The EU Recovery Package and the Environment

On Tuesday 21st of July, the European Union leaders agreed  on a recovery package that includes the Multiannual Financial Framework for 2021-2027 and a recovery instrument called Next Generation EU. The recovery instrument of 750 billion euros aims to rescue the Member States’ economies from the destruction caused by the COVID-19. This article will consider the environmental aspect of the recovery instrument and answer the question whether the instrument is ambitious from the perspective of the environment.

In accordance with the new recovery instrument, European Commission will borrow money from financial markets and distribute 390 billion euros of it as grants to the Member States that are in the worst situation. The rest of the money is provided for the Member States as loans. In return, the Member States committed to use 30 percent of the Multiannual Financial Framework and the recovery instrument to support climate goals. Additionally, all funding must support the objectives of the Paris Agreement.

Is the Recovery Package Ambitious from the Perspective of the Environment?

Of course, one could always argue that the money to be invested for environmental purposes could have been bigger. However, the fact that the Member States have agreed on a clause imposing on them environmental objectives is already significant. Namely, it proves that the European Union has developed from the original Coal and Steel Community to a Union that really aims to fulfill its environmental objectives. A failure to reach an agreement in the first place would have risked a two-speed economic recovery, with wealthier northern European states rebuilding their economies faster than for example struggling Italy and Spain. In turn, that would have damaged the ties that keep the EU together in times of crisis.
What is also good in the agreement is the supervising power given to the Member States. The Member States will draw their national plans to use the money for 2021 to 2023. Afterwards, these so-called Reform and Recovery plans have to be approved by the other Member States by a qualified majority. In this way the Member States will supervise each others’ plans. If and when the plans have been approved, the European Commission will have an important role in supervising that the Member States obey their national plans. This helps to ensure that 30 percent of the recovery fund and the next EU budget will  be used for environmental purposes also in practice.
The environmental obligation also controls that the Member States that have decresed their emissions in smaller amounts than other Member States will have a chance to turn their economy into a less emissive one in the future. Each Member State should build its economy on a more sustainable basis and apply a greener approach. Also, in turn, the Member States are prohibited from placing money on investments that are harmful for the environment. 

For which Environmental Purposes Should Finland Use the Money?

It is estimated that Finland will get about 3.2 billion euros from the recovery instrument in 2021-2023. This means that the Finnish government should spend about 1 billion euros to turn the economy into a more carbon neutral one. For what environmental purposes should the money be used?
Without a doubt there is more demand than resources. Since the objective is to rebuild the economy on a greener basis, potential candidates could be the enhancement of the circular economy and the fight against plastic litter. The Chairman of the Finnish Climate Change Panel Markku Ollikainen suggests that Finland spends the money to support new energy solutions in the production of electricity and heat, modernise technology and to develop circular economy and the recycling of plastic. In addition, the gas heating used in apartments and the heavy industry should be modernised so that they would produce less carbon dioxide emissions, notes Markku Ollikainen. Also in the media there has been discussion that Finland should use the money to invest in technology that produces heat without emissions. This would support the objective of the EU to be climate neutral  by 2050. The Finnish government is at the time being discussing these and other different options and will have to make a decision by April. 
In the end, the Member States will have a duty to find new financial resources to repay some of the additional debt. This means at least new taxes. The deal states that a non-recycled plastic waste levy should be introduced by January 1st, 2021. Also, a carbon border adjustment mechanism and a digital duty should be in place by January 1, 2023. These taxes have also an environmentally friendly approach which is more than welcome.
TEKSTI Heidi Kaarto
KUVA Pixabay, Shutterbug75

The author has a LLM degree in European Law from Leiden University and is specialised in the internal market of the EU. At the moment, she works as a lawyer in a private law firm.