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Most countries in the world, including both the US and the EU political economy’s governance, are deeply involved in delivering “green agendas” with massive investments in green growth and renewable technologies. Particularly, public green subsidies in the two big powers are aimed at encouraging private sector’s sustainable growth patterns. However, decision-making in green transition and in multilateral free trade paths faces regulatory complexities.
Short history
The UN General Assembly adopted a new global sustainable development framework at the end of September 2015 entitled ‘Transforming our world: the 2030 Agenda for Sustainable Development’ (presently called the UN-2030 Agenda). This Agenda has become a core the UN Sustainable Development Goals, the SDGs; they cover three dimensions of sustainability: economic, social and environmental.
The European Commission in its communication in November 2016 entitled ‘Next steps for a sustainable European future: European action for sustainability’ linked the SDGs to the EU-wide policy framework to ensure that all EU actions and policy initiatives, both within and outside the Union, include these goals into their agendas.
Then, in June 2017 the Council confirmed the commitment of the EU-27 member states in a resolution called “Sustainable European future: the EU response to the 2030 Agenda for Sustainable Development” to streamline the implementation of the UB-2030 Agenda in a “full, coherent, comprehensive, integrated and effective manner”.
Competing green global agenda
On both sides of the Atlantic two great global powers are competing in delivering their corresponding “green agendas” while implementing their own green subsidy schemes to boost investments in renewable technologies. Green subsidy schemes in both the US and the EU encourage private-sector-type climate action; however, these efforts are generally risk leaving developing and emerging economies behind. Global consensus and dialogue will be essential to avoid costly nationalistic approaches to climate and trade. Massive governments’ intervention to cut national greenhouse gas emissions and accelerate the adoption of renewable technologies is often seen as violating global free-trade regulations.
Besides, the green subsidies introduced by the US and EU will result in a significant increase in the global demand for critical minerals. Amid existing tensions, the US and Japan announced that they will eliminate export duties on critical materials used to make electric vehicle batteries; this decision opens the door for a wider framework under which key US trade partners could gain access to the Inflation Reduction Act’s generous tax breaks.
The EU has set out its own Green Deal Industrial Plan (GDIP) coped with other net-zero programs and regulation (worth over €800 bn), which are aimed at changing the economics of industrial decarbonization; the European Union’s separate €250 bn green subsidy package (so-called “green deal” investment plan) introduces new tax breaks and loosens the EU-27 state aid rules in further boosting private sector investment. This is why we will propose to temporarily adapt our state aid rules to speed up and simplify. In order to avoid legislative clashes, the EU intends to make easier subsidy calculations in “green deals”, simpler administrative procedures for investments and accelerated approvals in national governance.
Politics of EU’s green transition: regulatory complexities
The EU efforts have been – in a great deal – a reaction to the US’ Inflation Reduction Act (IRA) adopted at the end of 2022, which offers about $400 bn of subsidies for electric vehicles, reducing greenhouse gas emissions and accelerating the adoption of renewable technologies and other clean technologies. However, the US trading partners in the world, including the European Union and Japan, have argued that the IRA’s $7500 tax credit for consumer purchases of electric vehicles and manufacturing subsidies for battery and wind turbine producers violate World Trade Organization’s rules by providing domestic companies with unfair advantages.
In weighing huge amounts of subsidies involved in the US-IRA and the EU-GDIP it is vital to see whether massive governments’ intervention in the process of tackling modern challenges and climate change mediation are going to be the most effective legal means. The future of global climate change and global trade is at stake. While huge subsidy schemes in the US and EU are powerful steps toward reducing greenhouse gases and accelerating climate action, they could escalate trade tensions and leave developing and emerging economies on the sidelines.
The economics of new legislation is clear positive: e.g. with the IRA, the US as the world’s second-largest emitter of greenhouse gases is getting a powerful regulatory tool in financial support for clean energy and climate mitigation. Some suggested that 100,000 green jobs would have been created since the bill was announced at the end of 2022; it is also estimated that the IRA will close two-thirds of current greenhouse gas emissions gap between current policy and the US 2030 target.
Source: https://www.weforum.org/agenda/2023/03/what-do-green-subsides-mean-for-the-future-of-climate-and-trade-099a016307/
As the other parts of the world, i.e. the developing economies account for more than two-thirds of global greenhouse gas emissions and are particularly vulnerable to the effects of the climate change. International Monetary Fund acknowledged recently that developing economies have been forced to tighten their budgets for supporting renewable energy. Faced with rising interest rates and growing debt burdens during the post-pandemic period (and even before the pandemic), international financial flows to developing countries for renewables declined from $24.7 billion in 2017 to $10.9 billion in 2019, according to the United Nations Sustainable Development Goals Report.
In its Communication in March 2018 “Action Plan: Financing Sustainable Growth”, the EU set out complex measures to achieve the following objectives: – reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth; – manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues; and – foster transparency and long-term accountability in financial and economic activity. The disclosure by certain categories of undertakings of relevant, comparable and reliable sustainability information is a prerequisite for meeting those objectives. The European Parliament and the Council have adopted a number of legislative acts as part of the implementation of this Action Plan; thus, the EU Regulation 2019/2088 governs the ways financial market participants and financial advisers have to disclose sustainability information to end investors and asset owners.
Multilateral complexes
The IRA and Green Deal Investment Plan could also challenge the rules underpinning the World Trade Organization (WTO) and multilateral free trade. Most notably, WTO rules prohibit subsidies and other distortive trade measures that favour domestic producers over foreign competitors. The WTO has urged the US, EU and other member states to come together to settle trade-related disputes related to green subsidies.
Experts in WTO underline both the importance of such subsidies and their distribution as the “encouraging means” for all parts of the world. Thus the WTO Director-General N. Okonjo-Iweala at the World Economic Forum in 2023 noted: “If it’s a race, then emerging markets and developing economies will be unable to compete in a subsidy race. I’m hoping that we see a balanced and nuanced subsidy approach and not something else”. Emily Benson, Scholl Chair in International Business at the Center for Strategic and International Studies underlined “a clear WTO’s political role” in achieving positive and realistic results, as states in the world “are slowly moving away from a multilateral, rules-based approach” to something that is more focused on bilateral and multi-lateral sectoral arrangements.
Reference to: https://www.weforum.org/agenda/2023/03/inflation-reduction-act-eu-green-deal-subsidy-race-consequences/?utm_source=sfmc&utm_medium=email&utm_campaign=2799212_WeeklyAgenda7April2023&utm_term=&emailType=Agenda%20Weekly
Sustainability and “green deal”
The Green Deal is the EU-wide new growth strategy, which aims to transform the Union into a modern, resource-efficient and competitive economy with zero-net emissions of greenhouse gases by 2050. It also aims to protect, conserve and enhance the member states’ bio-diversity and nature, protect public health and citizens’ well-being from environment-related risks and impacts. The Green Deal also strives to decouple economic growth from resource use, and ensure that all EU states and citizens participate in a socially just transition to a sustainable economic system. Finally, it will contribute to the objective of building socially-market economy in the states with stability, jobs and sustainable investment.
In the Green Deal the Commission committed itself to support businesses and other stakeholders in developing standardised natural capital accounting practices within the Union and internationally, with the aim of ensuring appropriate management of environmental risks and mitigation opportunities while reducing related transaction costs. In this way the EU approach in the “green deal” provides for the EU-wide legal framework for the intersection of business, environment and human rights.
The “green deal” issues include, e.g. analysing specific challenges of corporate sustainability and responsibility from the perspective of the different stakeholders, going beyond simple regulatory compliance, as well as reforming the European main legislation and policies. As to corporate development, the companies’ responsibilities should be directed to protecting the environment and well-being to encompass certain aspects of business with sustainability’s consequences.
Thus, the main topics in the “green deal” and new green transition include: – Environmental, Social, and Governance (ESG) measurements; – Corporate responsibility; – Due Diligence Directive; – Value chain; – Sustainability reporting; – Companies’ liability; and – Impact of EU ESG policy in third countries.