The Green Deal Could Make—or Break—the European Project

In recent years, the European Union has often been paralyzed by the growing divisions among its member states. From its seemingly chronic inability to formulate unified responses to challenges as varied as the eurozone debt debacle, Brexit, increasing flows of migrants and asylum-seekers, and a menacing Russia, each new emergency has raised a fresh chorus of doubts about the union’s long-term viability.

Skeptics were poised to add the European Green Deal to that long list of failures when it was first unveiled in mid-December 2019.  As the signature initiative of the European Commission under President Ursula von der Leyen, the deal aims to make Europe carbon-neutral by 2050, comprehensively overhauling nearly every sector of the continent’s economy in the process. Although there was good reason to predict that such an ambitious agenda might provoke division and controversy in a union already struggling to find its footing, the deal appears to have infused the European project with a new sense of unity and hope. The push for carbon neutrality has traditionally been viewed with greater skepticism in southern Europe and especially in eastern Europe, but the inclusion of fiscal transfer mechanisms to aid weaker economies through the transition has helped mitigate opposition.

BINDING COMMITMENTS

Even as the COVID-19 pandemic has ravaged Europe and consumed attention and resources, Brussels has bolstered its commitments to mitigating climate change, codifying many of the goals laid out in the Green Deal as legally binding obligations. On July 21, 2021, the EU passed legislation giving its goal of climate neutrality by 2050 the force of law. It has committed to reducing emissions by at least 55 percent by 2030 (from 1990 levels) and earmarked 30 percent of its seven-year, 1.8 trillion euro budget and post-pandemic recovery funds to the green transition. To reach its 2030 objective, the EU’s “Fit for 55” package proposes targets, regulations, and taxation measures across a range of sectors, including sustainable transport, energy efficiency, carbon pricing, industrial policy, renewable energy, and biodiversity.

Polling indicates that Europeans staunchly support this green push. The European Commission’s 2021 Eurobarometer survey found that 90 percent of EU citizens supported reducing greenhouse emissions to make the continent carbon-neutral by 2050. Survey data show that young Europeans in particular care more about climate change than any other policy issue, and their mobilization has pushed leaders to focus on the Green Deal. The political fate of the EU itself now hinges on whether young Europeans recognize its contributions to solving the climate crisis.

It is striking to see how quickly climate issues have emerged as the focus of European political debate. In recent years, as Europe has endured increasing heat waves and devastating floods, its politics have responded. Elections held during the pandemic, notably in Germany, show that voters’ concerns about climate have only intensified. This does not mean that climate and energy have become politically uncontroversial. With voters more focused on climate change, domestic political debates around the pace and shape of the energy transition will likely become increasingly divisive. As the EU finds itself increasingly drawn into these debates, the European Green Deal will surely face political opposition. If it is handled poorly, it could produce the kind of damage that the EU suffered in the wake of the eurozone crisis in the early 2010s and the migration crisis of 2015. In both of those cases, Brussels did too little to mitigate economic harm and allay anxieties, allowing nationalist, anti-EU forces to galvanize support.

ENERGY CRISIS

Were it to aggravate socioeconomic disparities, the European Green Deal could fuel grievances and become an ideological weapon in the hands of Euroskeptics, to say nothing of authoritarian regimes that oppose the liberal West. The 2021 energy crisis, which saw wholesale electricity prices increase by 200 percent in the first nine months of the year, should serve as a warning. As European countries reopened after initial pandemic lockdowns and governments goosed their economies with unprecedented fiscal stimuli, energy demand soared—but supply could not keep pace, with investments in fossil sources having been reduced significantly during the previous years. Meanwhile, Russia’s patience wore thin as European regulators dragged their feet on approving the Nord Stream 2 pipeline, which will bring Russian natural gas to Europe. As natural gas supplies dwindled, Russia declined to come to Europe’s rescue by increasing its exports on spot markets. The resulting spike in prices has imposed unsustainably high costs on lower-income European households and small and medium-sized enterprises (SMEs), many of which were already struggling to recover from the economic consequences of the pandemic.

Had Europe’s energy transition begun earlier and if electricity could be hypothetically produced entirely by renewable sources, the insufficient supply of fossil fuels would not have been a problem. Yet renewable energy sources still provide only 34 percent of the continent’s electricity. That said, the energy crisis has made it abundantly clear that the transition will be costly, and that those costs are likely to weigh most heavily on poor households and SMEs. Commodity markets have often witnessed supercycles, but because this transition will mean reducing reliance on fossil fuels before low-carbon sources can readily fill the supply gap, volatility will inevitably increase. In other words, the recent price spike may be the first of many. And although carbon-pricing schemes explain only a small fraction of the 2021 price spike, if fossil fuel prices continue to rise—as indeed they must if the EU is serious about making Europe climate-neutral—they could easily burden those who cannot afford low-carbon alternatives. Finally, if a recent proposal to extend the European Emissions Trading System to the building and transport sectors is adopted in its current form, it could result in the extra costs being offloaded onto lower-income individuals, aggravating energy poverty and transportation inequalities.

If it aggravates socioeconomic disparities, the Green Deal could fuel grievances and become an ideological weapon.

The political repercussions of European governments’ various climate efforts—such as France’s 2018 gilets jaunes protests, triggered by increases in fuel taxes—have been predictable enough. In the streets and on social media, protesters across the continent have made the case that while privileged elites worry about the end of the world, millions of their fellow Europeans are struggling to make it to the end of the month. These protesters, however, tended to focus their anger on national leaders. Now that the EU has elevated the green agenda into its dominant narrative, that seems certain to change. A gilets jaunes protest today would likely have a pronounced Euroskeptic twist. 

While climate denialism no longer offers European populists much electoral payoff, the regressive socioeconomic effects of the energy transition continue to provide them with rich material. Carbon pricing policies, in particular, are easily portrayed as establishment attacks on workers and SMEs. For Euroskeptic parties, the fact that Brussels now champions these measures is an unexpected bonus. Euroskeptics who pick a fight with the Green Deal can now hope to kill two birds with one stone—simultaneously rallying opposition against the energy transition and the EU itself.

BRIDGING THE DIVIDE

As awareness of the Green Deal’s socioeconomic and political risks has sharpened, the EU has begun to respond. The Just Transition Fund, adopted in June 2021, aims to ease the employment effects of phasing out coal, peat, and shale by investing in low-carbon sectors such as wind and solar power. Meanwhile, the European Social Climate Fund, which was proposed in September 2021, will assist lower-income citizens adapting to low-carbon livelihoods.

Without such measures to help make the green transition socially and therefore politically acceptable, divisions within Europe—over migration, rule of law, and civil rights, among other issues—could deepen as a result of the deal. It is not clear, however, whether those steps will be sufficient. The Just Transition Fund provides just 17.5 billion euros over seven years, which won’t go far in coal-producing countries such as Poland. The 72.2 billion euros allotted to the Social Climate Fund is a significant sum. But in light of the fact that Italy alone spent five billion euros in 2021 to help low-income individuals pay their skyrocketing utility bills, it is clearly far too little to assist 27 countries over seven years. To make the transition laid out in the Green Deal socioeconomically and politically sustainable, the EU will need to spend far more.

Europe must also regain control of the Green Deal narrative. It was striking how quickly Russian President Vladimir Putin attributed the 2021 energy price rise to the green transition. EU institutions have pushed back, arguing that the crisis suggests decarbonization should be sped up, not slowed down. But communicating complexity is never easy and requires concerted efforts from state institutions, the private sector, the media, and civil society. It means openly confronting policy tradeoffs, countering disinformation, and explaining the costs of inaction. The EU must develop a compelling narrative that helps citizens understand and connect to not just the positive end goal of a green Europe, but also the transitions and tradeoffs along the way. This will be a harder story to sell. But given the decades-long journey ahead, selling it is essential.