Climate policy is the EU's secret weapon

Last Wednesday, Frans Timmermans, the European Commissioner in charge of climate policies (and possibly the only person in Brussels who tries to speak English with a British accent), held a press conference. Earlier in the year, a general proposal to quickly cut the EU's consumption of Russian fossil fuels had been drawn up by the Commission and endorsed by EU leaders. Tasked with putting some meat on the bones of this plan, the Commission got to the task of working out exactly how it would do so. Last week, we saw the results.

REPowerEU (yes it is written that way, no I don't know why) provides for a wide array of different policies and initiatives to change the EU's energy system. To highlight just a few of what are, to my mind, the most important proposals: 

• Increasing the 2030 renewables target, 
• Increasing the 2030 energy efficiency target, 
• Streamlining permitting rules for renewable energy deployment, 
• Steadily requiring new buildings to come with rooftop solar 
• And a campaign to encourage citizens to change daily habits and reduce energy consumption.

Now I won't dwell on the energy and climate implications of this (my day job means I spent enough time on that angle already), other than to say that this would mark a major acceleration of the EU's energy transition over the coming years and through to the end of this decade. 

Instead, the purpose of this post is to highlight something else about REPowerEU. Much more than an energy and climate initiative, this policy has important geopolitical motives and goals. Moreover, this is not the first time in recent years that the EU's ambitious climate policy has served other ends. Indeed climate policy appears to be the EU's secret weapon. 

Let me explain. 

To start, it's worth remembering that there was nothing obvious about this central role for climate policy. Granted, it has become a defining topic for countries around the world, but outside the EU it has tended to stay in its lane - climate policy is climate policy, nothing more. Arguably there was an attempt in the US to put climate policy at the centre of post-pandemic economic programmes but the Democrats' weak position in the Senate (combined with the scepticism of some individuals) largely put paid to the idea of 'Building Back Better'.

For the EU, the European Green Deal could have been similarly much less impressive than it is today. When its first pillars were unveiled in early 2020, it looked like it could be a flop. In classic EU fashion, the big talk was backed up by almost no actual new money. Most of the apparent funding was nothing more than a re-labelling exercise for existing spending under the EU budget and some heroic assumptions about how much money could be mobilised by the European Investment Bank. 

What changed all that was the pandemic. Faced with a major economic crisis, and deciding not to repeat the mistakes of the previous decade, the EU's leaders agreed to set up a programme of EU-wide borrowing - €750bn in grants and loans to be unlocked once national governments put together appropriate reform and investment plans (known as NextGenerationEU - another naming triumph). 

One of the conditions that was attached to this money was that governments had to spend at least 37% of it on climate investments. Not only did all countries meet this objective but many exceeded it (Ireland has committed to 42%, Denmark to 59%, for example). Suddenly, the European Green Deal went from zero to hero as literally hundreds of billions of euros were put on the table.

Now, so far, this might sound like the opposite of my initial argument. Rather than climate policy facilitating other goals, it was something else (recovering from the pandemic) which facilitated climate policy. Yet this would miss one important point: the climate investment angle was key to agreeing to the EU-wide recovery programme in the first place. 

For years governments in Northern Europe (and especially a tighter group of countries called the Frugals) had opposed common EU borrowing or any kind of expansive approach to EU spending. Put bluntly, many in those countries felt that economic difficulties faced by their counterparts in the South were the result of profligacy by Southern national governments - i.e. it was their own fault and no one else should be on the hook for their failings. Indeed, we shouldn't assume that these views have totally gone away. 

So what convinced Northern governments to shift position? This is where climate policy steps in. While the Dutch or the Swedes, for example, weren't (and aren't) fans of pan-EU fiscal transfers, they certainly do believe in the importance of the climate transition. 

Subsidising Spanish and Italian spending? Voters wouldn't touch that. But an EU fund to accelerate the climate transition and modernise everyone's economies? That could work.

Climate policy was essential to fixing the internal EU politics on joint fiscal stimulus. Without it - if 'build back better' and the 'green recovery' had just been a regular case of fixing the economy after a crash - then the idea of an EU-wide recovery fund would have been much less likely (if not impossible). 

The European Green Deal was now at the heart of the EU's economic policy, dictating the direction of major sums of money which would be spent over many years to come. 

From here, it swiftly moved to drive another objective: industrial policy.

Saving the world is great but if you can create well-paid industrial jobs at home too, then isn't that even better? For many EU leaders, one of the great promises of climate policy is that it will either bring back to Europe jobs which have been displaced to China, and other parts of Asia, or it will create entirely new jobs in the new industries which will be required for a carbon-neutral future. And as new variants of the pandemic swept round the world in 2021 - with all the supply chain disruption we remember - 'reshoring' was more in vogue than ever. 

Take the EU's Carbon Border Adjustment Mechanism as just one example. Certainly there is a climate purpose here (putting a price on the carbon emissions of imports to incentivise switching to cleaner products) but for some countries there is a not-so-secret hope the border charge will also act to keep out goods from China and others. When France pushed hard to make progress on this policy prior to the French presidential election, this is most likely what was going through Macron's mind. With a level playing field in place, EU companies should be more cost-competitive with their Asian rivals, encouraging European firms to source their goods from more local suppliers.

Or look at batteries. It's a growing industry that is only set to grow bigger as demand for energy storage solutions and the switch to electric vehicles continues to accelerate. But the EU is behind here, with China and South Korea already pushing ahead in battery production. 

So how to get the edge over imports and create jobs at home? Simple - create rules that require batteries placed on the EU market to be as green and recyclable as possible, with the ambition that your industry can be built for this purpose from the ground up and powered by a cleaner energy system to boot. Some estimate that the EU could be a battery production powerhouse in the near future. 

Scratch beneath the surface of EU climate policy and you'll often find industrial policy rear its head. European hydrogen, powering the creation of European steel, to be used to make European EVs? The European Green Deal is as much a plan to create a new industrial base in Europe as it is a strategy for cutting greenhouse gas emissions.

But just as it looked like the European (and global) economy was going to be all systems go as vaccination rates rose and restrictions were lifted, the health crisis of the previous two years was overtaken by a geopolitical crisis. 

During the latter half of 2021, the flow of Russian gas to Europe had been suspiciously low - fulfilling contractual obligations but strangely reluctant to take advantage of rising global energy prices. In hindsight, the attempt to hobble the EU by unleashing devastatingly high energy costs was obvious.

Russia's actions only became more transparent in 2022 as it conducted military exercises around its border with Ukraine, moving ever more military equipment to what would soon become the frontline of the first peer-to-peer war in Europe since the end of WW2. 

While the EU has acted with speed and determination in placing sanctions on Russia, the elephant in the room is still the significant amount of trade in energy that is taking place between the two - hundreds of millions of euros per day flowing from the EU's wallet to Russia's pocket. It's a situation that puts into doubt what the other sanctions can really do. Kicking the habit of Russian fossil fuels has thus become a top geopolitical priority for the EU. 

This brings us back to where we started this blog, back to the EU's latest innovative use of climate policy. REPowerEU is a plan to massively and quickly green the EU's energy supply, combining an acceleration of renewables deployment with increased energy efficiency to deliver a kind of one-two punch to EU demand for fossil fuels. 

But as already mentioned, the real purpose here is not climate policy - it's geopolitics. This plan was put together as a direct response to Russia's invasion of Ukraine, with the initial concept drawn up by the Commission and endorsed by EU leaders back in March. It's not simply about moving off fossil fuels - in fact the plan is quite transparent about the fact that fossil fuels will still be needed from elsewhere, with ambitions to import much more gas from the US, Africa and the Middle East. It's specifically Russian fossil fuels, and their vital role in the Russian economy, that are being targeted. Yes, reaching the target of cutting emissions by more than half by 2030 is a key policy for the EU, but more immediately the point is to quickly cripple the Russian economy. 

With REPowerEU, climate policy is being deployed as a geopolitical tool, as an extension of sanctions policy and as a weapon with which to support Ukraine's fight against the invasion. EU leaders are expected to give this strategy their approval during their summit next week. 

This, then, is where we stand: in the EU today, climate policy is about much more than saving the planet. Economic recovery, reindustrialisation, geopolitics - these are all taking place with climate policy as both means and end. Almost by accident, the European Green Deal is emerging as the most important policy in the history of the EU, such is its flexibility and its role in strengthening and advancing the bloc. 

It possesses a political magic that allows the EU to bridge many of its usual internal divides. How to get the fiscal conservatives to back fiscal transfers? Liberal free traders to get behind industrial interventionism? Or foreign policy doves to support cutting off Russian fossil fuels? Climate, climate, climate. It's a policy area that has created a ready toolkit for forging ahead on some of the toughest issues of the day.

Importantly, it's an approach that can actually deliver results. Even if we put aside the industrial policy side (where the question of whether reindustrialisation is possible in Europe is more contested), the economic benefits of the post-pandemic climate investments and the geopolitical dividends of replacing Russian gas and oil with EU solar and wind (among other things) are obvious. 

I don't believe that we've seen the end of how EU climate policy will be repurposed. In a past blog post, from August 2021, I argued that the need to direct more resources towards fighting the current impacts of climate change (like flooding and wildfires) would lead to a new - highly publicly visible - area of European integration. Looking more widely, there are plenty of other examples, like EU deficit rules, agriculture or public transport. For the EU, climate policy will continue to be its secret weapon.