Opinion

A new EU treaty to fight climate change

Thirty years after Maastricht, a new treaty is needed: one that will commit the EU to tackling its greatest challenge in the decades ahead, climate change.

By: Date: February 8, 2022 Topic: Green economy

This piece was originally published in Money Review, the Cyprus Mail and by the Cyprus Economics Society (also in Greek) and is forthcoming in El Economista.

The Maastricht treaty, signed thirty years ago this year, committed European Union countries to the greatest step in integration they’d so far taken. It established European citizenship, free movement for people, capital and goods, and set in motion the Economic and Monetary Union.

Thirty years on, a new treaty is needed: one that will commit the EU to tackling its greatest challenge in the decades ahead, climate change.

The EU is taking enormous steps to deal with global warming emissions. But the track record of meeting climate goals is not good. The deep and prolonged reforms that a transition to net-zero emissions implies require a commitment that can only come with a new treaty: a renewal of aspirations and accompanying actions that will address four challenges:

What is green and what is not

The EU’s so-called taxonomy is meant to direct private capital towards environmentally sustainable economic activities. It has broad environmental objectives that span climate mitigation and adaptation, and also the circular economy, preservation of water and marine resources, pollution prevention and protection of ecosystems.

The taxonomy needs to identify what is truly green and therefore consistent with climate targets, while being pragmatic about the length of the net-zero transition and the trade-offs that will have an impact for the next thirty years. Striking that balance over such a long time horizon is difficult and the threat of deviating from agreements is very real.

Cleaning EU consumption as much as EU production

While the EU has made significant progress in cleaning up its production, the same cannot be said of its consumption. This means that the EU may have, to some extent, ‘greened’ what it produces in its territory but it has outsourced the production of less-clean goods to countries outside its territory.

Recognising this, the EU proposes a carbon border adjustment mechanism, a tax at the borders for those imports that do not meet EU emission standards.

It will be challenging to do this within an increasingly unreliable global multilateral system and to do it with sufficient consideration for lower-income countries that maybe be disproportionately affected.

Ensure ambitious and sustained investment

Over the next decade, the EU will need to invest between 0.5% and 1% of GDP annually over and above what is already committed. Irrespective of how precise such estimates are, it is clear the EU’s investment needs are huge given the enormity of the task. The Recovery and Resilience Facility (RRF) provides sufficient help to countries for the next six years.

But the current fiscal rules, established with the treaty of Maastricht, will also need to be reformed to sustain the large investments needed.

One approach put forward is a green golden rule, which will exempt green investment from European fiscal constraints. But this could give countries incentives to indulge in greenwashing: to overstate what is green to bypass the rules. An alternative could be a European Climate investment fund (akin to the loan component of the RRF), which may reduce the possibility of greenwashing, but does not redistribute and therefore does not help with debt legacy issues.

Currently 14 EU countries have debts above the 60% limit set by the Maastricht treaty, and seven have debts above 100%. Allowing countries to borrow to invest, whether through a golden rule or via a fund, does not address the question of whether countries can borrow to do so without derailing their fiscal position.

Moreover, the necessary pandemic fiscal expansion must be followed by a consolidation and it is investment that will be the first to suffer, jeopardising the green transition. If all countries are to advance at a minimum speed that is acceptable to all and is consistent with the very ambitious climate objectives, investment must not be compromised.

A set of fiscal rules that was ill-designed in an era when the role of fiscal policy was very different is no longer fit for purpose. As well as reforming this set of defunct rules, the EU must commit funds to greening the economy.

Ensure this is done in a fair and equitable way

The burden of adjustment towards a new cleaner and greener economy will inevitably have distributional consequences. The European Commission’s Just Transition Mechanism, a €19.2 billion fund, aims to address the social and economic effects of the transition. But a financial commitment, helpful though it is, is not the same as a promise to deal with those left behind by the pursuit of climate objectives.

It is inconsistent to argue that climate change represents an emergency without the appropriate institutional commitment to fighting it that can only come with a new Treaty. The EU can no longer invoke the political difficulties of agreeing on treaty changes and hope to sustain the objectives of a European Green Deal.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Blog Post

REPowerEU: will EU countries really make it work?

By acting together, the European Union can optimise its response to the energy crisis in all scenarios but each country will have to make concessions.

By: Simone Tagliapietra Topic: Green economy Date: May 18, 2022
Read article More on this topic More by this author
 

Blog Post

European governance

Does the war in Ukraine call for a new Next Generation EU?

The European Union should take significant economic measures in response to the war in Ukraine, but a new Next Generation EU is not needed yet.

By: André Sapir Topic: European governance Date: May 17, 2022
Read about event
 

Past Event

Past Event

[Cancelled] Shifting taxes in order to achieve green goals

[This event is cancelled until further notice] How could shifting the tax burden from labour to pollution and resources help the EU reach its climate goals?

Speakers: Niclas Poitiers and Femke Groothuis Topic: Green economy, Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 12, 2022
Read article
 

External Publication

The Global Quest for Green Growth: An Economic Policy Perspective

A review on green growth and degrowth arguments.

By: Klaas Lenaerts, Simone Tagliapietra and Guntram B. Wolff Topic: Global economy and trade, Green economy Date: May 5, 2022
Read article Download PDF
 

Policy Contribution

European governance

Fiscal support and monetary vigilance: economic policy implications of the Russia-Ukraine war for the European Union

Policymakers must think coherently about the joint implications of their actions, from sanctions on Russia to subsidies and transfers to their own citizens, and avoid taking measures that contradict each other. This is what we try to do in this Policy Contribution, focusing on the macroeconomic aspects of relevance for Europe.

By: Olivier Blanchard and Jean Pisani-Ferry Topic: European governance, Macroeconomic policy Date: April 29, 2022
Read article
 

External Publication

European governance

Green public procurement: A neglected tool in the European Green Deal toolbox?

A new EU regulatory action in public procurement could unlock the potential of green public procurement and add an important element to the European Green Deal toolbox.

By: André Sapir, Tom Schraepen and Simone Tagliapietra Topic: European governance, Green economy Date: April 26, 2022
Read article More on this topic
 

Blog Post

Climate migration: what do we really know?

While uncertain, studies suggest that climate change will cause significant internal and international migration over the next century.

By: Klaas Lenaerts and Simone Tagliapietra Topic: Global economy and trade Date: April 25, 2022
Read article More on this topic
 

External Publication

What drives implementation of the European Union’s policy recommendations to its member countries?

Article published in the Journal of Economic Policy Reform.

By: Konstantinos Efstathiou and Guntram B. Wolff Topic: Macroeconomic policy Date: April 13, 2022
Read article More by this author
 

Blog Post

European governance

Bold European Union action is needed to support Ukrainian refugees

Hosting Ukrainian refugees could cost European Union countries in excess of €40 billion this year. A dedicated EU fund is needed to manage the fiscal burden.

By: Zsolt Darvas Topic: European governance, Global economy and trade Date: April 6, 2022
Read article More on this topic More by this author
 

External Publication

Dans l’urgence climatique

Book published by Gallimard and overseen by Groupe d’études géopolitiques (GEG)

By: Simone Tagliapietra Topic: Green economy Date: March 22, 2022
Read article More on this topic
 

Blog Post

Can Europe manage if Russian oil and coal are cut off?

A stop to Russian oil and coal supplies would push Europe into a short and painful adjustment period. But if managed well, disruptions would remain temporary.

By: Ben McWilliams, Giovanni Sgaravatti, Simone Tagliapietra and Georg Zachmann Topic: Green economy Date: March 17, 2022
Read article More on this topic More by this author
 

Blog Post

European governance

A new Thessaloniki offer: the aspirations of Georgia, Moldova, and Ukraine to join the EU

The European Union should grant candidate status to Georgia, Moldova and Ukraine, as part of a long-term stabilisation strategy.

By: Marek Dabrowski Topic: European governance Date: March 15, 2022
Load more posts