The Green Deal: The Revival of European Federalism?

, by Théo Boucart, Translated by Felicity Hemming

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The Green Deal: The Revival of European Federalism?
Ursula von der Leyen attends a European Parliament session in Brussels. Source: European Parliament.

Ursula von der Leyen’s plan to accelerate the EU’s energy transition, put forward in December, will not be truly effective without a more profound updating of the Union’s governance: one which strives towards a decidedly more federal model.

Progress on energy integration

With regards to European institutions, some progress is worth highlighting in certain institutions’ adoption of climate-energy policies.

Last July, the European Investment Bank (EIB) announced its consideration of a new energy-funding policy. This proposal, approved by shareholders in November, will end the bank’s investments in fossil fuels and nuclear energy.

In November the EP declared a (non-binding) state of climate emergency in Europe, the first thing this was carried out by such a large political actor.

Early in December, the European Parliament and Council agreed on a ‘sustainable taxonomy’: a standardised list of investments that can be considered respectful of the climate and environment. While fossil fuels are of course excluded from this list, the case of nuclear energy is less clear cut.

The Green Deal: dashed hopes?

The introduction of the Green Deal on 11th December saw the culmination of a year punctuated by announcements on the subject of climate protection.

The deal must raise the bar much higher for pre-existing European policy on energy transition, transport, agriculture or even global commerce. The first tangible initiative will be the proposal in March 2020 of a climate law for a carbon neutral European continent by 2050.

Ursula von der Leyen’s speech elicited generally positive political reactions, even though specific announcements regarding the practical implementation of measures are yet to be closely scrutinised.

Philippe Lamberts, co-president of the parliamentary Green Party/EFA, is sceptical. “We know that if Mrs von der Leyen is serious about the Green Deal, she will not have support from any MEPs of EPP (the Right), of the Progressive Alliance of Socialists and Democrats (S&D - the Left) and Renew Europe (the Liberals)’’. The Greens have presented a counter-proposal asking for a 65% to 70% reduction in greenhouse gas emissions by 2030, instead of the current plan’s 50% to 55%.

Towards European federalism: reinforcing institutional governance

To reach these ambitious targets, the good will of the European Commission will not be enough.

A thorough revision of European law, regarding the energy sector and beyond, must go ahead. In other words, the EU must evolve towards a more federal form. At this point in time, member states still have considerable power in defining their own energy policy, despite the existence of European targets.

Without a real binding framework, like there is for common trade policy, many countries will not honour their commitments, since no sanctions to deter this inaction currently exist.

European institutions must therefore have stronger powers to ensure that all EU countries respect the targets and obligations in the Green Deal.

Fiscal federalism to reassure central Europe

At the European Council summit on 12 and 13 December 2019, the carbon neutral target for 2050 was formally endorsed by EU heads of state and governments …with the exception of Poland. Some countries, generally in central Europe, fear the economic and social consequences of energy transition, or more specifically a departure from coal.

The Green Deal is trying to reassure these countries by proposing a ‘just transition mechanism’, with funding which will allocate 100 billion euros per year to help these regions with industrial conversion.

However, we must go much further and propose a tangible form of fiscal federalism. Although the European budget must eventually devote 25% of its resources to ecological transition, it is still too little and too inflexible (it is voted on over a 7-year period and must not go into deficit). Redistribution of funds between European countries has not been effective, especially since the start of the crisis in 2008.

Therefore, finding the considerable sums necessary to achieve the Green Deal’s targets would need an adequate European budget, which may be in deficit, to permit standardised development in EU countries, particularly in the energy sector. According to the European Court of Auditors (ECA) 1,115 billion per year is required to reach climate targets by 2030, especially for transport.

One potential approach is exempting green investments from the European budgetary rules, which all national budgets are currently subject to.

Taxation: a national or federal issue?

According to European treaties, it is up to individual countries to decide which sectors come under energy taxation, the European Parliament has only an advisory role.

Nevertheless, the European Commission is currently revising the 2003 energy taxation directive to encourage countries to stop subsidising fossil fuels and promote the development of clean energy. It is very important not to take a policy of ‘technological neutrality’ since the urgency of the climate crisis requires a proactive fiscal policy for energy transition.

The Green Deal also proposes that the European Parliament and the Council can rule by a qualified majority on certain energy taxation issues. This is a necessary development in order to take the tax issue, (and therefore the financing of energy transition) out of purely national hands.

In favour of a true European energy diplomacy

The Green Deal emphasises the role of the EU on the international energy and climate scene. It must be a leader capable of imposing standards through multilateral dialogue.

Reflection on European energy and climate diplomacy is not new. The concept of ‘European Energy Diplomacy’ emerged in the 2000s, during the energy tensions with Russia. The EU played a key role in the success of December 2015’s COP21. The same year, the European Council proposed a 3-pronged strategy: the merging of European interests, the development of global partnerships and the strengthening of regulatory cooperation.

Up until now, the EU’s diplomatic influence on the energy sector has been felt mainly in the Western Balkans, as well as in former Soviet Republics (excluding Russia) grouped in the ‘Eastern Partnership’, a pillar of European Neighbourhood Policy. The energy sector plays a very important role there. However, national energy interests, which are often in conflict with European ones, do not permit a clear definition of European external energy policy for the moment.

If the EU wants to become the ‘world leader’ alluded to in the Green Deal, it will have to develop a truly unified diplomatic strategy, a sine qua non to acquiring a unrivalled voice on the international scene. This also implies a transfer of sovereignty towards a supranational level, if not a single voice — as is still not the case today.

A question of subsidiarity

Finally, placing energy policy in a more federal Europe is not incongruous. It even respects the principle of subsidiarity, which is the foundation of federalism and of the EU as we know it. Therefore, whatever the shape the EU takes, any decisions will be made at the most appropriate level of governance, whether regional, national or supranational.

The new climate-energy policy must therefore be applied at all levels, given its decentralised nature.

On the European level in particular it must be ensured that the consistency of policies implemented is fully respected, while taking into account any regional specificities. The transnational nature of climate-energy issues is just another reason for transferring energy sovereignty away from a national level.

A Necessary Federalist Shift

The transversality of the Green Deal should also, in the long run, allow for a federalisation of competences in other areas, still following the principle of subsidiarity.

Without a federalist shift, the EU will miss the opportunity provided by one of the greatest historical events of the 21st century. The evolution of the international context requires European countries to share large parts of their sovereignty. The climate and energy issue can thus be a first step towards the formation of a European federal state, provided that nation states and their citizens understand that this is fundamentally in their best interests.

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