacional de Energia Renovável (IRENA, 2023) e da Bloomberg New Energy Finance. Estão também alinhados com as estimativas de necessidades adicionais de investimento verde em 2025-2030 no relatório Draghi (2024) sobre a competitividade europeia, que se baseiam em cálculos da Comissão Europeia e do Banco Central Europeu. Por último, Bizien et al (2024) confirmaram que a diferença entre os actuais investimentos climáticos da UE e as estimativas da Comissão sobre as necessidades futuras ascendeu em 2022 a cerca de 2,5% do PIB.

Necessidades de investimento climático da UE: ajustamentos e avisos

As principais estimativas da Comissão Europeia sobre as necessidades de investimento verde são falhadas. O custo de investimento de alguns itens importantes é exagerado. Outras necessidades importantes de investimento relacionadas com o clima não estão incluídas. Mesmo depois de ajustados para sobreavaliações e subavaliações, os números estão sujeitos a uma incerteza significativa.

Exageros

Os números principais da Comissão consideram os transportes como o principal item de despesa, de longe, mas 60 por cento desta necessidade de investimento surgiria da substituição de automóveis que aconteceria de qualquer maneira (com base numa vida útil média dos automóveis de cerca de 10 anos ; ACEA, 2023). Se isto for eliminado, a Comissão espera que os investimentos adicionais em transportes consistentes com a consecução de emissões líquidas zero sejam limitados: 0,5 por cento do PIB anualmente de 2021 a 2030. Em vez disso, espera-se que o sector da energia e os edifícios são os principais sectores que requerem esforços adicionais para atingir as metas climáticas. Nestes dois sectores, prevê-se que as necessidades de investimento quase dupliquem em percentagem do PIB durante o mesmo período.

Os números principais da Comissão tentam também ter em conta a mudança comportamental. Isto é provavelmente significativo, uma vez que outras medidas comportamentais (por exemplo, mudanças modais aceleradas e padrões de mobilidade sustentável, conservação de energia, reciclagem) poderiam reduzir as necessidades de investimento verde da UE em cerca de oito por cento (Quadro 2).

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Eufemismos

Os números da Comissão Europeia referem-se apenas às despesas de capital (CAPEX) e não incluem os custos de financiamento. Vale a pena mencionar isto porque, embora o CAPEX represente o principal item de custo na transição verde, o custo do financiamento do investimento será significativo para os agentes com restrições de caixa e as finanças públicas terão de intervir com instrumentos de redução de risco para facilitar o investimento privado.

Os números da Comissão também consideram apenas o lado da implementação da descarbonização e não incluem o lado da produção. Ou seja, estes números não têm em conta os custos de produção de tecnologia limpa necessários para alcançar os objectivos da política industrial da UE, tais como o que está descrito na Lei da Indústria Net-Zero (NZIA, Regulamento (UE) 2024/1735 ). A Comissão estima que o aumento das capacidades de produção de tecnologia limpa na Europa para satisfazer pelo menos 40% das necessidades anuais de implantação da UE até 2030 exigiria investimentos totais adicionais de cerca de 100 mil milhões de euros no período 2024-2030. Isto representa cerca de 0,1% do PIB.

Consideramos esta estimativa demasiado conservadora, em particular porque a NZIA se centra apenas numa selecção limitada de tecnologias e cadeias de abastecimento nacionais, e ignora os custos dos programas de melhoria de competências e de garantia do acesso a matérias-primas estratégicas críticas subjacentes. Além disso, as necessidades de investimento verde na indústria transformadora poderão ser muito maiores se a segurança económica for considerada como exigindo uma deslocalização agressiva.

Por último, as estimativas da Comissão tratam apenas do lado da mitigação da acção climática e não incluem o investimento na adaptação climática. Esta é uma lacuna importante, uma vez que a necessidade de adaptação climática da UE já é e será substancial, mesmo que a mitigação prossiga dentro do prazo. As estimativas do investimento em adaptação envolvem uma incerteza considerável. Para a UE, estima-se atualmente que variem entre os 35 mil milhões de euros e os 500 mil milhões de euros anuais, uma variação enorme que reflete diferentes pressupostos subjacentes e abordagens metodológicas (BEI, 2021a). É urgente estreitar o leque de estimativas plausíveis e desenvolver uma melhor avaliação da distribuição destes investimentos ao longo do tempo e entre países.

Incerteza adicional

As estimativas acima referidas são sustentadas por uma série de pressupostos, nomeadamente sobre a trajetória do preço do carbono, o calendário dos esforços de descarbonização, o papel da inovação na redução dos custos das tecnologias limpas e a substituibilidade do sistema. É claro que isto pode mudar. Deve também ficar claro que as estimativas são apenas para investimentos de descarbonização e não incluem as outras partes ambientais e de economia circular do Pacto Ecológico Europeu. Também não incluem os investimentos necessários para mobilizar todos os recursos necessários, tais como a requalificação/melhoria de competências dos trabalhadores das indústrias castanhas para as indústrias verdes e medidas para fazer face às implicações sociais da política climática. Este último ponto é particularmente relevante, porque haverá uma grande necessidade, entre 2025 e 2030, de lidar com as complexas implicações distributivas da descarbonização dos edifícios e dos transportes, das quais as reduções de emissões têm sido até agora relativamente pequenas. Evitar reações políticas pode passar pela oferta de incentivos financeiros às famílias em troca da adoção de tecnologias verdes mais dispendiosas.

Em suma: uma vez que as mudanças comportamentais podem ser mais significativas do que se supõe, as principais estimativas de investimento da Comissão Europeia podem estar a sobrestimar as necessidades de investimento globais e privadas relacionadas com a mitigação (secção 2.1). No entanto, as necessidades totais de transição relacionadas com o clima devem também incluir investimentos em adaptação, os custos de requalificação e a diferença de custos entre o investimento em tecnologia verde e o investimento em tecnologia castanha que, de outra forma, teria acontecido. A dimensão destes itens excluídos é muito incerta, principalmente devido à incerteza que rodeia as necessidades de adaptação. Consequentemente, é provável que a necessidade total de investimento para a transição ecológica até 2030 exceda as estimativas da Comissão por uma larga margem. É ainda mais o caso da transição até 2040.

O investimento público precisa de atingir o objectivo climático da UE para 2030

If achieving the EU climate goals requires a substantial increase in investment, who is going to pay? The European Commission does not provide specific figures for this, mentioning only that the private sector is expected to be the main source of investment in the electricity system and industry, while public funding is expected to play a substantial role in the buildings and transport sectors, and in supporting innovative clean-tech uptake in the energy system and the industrial sector.

EIB (2021b) and Darvas and Wolff (2022) estimated the public share of green investment to be about 25 percent. However, these exercises are characterised by high uncertainty. For instance, by providing estimates for each category of investment, Pisani-Ferry and Mahfouz (2023) estimated this share to be higher for France: 50 percent in an optimal scenario for the country, also because of France’s larger public sector and greater share of public buildings than other countries. This higher figure is in line with a granular analysis by Baccianti (2022) for the EU, the central scenario of which also points to a roughly 50 percent public share of green investment.

Based on these different exercises, we can assume the public share of additional green investments from 2025-2030 to range between 25 percent and 50 percent. Given that the annual additional investments to reach the EU 2030 climate target are estimated at two percent of GDP, the additional public effort to reach the EU 2030 climate target would thus range between 0.5 percent and one percent of GDP over 2025-2030.

Given limited public finances, it will be crucial to make all the necessary efforts to stay at the lower end of this range. In other words, the available resources should be focused on those areas where private finance alone cannot deliver (ie where clear market failures exist). This includes:

RD support and support for early adoption of innovative clean technologies. This is what allows the creation of economies of scale, leading to steep cost reductions, which in turn progressively reduce the need for public support as the ‘green premium’ thins out. This has happened with wind and solar energy. IRENA estimated that between 2010 and 2022, the average cost of generating electricity from solar PV fell by 89 percent – currently almost one-third cheaper than the cheapest fossil fuel globally – while the cost of generating electricity with onshore wind fell by 69 percent. This is why countries including Germany have been able to rethink their investment support for renewables, and why the share of public investment to meet EU climate targets in the power sector is estimated in the relatively low range of 15 percent to 20 percent (Baccianti, 2022).

Financing electricity and transport infrastructure, as well as renovation of public buildings. For example, public funding will need to pay for a significant share of investment in railway networks, public transport and district heating (Baccianti, 2022; OBR, 2021).

Provision of financial de-risking tools to lower the cost of capital for private investors in green projects. Many clean technologies are characterised by high CAPEX and low operating costs (OPEX). This is true for wind and solar generation, electric vehicles and buildings retrofitting. The cost of capital thus plays a key role in the green transition, providing a critical benchmark to assess the risk and return preferences of investors, and acting as a lever for financial flows to influence prices and choices in the real energy economy (IEA, 2021). Lowering the cost of capital to foster private investment can be done through instruments such as preferential loans and guarantees to both firms and households. For instance, zero-interest loans in France, granted under the éco-Prêt à Taux Zéro (éco-PTZ) programme boosted energy-renovation rates across the country thanks to high take-up among the middle class (Eryzhenskiy et al, 2022).

Provision of direct financial support and compensation to the most vulnerable to ensure a socially fair transition. For most vulnerable households, direct public support is needed to compensate for the higher energy costs linked to climate policy, and to ensure take-up of green alternatives. For example, the phase-in of an EU carbon price on household and road transport emissions will likely be regressive, disproportionally affecting vulnerable households that rely on fossil fuels for domestic heating and lack the resources needed to change their vehicles. Directing support to the most vulnerable would help reduce both emissions and energy poverty. For instance, prioritising grants for the worst-performing buildings, often occupied by vulnerable consumers, will yield climate benefits and benefits in terms of improved air quality, health, productivity, energy security and lower future government outlays to alleviate energy poverty (Vailles et al, 2023; Keliauskaite et al, 2024).

The upshot is that the EU has embarked on a transformational transition without mapping out in detail how much investment this transition will require, and without equipping itself with the capacity to monitor, either at EU-level or national level, the actual efforts and the remaining investment gap. Knowing the rough direction of travel is like crossing the Atlantic without a compass, and is not enough.

A perfect storm for 2025-2030

Even if governments can ensure the substitutability of public finance with private finance, achieving the EU’s 2030 climate goal will still require public investment during 2025-2030 of at least 0.5 percent of GDP. Delivering this will be tough for five main reasons.

The main source of EU grants for the green transition is running out

Since the launch of the European Green Deal in 2019, the EU has played an increasingly direct role in fostering green investment, including through carbon pricing and regulations, and also by offering financial incentives. Balancing prohibitions and incentives is crucial to ensure the political viability of the green transition and to avoid a dangerous ‘blame game’ with national capitals (Pisani-Ferry et al, 2023). Two major steps have been taken on the financing of the green transition. First, its was decided to set a 30 percent minimum green spending threshold in the EU budget (the multiannual financial framework, MFF), amounting to about €1 trillion for 2021-2027. Second, a 37 percent minimum green spending threshold was established for the main part of the NextGenerationEU post-pandemic instrument, the Recovery and Resilience Facility (RRF), which was endowed with financial firepower of €723 billion for 2021-2026, including €338 billion in grants.

The RRF is currently the largest source of EU grants for the green transition, especially for buildings and transport decarbonisation (Lenaerts and Tagliapietra, 2021). On top of the MFF, green grants from the RRF and other instruments – the Innovation Fund, the Modernisation Fund and the Just Transition Fund – amount to about €50 billion per year.

But the RRF ends in 2026. This will leave a major gap in EU funding for the green transition, which will decrease to slightly less than €20 billion per year. In other words, a gap of about €180 billion for the 2024 to 2030 period will open up (Pisani-Ferry et al, 2023). This is highly problematic. It will happen just as EU countries are required to deepen their decarbonisation efforts substantially, starting with difficult sectors such as buildings and transport. The risk of political pushback from national capitals will likely be serious as a result.

The reformed EU fiscal framework is not conducive to green investment

A reform of the EU’s fiscal framework – which implements the EU Treaty requirement for countries to keep their budget deficits within 3 percent of GDP, and their public debt within 60 percent of GDP – took effect in April 2024. The framework as updated imposes restrictions that could make the financing of new green investment at national level very difficult for countries with debts and deficits considered excessive. Furthermore, the reformed fiscal framework does not include a ‘green golden rule’, which would exclude any increase in net green public investment from the fiscal indicators used to measure compliance with the fiscal rules. Nor does it provide exemptions even for EU-endorsed national green investments (see Box 1). These constraints make public investment for decarbonisation harder to realise.

False narratives on climate policies are increasingly promoted

Even before the 2024 US presidential election, swings to populist nationalist parties in large countries including Germany and France suggested unease among voters about climate policy. These parties indeed often preach the false belief that decarbonisation is detrimental to competitiveness and security, when it is exactly the opposite. Green investment is fundamental for the EU to meet its pressing competitiveness and security objectives, even if complex trade-offs exist between these different societal objectives.

Being poorly endowed with domestic resources, Europe is highly dependent on fossil-fuel imports, as dramatically illustrated by the 2022-2023 energy crisis. This exposes the EU to global oil and gas market volatility, undermining competitiveness and threatening security. For Europe, the only structural solution is the green transition. The EU is endowed with abundant domestic renewable energy resources, which can be exploited in a cost-effective manner, as generating electricity with wind and solar energy is now cheaper than doing so with coal and gas (Ember, 2024).

It is important to note that these estimates exclude subsidies, tax credits and system integration costs (eg grid connection and flexibility solutions to cope with intermittent renewable energy sources). It should also be mentioned that deploying renewables rapidly will not only lower wholesale power prices, but also cut bills for households, even accounting for additional costs such as grid expansion (Ember, 2024). This is the result of the global roll-out of clean technologies and continuing cost reductions in this sector (Claeys et al, 2024). According to the IEA (2023a), EU electricity consumers saved €100 billion during the peak of the energy crisis in 2021-2023 thanks to additional electricity generation from newly installed solar PV and wind capacity.

While decarbonisation was a priority in its own right until 2022, it is now the only available way to structurally secure energy supplies and to lower energy costs for the European economy. However, it will take time to get there. Most modelling exercises, including the European Commission’s, expect renewables to really cut electricity prices only in the early 2030s (Gasparella et al, 2023). For this to happen, massive investments will be required for renewable generation build-up, electricity grid expansion and provisions of flexibility solutions, such as electricity storage.

The trade-offs between decarbonisation, competitiveness and security are increasingly difficult

Decarbonisation raises three main issues: the fiscal cost, impact on competitiveness and implications for economic security. All three objectives of fiscal sustainability, competitiveness and economic security are worth pursuing, but cannot be achieved simultaneously, at least over a five-to-15 year period. Policy must therefore confront trade-offs. For example, relying on Chinese green equipment may help contain the fiscal cost of the transition and be good for competitiveness, but at the cost of undermining economic security. Conversely, European sourcing may head off economic security risks, but is likely to increase the fiscal cost of the transition.

Moreover, the nature or the acuteness of the trade-offs depend on the instruments chosen to reach net zero. Carbon pricing (through taxation or the auctioning of emission permits) alleviates the budget constraint but raises issues of social acceptability. Regulation does not raise fiscal concerns, but by shifting the decarbonisation cost onto the business sector, it may negatively affect competitiveness. Subsidisation of green investment may be good for economic security and competitiveness, but entails a fiscal cost (which the US Inflation Reduction Act (IRA) suggests could be major). Trade-offs are therefore instrument-specific.

EU green investment needs, and the public share of them, depend on the industrial policy approach. A strong industrial reshoring strategy would, for instance, lead to higher costs for clean technologies and therefore to higher green-investment needs. On the contrary, a more balanced and innovation-driven industrial policy might foster clean-tech cost reductions and therefore reduce green-investment needs. As industrial competitiveness will be a major driver of the 2024-2029 EU cycle, this trade-off will have to be confronted by policymakers at both EU and national levels.

In summary, Europe is currently not on track to reach its climate targets. It is at a juncture where political resistance to decarbonisation is mounting and where budgetary means to buy off consent are becoming scarce, at both EU level (because the main source of financing is drying up) and national level (because the fiscal rules leave little room for green investment). Moreover, the EU faces increasingly acute trade-offs between fiscal sustainability, competitiveness and economic security.

The return of President Trump further exacerbates the problem

The return of President Trump is set to exacerbate competitiveness and economic security challenges. His expected dismantling of US climate and environmental policies will fuel the narrative of populist nationalist parties in Europe, while his agenda is set to worsen Europe’s decarbonisation, competitiveness and security conundrum. As more public spending is likely to be needed in the defence sector, less public resources might be available for the green transition.

Confronting this challenge, it must be clear that Europe’s own economic interest is to push ahead with the green transition, for at least three reasons. First, global decarbonisation is vital for the EU in seeking to limit increasingly expensive climate damage in the future. Second, it will help the EU enhance its economic competitiveness and economic security. Third, it represents a clean-tech export opportunity for Europe. The EU must stick with its plan even as difficult trade-offs get tougher, and try to turn this situation into an opportunity to attract those clean investments that might now not materialise in the US, at least over the next four years.

It is important to stress that Trump’s fossil-fuel agenda is in the selfish interest of the US but it has no content for the EU, which is not endowed with fossil-fuel resources. Trump will aim to make the US not just ‘energy independent’, but ‘energy dominant’. He has pledged to halve natural gas and electricity prices within a year, largely through increased natural gas production. If this happens, it would widen the EU-US energy price gap, further undermining EU industrial competitiveness. As previously illustrated, the only way for Europe to provide a structural solution to this problem is to accelerate green investments. Trump’s return should thus be taken as a substantial boost to the implementation of the EU’s clean investment agenda.

Six proposals to make the necessary climate investments happen

To reach the EU’s 2030 climate target, the European Commission should put forward a new transformation programme, with both a private and a public strand. For the private strand, policy should aim at ensuring the credibility of the climate-policy strategy, and at creating the framework conditions for a full mobilisation of savings. For the public strand, the aim should to maximise the firepower of limited fiscal resources.

The business strand: ensure credibility and the full mobilisation of savings

Proposal 1: Ensure the credibility of the EU climate-policy framework and overall policy consistency

Credible carbon pricing signals and credible climate and environmental regulations drive expectations and underpin the green investment decisions of households and firms. Effective implementation of this toolkit can reduce the overall fiscal cost of the green transition.

The European Green Deal must thus be implemented fully, avoiding the temptation to water down its provisions because of competitiveness concerns. Reopening and weakening laws agreed after years of negotiations would do nothing to support the competitiveness of European industry and would only risk postponing the green investment decisions of families and businesses by undermining confidence in the reliability of Europe’s green trajectory.

An element that should not be neglected is taxation. Current European taxation systems still provide generous fossil-fuel subsidies and it is urgent to rethink them. After previous failed attempts, the now more than two-decades old EU Energy Taxation Directive (Council Directive 2003/96/EC) must be revised to align European taxation systems with EU climate policy, and to incentivise clean-tech uptake.

Proposal 2: Unleash green private investments through a capital markets union that works, an effective sustainable finance framework and a stronger European Investment Bank

As the private sector will have to account for most green investment, the capability to adequately leverage private investments will ultimately make or break the European Green Deal. The EU can take two important actions on this: i) deliver an effective capital markets union (CMU); ii) deliver an effective sustainable finance framework and iii) increase the firepower of the European Investment Bank (EIB).

A CMU that works

The cost of accessing finance is an important factor in determining whether households and firms can undertake capital-intensive green investments. The EU financial system is highly bank-dominated and fragmented along national lines, making it ill-suited for enabling the massive investments needed for the green transition through the provision of private capital. As a consequence, as noted by Letta (2024), the EU’s share of global capital-market activities – including equity issuance, total market capitalisation and corporate bond issuance – does not align proportionately with its GDP. Economic analysis suggests that this situation makes the EU more prone to crises and more likely to grow at a slower rate (Sapir et al, 2018).

Twin projects have been undertaken to move from fragmented national financial systems to a single European financial system that can finance projects at a European scale: the banking union (since 2012) and the capital markets union (since 2014). Although integrating and deepening capital markets has been a long-standing EU goal, actual progress on the CMU has been very limited. Giving substance to this project is now urgent to spur the private investments needed for the green transition. As suggested by Merler and Véron (2024), the European Commission should advance the CMU primarily by focusing on the integration of capital-markets supervision at EU level, as that is the area with the most immediate potential for progress.

Reform should also streamline the jumble of market infrastructures, asset management and auditing frameworks that currently prevent the efficient pan-European allocation of European savings to European projects, including those needed for the green transition. After years of procrastination, it is time to move and create a direct connection between the funding of the green transition and the development of the CMU.

Deliver an effective sustainable finance framework

The EU has been a first mover in sustainable finance. However, as pointed out by Merler (2024), the EU’s legal framework on sustainable finance suffers from three flaws:

Its centrepiece – the Taxonomy Regulation (Regulation (EU) 2020/852), which defines what counts as sustainable – is hampered by conceptual and usability shortcomings and as a result has not gained traction as the reference framework among corporates and investors for issuance or investment.

The second pillar – the EU Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) – suffers from a structural weakness: its key concept of ‘sustainable investment’ is not clearly defined.

Lastly, the EU lacks a coherent framework for transition finance, which is currently not properly defined in EU legislation.

These flaws risk limiting the effectiveness of EU regulation in leveraging financial markets to meet climate goals. As suggested by Merler and Véron (2024), the EU should take three actions to address this problem: i) better define ‘sustainable investment’ in the disclosure regulation, and ‘transition finance’ in the EU legal framework; ii) develop a standard for sustainability-linked bonds and other types of transition-finance instruments; iii) review how environmental, social and governance (ESG) ratings are regulated to make them more impactful.

Increase the firepower of the EIB

The EIB has played an important role in fostering clean investments under the auspices of the so-called Juncker Plan (now renamed InvestEU), a 2015 EU initiative to boost investment. EIB guarantees should amount to €33.7 billion to support about €370 billion in private investments by 2027. But more can and should be done to increase the role of the EIB in fostering investment across the EU, and also to increase its risk profile.

An important but still modest step has been taken by the EIB Board of Governors, which in 2024 proposed to change the statutory limit on its gearing ratio (ie how much it can lend in relation to its own resources), raising it from 250 percent to 290 percent. With a total balance sheet close to €600 billion, the EIB has played an increasingly significant role in the financing of the green transition, in accordance with its 2019 decision to become ‘the EU’s climate bank’, and to devote more than 50 percent of its investments to projects supporting climate action and environmental sustainability.

The EIB Board of Governors in June 2024 confirmed the financing of the green transition as the bank’s first priority, envisaging an increase in its lending to interconnectors and grids, energy efficiency, energy storage and renewables, and clean-tech manufacturing projects (EIB, 2024a). Financing activity of up to €95 billion is foreseen for 2024-2027, with well above half of investments going to the green transition. This compares to financing activity of €84 billion in 2023, of which more than half is already focused on the green transition (EIB, 2024b).

This is a good step but a modest one, given the scale of investment the EU needs in the coming years. The EIB should be more ambitious on the level of its financial activity. The EU should continue to provide the EIB with sufficient mandates and guarantees from the MFF, as these are essential to maintain the EIB’s current funding levels and to deploy more high-risk impact finance – similarly to national promotional banks (eg Germany’s KfW, France’s Groupe Caisse des Dépôts, Italy’s Cassa Depositi e Prestiti and Spain’s Instituto de Credito Oficial), which are underwritten by national guarantees.

An additional step to form up the EIB’s role in fostering private green investment was proposed by Letta (2024): the launch of a European Green Guarantee (EGG). This would entail the European Commission and EIB developing jointly an EU-wide scheme of guarantees to support bank lending to green investment projects and companies, with the EIB evaluating specific proposals from commercial banks and/or national financial institutions, and awarding the guarantee that would enable them to provide the necessary funding to companies. Based on a resource multiplier of 12 (like the original Juncker Plan), €25 billion to €30 billion in guarantees would trigger €300 billion to €350 billion in green investment. Under this scheme, European banks would be able to play a greater role in funding green companies, as the EGG would neutralise the so-called ‘green transition risk’, which prices the inherent risk of lending to green companies. The EGG would thus allow the EIB to reinforce significantly its catalytic role in private green investment.

The public strand: maximising the firepower of limited fiscal resources

Proposal 3: Turn NECPs into national green-investment strategies and attach conditions to the disbursement of EU funds

The national energy and climate plans (NECPs) of EU countries remain bureaucratic exercises without substantial impact on the formulation and implementation of national energy policies (Pisani-Ferry et al, 2023). NECPs must be turned into real national green-investment strategies, providing a point of reference for investors, stakeholders and citizens in making investment decisions. Governments should be obliged to set out in their NECPs a detailed, bottom-up analysis of their green investment needs, and an implementation roadmap with clear milestones or key performance indicators (KPIs).

The disbursement of EU green funds should be made conditional on the efficient achievement of these KPIs. This would be in line with the approach of linking the future EU budget with national reforms and investments, put forward by Ursula von der Leyen ahead of the European elections. As part of this, EU funds should be better focused on European green public goods with a high level of additionality (eg electricity interconnections) and measures that tackle the distributional impacts of climate policy.

Much more coordinated development of renewable energy and electricity-grid investment across Europe would yield substantial ‘techno-economic’ benefits, based on the design and operation of several European national electricity systems jointly, rather than individually. These benefits will increase massively with the development of renewables because of the harnessing of regional advantages, reducing the need for expensive back-up capacity and enhancing resilience to shocks (Zachmann et al, 2024).

Proposal 4: Revise the EU fiscal framework to introduce a ‘fiscally responsible public investment rule’

The reform of the EU fiscal framework has not left adequate room for green public investment. The framework should be revised by exempting well-specified public investment in decarbonisation, approved by the Council of the EU, from the application of minimum adjustments required under the EDP and the associated safeguards.

The problem with public investment in decarbonisation is that many of these investments are unprofitable at the current carbon price, taking into account the prevailing discount rate (for households) or the cost of capital (for businesses and local governments). Belle-Larant et al (2024) estimated that in France, only one-third of green investments in the transport and building sectors are profitable at the current carbon-price level. This implies that they won’t happen without public support.

Governments should thus play an important role here. But the new EU fiscal rules prevent countries that are subject to the EDP from sustaining clean investments. The framework should be amended so that economically-sound public investment that is expected to result in measurable reductions in emissions can happen. As a rule, this exemption should be conditional on: (a) the allocation of the future savings from reductions in fossil-fuel consumption to the reduction of public deficits and (b) adequate monitoring of implementation.

Proposal 5: Put the EU budget at the service of the green transformation

Increasing the minimum green spending threshold in the EU Multiannual Financial Framework (MFF) from 20 percent in 2014-2020 to 30 percent in 2021-2027 was an important step, consistent with the EU’s tougher climate goals. However, no interim assessment has been performed on compliance with the threshold and effectiveness of the spending. This should be done, taking into account that the European Court of Auditors found that the reported green spending in the MFF from 2014-2020 was not always relevant to climate action and that climate investment reporting was overstated (ECA, 2022).

In the context of the approaching phase-out of the Recovery and Resilience Facility, maintaining the current green spending threshold in the 2028-2034 MFF should be seen as a bare minimum for the EU. New strategic priorities, including security and defence, should be met in parallel – and not at the expense – of the green transition. The EU budget should also be more focused on European green public goods and measures aimed at leveraging national actions to tackle the distributional impacts of climate policy. As we have noted, the disbursement of the EU green budget should be made conditional on the achievement of KPIs.

Commission President von der Leyen is right to propose the creation of a new European Competitiveness Fund to invest in clean-tech manufacturing, AI, space and biotech technologies (von der Leyen, 2024). EU countries should not kill this proposal, as was done with the European Sovereignty Fund, and should instead consider different funding options, including new EU joint borrowing as suggested by Draghi (2024). The European Competitiveness Fund should accompany the implementation of a truly European industrial policy, and could become the main EU industrial policy investment vehicle in the context of which other tools, such as the EU Innovation Fund, could be framed while maintaining their operational autonomy. That is, the European Competitiveness Fund should be a one-stop-shop able to ensure the availability and accessibility of EU funds for clean-tech manufacturing.

Availability and accessibility are essential to maximise the impact of public money. Without such a vehicle at EU level, public incentives to spur private investment in clean tech and other technologies would predominantly come from national state aid, which would create risks of single-market fragmentation. The new Competitiveness Fund should:

Focus on supporting the development and scaling-up of pan-European public-private eco-systems, for instance topping-up national support for Important Projects of Common European Interest (IPCEIs);

Support the whole innovation cycle in an integrated manner, from disruptive innovation to deployment at scale;

Prioritise areas in which market, network and transition failures are most likely and government selection failures least likely, ensuring additionality and leveraging of other (member state) public and private funding (Tagliapietra et al, 2023).

Proposal 6: Maximise the use of ETS revenues

As the EU carbon price has increased significantly in recent years, so too have the revenues accruing to governments from auctioning off emission permits – rising from around €5 billion in 2017 to €38.8 billion in 2022. Of the total auction revenues generated in 2022, €30 billion went directly to EU countries, while the rest went into the EU Innovation Fund (€3.2 billion) and the Modernisation Fund (€3.4 billion) (EEA, 2023). However, while between 2013 and 2022 national governments only spent around three quarters of the total revenues they received on climate-related activities, the ETS rules now oblige them to spend all their revenues for green purposes.

In May 2023, EU countries agreed to introduce a second emissions trading scheme (ETS2). This will put a price on emissions from direct fuel combustion, including gas and oil boilers in private homes, and fuel combustion in road transport. Taking effect in 2027, ETS2 will require upstream fossil-fuel suppliers to surrender carbon certificates equivalent to the emissions generated by consumers of their fuels. The auctioning of ETS2 allowances will also generate substantial revenues of about €50 billion annually at a carbon price of €45/tonne (in 2020 prices) – the level of the cap that will be in place during the first three years of operation of ETS2. A maximum of €65 billion from the 2026-2032 revenues will be allocated to the Social Climate Fund (SCF), which is intended to support vulnerable households, micro-enterprises and transport users who face higher costs.

To access the SCF, EU countries must develop by June 2025 social climate plans that outline how they will use these funds to support vulnerable communities. In addition, countries must contribute at least another 25 percent of the costs of their social climate plans, increasing SCF resources to at least €87 billion (Cludius et al, 2023). The remaining ETS2 revenues will be managed by national governments; EU rules require these revenues to be used to deploy low-emission solutions in transport and heating, or to mitigate social impacts.

Cautiously assuming an ETS carbon price of €75 in 2030, and an ETS2 carbon price of €45, total revenues would amount to €65 billion in that year, of which €50 billion would accrue to EU countries. If carbon prices rise by 2030 to €130 and €100 on the ETS and ETS2 markets respectively, total revenues would be €134 billion in that year, of which around €100 billion would accrue to member countries. Being in the order of €50 billion to €100 billion in 2030, ETS revenues accruing to member states would thus be significant, and should be used to maximum benefit for the transition. The EU should closely monitor member state policies to ensure the money is well spent.

Conclusion

Para atingir as suas metas climáticas, a UE necessitará de investimentos anuais adicionais de cerca de dois por cento do PIB entre 2025 e 2030, comparáveis às despesas da UE em investigação e desenvolvimento em 2022 – estimadas em 2,2 por cento do PIB (Eurostat, 2024). Estas necessidades de investimento são significativas, mas controláveis.

Encontrar as somas é também urgente e necessário. Com o Pacto Ecológico Europeu, a UE posicionou-se como pioneira mundial na política climática. Dada a economia política da acção climática global e a provável saída dos EUA do Acordo de Paris, o sucesso do Acordo Verde Europeu é vital para que a descarbonização global tenha uma oportunidade. Isto é mais importante do que nunca, uma vez que os impactos das alterações climáticas em todo o mundo estão a tornar-se cada vez mais visíveis e dispendiosos.

Nesta perspectiva global, deve recordar-se que o custo da acção climática é muito inferior ao custo da inacção, especialmente para a Europa, que é o continente que aquece mais rapidamente. As inundações extremas na Eslovénia em 2023, por exemplo, causaram danos estimados. em cerca de 16 por cento do PIB nacional (FMI, 2024). Tais eventos provocam impactos graves e directos nos aglomerados, nas infra-estruturas, na agricultura e na saúde humana. Conduziram também a impactos económicos mais vastos nas regiões afectadas e a grandes desafios fiscais a nível nacional.

Como demonstrámos, a parte pública dos investimentos adicionais necessários para que a UE cumpra a sua meta climática para 2030 deverá variar entre 0,5% e 1% do PIB em 2025-2030. As restrições fiscais não devem impedir a mobilização destes recursos. A dívida pública para estes investimentos deve ser vista como uma “boa dívida”, plenamente justificada pelas necessidades pontuais de financiamento de uma transição extraordinária e temporária que beneficiará enormemente as gerações futuras. Deve também ser sublinhado que a despesa pública actual na mitigação climática diminuirá as necessidades potencialmente muito maiores de despesa pública na adaptação climática no futuro. Um quadro de investimento verde responsável, nos moldes que sugerimos, ajudaria a convencer os mercados de que esta dívida verde pode e deve ser financiada.

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