Europe’s Green Deal will transform its economy, as floods confirm urgency of tackling climate change

The floods raging in Germany and Benelux highlight the scale of the Climate Change challenge ahead.  Last week, Europe announced its roadmap towards a Net Zero economy.  It emphasised that achieving Net Zero, even by 2050, will be impossible if we don’t start now.

As the Commission noted in presenting the strategy:

“Climate change is the biggest challenge of our times. And it is an opportunity to build a new economic model.  All 27 EU Member States committed to turning the EU into the first climate neutral continent by 2050. To get there, they pledged to reduce emissions by at least 55% by 2030, compared to 1990 levels.

“This will create new opportunities for innovation and investment and jobs“.

Transport is a key area, with the Commission proposing a 55% reduction in CO2 emissions from cars by 2030, and a 50% reduction by vans, versus 1990 levels. The new rules will then end sales of gasoline/diesel cars by 2035.

CO2 emission limits are driving the transition from gasoline/diesel autos to Electric Vehicles today.  And carbon pricing is likely to be a key lever for transforming the wider economy.

As the chart shows, it has seen a steady rise in recent months since the plans were first rumoured.

Trading had initially been lacklustre after the 2008 launch, and prices fell from $30/t to under $10/t. But they then began to recover in 2018, when discussion began of a possible carbon mechanism.

And they soared close to $60/t earlier this month as traders anticipated the new rules. Many are now suggesting $100/t as a new target. The EU therefore seems set to take a global lead in this area, as it did with REACH legislation for chemicals, as the mechanism is introduced.

In turn, of course, this means the closure of refineries and an acceleration of the move to renewables and recycling.

Portugal is already showing the way, with renewables set to provide 100% of its electricity needs by 2030.   And as ICIS analysis confirms, Portugal will then have the cheapest energy in Europe.

Europe’s move is also important as it increases the pressure to tackle climate change on a global basis. Europe may be a big part of today’s problems. But even if it were to reach Net Zero on its own, that would not ensure that the situation stabilised.

Importantly, Europe’s plan will also enable it to continue to improve its own living standards, whilst working to improve those of others around the world. As the Commission notes:

“The European Green Deal has already set a positive example and led major international partners to set their own target dates for climate neutrality.

With investment in renewable energy technologies, we are developing expertise and products that will also benefit the rest of the world.

With the shift to green transport, we will create world leading companies which can serve a growing global market. By working with our international partners, we will reduce emissions together in maritime transport and aviation around the world.”

Nothing is certain in this life but death and taxes, as Ben Franklin wisely noted.

The EU’s plans may not work out as planned, and it may not be able to persuade its international partners to work with it.

But that is no excuse for not trying. The EU has taken a lead, and will have a major influence ahead of COP26 in November.  Hopefully other Regions – and Europe’s companies – will now rise to the Net Zero challenge it has set.