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Europe pitches state-aid revamp in EUR 1tn green deal plan

The European Green Deal is set to revamp the way the region’s authorities control state aid, with regulators pledging to allow a more flexible use of public support to help finance the unparalleled bid for climate neutrality.

The European Commission on Tuesday unveiled the Sustainable Europe Investment Plan designed to mobilize at least EUR 1 trillion over the next decade to make Europe the world’s first continent to eliminate greenhouse-gas emissions by 2050. The European Union wants to pull together a set of new policy initiatives with existing tools, ensuring a coherent framework that will spur investment from every corner of the bloc.

The plan, the financial pillar of the Green Deal, includes a pledge to revise by next year the relevant state aid rules to foster spending on clean technologies and help phase out fossil fuels. The overhaul will affect sectors from aviation to railways, district heating and power production.

“We are sending a clear signal to public authorities, companies and investors we need to think ‘green’ when we invest,” said European Commission Vice President Valdis Dombrovskis. “We will propose legislation on green public procurement and revise state-aid rules in light of the Green Deal.”

The European transition to climate neutrality will start this year and involve stricter emissions limits for industries from cars to chemicals, revamped energy taxes, greener farming, new state-aid rules for companies and possibly an environmental import tax. Everything from finance to the design of cities would need to become more sustainable.

Under the revised state-aid rules, the EU has said it will approve national support of companies to decarbonize or electrify production processes, give member states more scope to invest in energy efficiency of buildings and remove constraints for helping district heating networks. National governments will also be given the green light to provide aid to close coal-fired power plants, though the commission warned it will examine the requests to avoid overcompensation.

The Sustainable Europe Investment Plan also aims to:

  • Increase funding for the transition, with the EU budget devoting at least 25 percent to climate, a record share
  • Ensure that financial institutions and private investors have tools to properly identify sustainable investment
  • Crowd in additional private funding through leveraging the EU’s budget guarantee; the InvestEU Fund will leverage EUR 280 billion of private and public investment in 2021-2030
  • Turn the European Investment Bank into a climate bank; the EU’s lending arm will double its climate-related lending
  • Launch the Just Transition Mechanism to help the most affected regions; it will use financing from the EU budget, co-financing from national governments as well as contributions from the InvestEU and the EIB to reach EUR 100 billion in 2021-2027

The EU net-zero emissions strategy means staking the bloc’s economic future on an environmental clean-up in a move that’s far more ambitious than measures other major emitters are considering to tackle global warming. US President Donald Trump is set to pull the world’s biggest economy out of the Paris Climate Accord and China, the world’s biggest polluter, is still building more coal power plants than the rest of the world combined.

However, the costs of the EU transition are dizzying. Reaching the existing targets, which include reducing emissions by at least 40 percent by 2030 from 1990 levels, will require additional spending of EUR 260 billion annually, according to Commission estimates. The EU executive wants to toughen the greenhouse-gas target toward a cut of 50 percent or even 55 percent.

The Green Deal will require dozens of laws to be enacted or amended in the coming years in what is likely to become a political fight over the details of each regulation. To alleviate the concerns of some member states, particularly the poorer ones, the commission pledged to create the Just Transition Fund, urged by Poland and several other nations.

The fund, one of the main elements of the broader Just Transition Mechanism, will get EUR 7.5 billion from the EU budget and additional financing from national governments. It could have as much as EUR 50 billion out of the overall total at its disposal.

"What we are doing here is a message to coal miners in Asturias, Western Macedonia or Silesia," said European Commission Vice President Frans Timmermans. "To the peat harvesters in the Irish Midlands. Baltic regions reliant on oil shale, and many more. We know that you face a steeper path towards climate neutrality."

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