At the Crossroads: European Green Deal Becomes Clean Industrial Deal

In autumn 2024, the European Union’s climate policy is at the crossroads: After five years of intensive political discussions and negotiations, the EU institutions have adopted a vast number of legal acts codifying the European Green Deal proposed by Ursula von der Leyen in 2019 at the beginning of her first term of office.

Today, before the start of her second term, the challenges facing the EU and its Member States in implementing this ambitious legal framework are becoming ever more apparent, especially with regard to its socio-economic implications. It is the perfect point time to take a closer look at three questions about the European Green Deal: What has happened so far, what is the current state of play, what happens next, and what considerations and questions should guide future developments?

What has happened so far?

When the first European Commission under the leadership of Ursula von der Leyen took office in 2019, the European Green Deal became the all-dominant flagship project of the European Union. However, what is the European Green Deal actually and what is so special about it?

Afterall, here has been a common energy policy at European level since the 1950s, a common environmental policy since the 1970s and a common climate policy since the early 2000s.

The EU climate target set in 2007 provided for a 20% reduction in greenhouse gas (GHG) emissions by 2020 compared to 1990. To this end, various EU targets for specific areas were gradually adopted and implemented: e.g., targets for promoting renewable energies and increasing energy efficiency as well as the emissions trading system to reduce GHG emissions from energy producers and energy-intensive industries. In this way, the EU successfully achieved its 20% reduction target in 2020.

From 2014 to 2018, the EU made its first attempt to regulate its climate policy for the decade 2021-2030, setting its climate target at a 40% reduction of GHG emissions by 2030 compared to 1990. Accordingly, the EU targets for renewable energies, energy efficiency and the emissions trading system also had to be reformed or tightened. However, as soon as these reforms were agreed, there were calls for the EU to pursue a more ambitious climate policy. We remember: 2018 was the year in which Greta Thunberg called for a school strike for the climate and the “Fridays for Future” movement took tens of thousands to the streets.

Against this backdrop of widespread support for more climate protection in many EU member states, in 2019 the European Commission placed climate protection at the centre of its political agenda for its 2019-2024 term of office under its new President Ursula von der Leyen. She defined the European Green Deal as follows:

“The Green Deal is the growth strategy to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy, with zero net greenhouse gas emissions by 2050 and decoupling economic growth from resource use. It also aims to preserve nature and protect people’s health and well-being from environmental risks.”

Indeed, the European Green Deal was something new – both in terms of its ambitious goals and also its comprehensive regulatory programme, which goes far beyond traditional climate, energy, environmental and transport policy. Ursula von der Leyen described this in 2019 as follows:

“I am convinced that the old growth model, based on fossil fuels and pollution, is no longer fit for purpose and that it is no longer in harmony with our planet. The European Green Deal is our new growth strategy […] The European Green Deal is a comprehensive roadmap: We also care about biodiversity and forests, agriculture and food, green cities and, for example, the circular economy.”

Everything is connected to everything else. Consequently, decarbonisation requires a comprehensive transformation that encompasses all areas of the economy and society. Accordingly, the European Green Deal is divided into numerous topic-specific goals and strategies, which in turn are often closely interlinked.

The focus is on climate protection: The EU’s long-term goal is to make Europe the first “climate-neutral” continent by 2050, so that GHG emissions on the one hand and the removal of CO₂ from the atmosphere on the other are balanced, i.e. “net zero”. To this end, the EU has tightened its climate target of reducing CO₂ emissions by 2030 from the originally agreed 40% to ambitious 55%.

Since 2019, the EU has adopted a large number of legal acts for the concrete realisation of the individual objectives and strategies of the European Green Deal. This involves around 100 individual directives and regulations. The “Fit for 55” legislative package alone, which aims to revise EU energy and climate policy in order to make Europe “fit” for a 55% GHG reduction by 2030, comprises over 20 individual legal acts, which in turn consist of over 4,000 pages of detailed regulations.

It is indeed a Herculean task – and Ursula von der Leyen was well aware of this when she presented her plans for the European Green Deal in 2019:

“We don’t have all the answers yet. Today is the beginning of a journey. But this is Europe’s ‘man-on-the-moon’ moment.”

What is the current state of play?

In the past legislative period, the EU adopted almost all of the legal acts proposed as part of the European Green Deal. This was often associated with tough discussions and negotiations – and yet it was the easy part, because what has so far only been on paper now has to be implemented in practice. What lies ahead of us is the troubles of the plains and the reality check as to whether the European Green Deal will also prove itself in practice. To stay with the metaphor of the moon mission: The rocket with the final destination “climate neutrality 2050” has been launched, but it is already becoming apparent that it will run into serious turbulences.

And this does not come as a surprise: Since 2019, when the European Green Deal was conceived and proposed, the world has changed dramatically. External shocks – such as the pandemic, Russia’s invasion of Ukraine, soaring energy prices, inflation and other economic upheavals – have deeply shaken Europe and fundamentally changed essential framework conditions.

These disruptions are also increasingly raising questions about the challenges and risks of the European Green Deal: Is it pursuing the right regulatory strategies to realise its goals in an effective, cost-efficient and socially just way? Are companies and consumers facing a “wave of bureaucracy and costs”? What is the fundamental state of the European economy’s competitiveness in the face of strong international competition and geopolitical upheavals and dependencies?

In Germany, the economy continues to suffer: In September 2024, Volkswagen, the symbol of the German Wirtschaftswunder, announced its intention to close a plant in Germany for the first time. VW – like other car manufacturers – is experiencing major difficulties implementing the transformation from vehicles with combustion engines to electric cars.

There is a threat of job losses not only in the automotive industry, which is central for Germany, but also in the steel and chemical industries, which are equally important for the country’s economy. Against this backdrop, questions are raised whether the European Green Deal is jeopardising well-paid industrial jobs without providing sufficient compensation in the form of new jobs in the field of green technologies.

Discussions about appropriate instruments for climate protection are becoming ever more controversial, with the result that the European Green Deal is also increasingly becoming a focal point of social polarisation: On the one hand, parts of the climate movement have become radicalised. During the 2021 German parliamentary election campaign, activists from the “Last Generation” tried to use hunger strikes to force “the politicians” to take faster action for more ambitious climate protection. Works of art and national landmarks such as the Brandenburg Gate were smeared with paint. So-called Klimakleber glued themselves to roads and aeroplane runways.

On the other hand, a countermovement is also increasingly forming: As early as 2018, the gilets jaunes movement in France protested against, inter alia, a French climate tax on petrol and diesel with sometimes violent riots. At the beginning of this year, farmers blocked Berlin and Brussels with their tractors to protest against the abolition of German tax breaks for agricultural diesel and against restrictions to the EU Nature Restoration Law.

For some, climate policy goes too far, for others not far enough. Both sides are driven by fears: either by the fear of a “climate catastrophe”, others by the fear of a loss of prosperity and social decline.

What happens next?

Politicians are reacting and changing priorities. For example, parts of the conservative European People’s Party in the European Parliament forced a significant weakening of the EU Nature Restoration Law in light of the farmers’ protests in the run-up to the elections of the European Parliament in June 2024. In these, conservative and right-wing parties made significant gains, while the green parties lost votes.

These power shifts and changes of priorities are also reflected in the political guidelines for the next European Commission 2024-2029, with which Ursula von der Leyen campaigned for her re-election in the European Parliament on 18 July 2024.

First and foremost, she presented a “new plan for sustainable prosperity and competitiveness”. According to her plan, the international competitiveness of European companies is inhibited by higher energy prices, a shortage of skilled workers and import dependencies regarding energy and raw material, e.g. for battery production. She stressed that the world is in a race to see who will be the first to achieve climate neutrality and develop the technologies that will shape the global economy in the future. For this reason, the EU must “stay on course” and continue to pursue the goals of the European Green Deal.

To this end, Ursula von der Leyen wants to propose a new interim target for the EU to reduce GHG emissions by 90% by 2040 compared to 1990. On the other hand, the EU should do more to ensure competitiveness, prosperity and fairness. The new European Commission would therefore propose a “new deal for clean industry” to ensure a competitive industry and high-quality jobs in Europe.

In other words, the “European Green Deal” is to become a “Clean Industrial Deal”. Ursula von der Leyen has already outlined its main objectives in her political guidelines:

In principle, the Clean Industrial Deal is intended to create the conditions for companies to better fulfil the requirements of the European Green Deal. A new “legal act for accelerated decarbonisation” will aim to support companies in the transformation. It aims to guide investments in infrastructure and energy-intensive industries and promote European lead markets for the development, production and distribution of clean technologies. The Clean Industrial Deal is also intended to reduce energy prices for companies and consumers by making Europe even less dependent on fossil fuels.

The shift in priorities can also be seen in the report on the competitiveness of the EU presented by Mario Draghi on 9 September 2024. Accordingly, the former Italian Prime Minister and President of the European Central Bank expresses deep concern about Europe’s economic future. In his opinion, the European Green Deal plays a central role in the competitiveness of the EU. Draghi argues in favour of fundamental reforms and formulates corresponding recommendations for ten sectors.

Similarly, when Ursula von der Leyen presented her nominees for the new college of commissioners along with the structure and portfolios of the upcoming European Commission 2024-2029 on 17 September 2024, she highlighted that at the very beginning that “the whole college is committed to competitiveness!” This is most prominently reflected in the nomination of Teresa Ribera Rodriguez as “Executive Vice-President for a Clean, Just and Competitive Transition”. Accordingly, the new Executive Vice-President will be responsible not only for the EU’s competition policy, but also for the coordination especially of the work of the Commissioners for “Climate, Net Zero and Clean Growth”, “Environment, Water Resilience and a Competitive Circular Economy” and “Energy and Housing”.

Guiding Considerations and Questions for Future Developments

What does this mean for the European Green Deal in general and EU climate policy in particular with regard to their socio-economic implications? In this respect, I would like to put forward the following considerations and questions:

1. Protecting the global climate is possibly the most complex problem imaginable: All areas of the economy and society are affected by decarbonisation and transformation. All political levels must work together: globally within the framework of the Paris Climate Agreement as well as within the European Union and in its member states at national, regional and local level. It is often necessary to balance different interests and find compromises.
2. There are very different views on which instruments are most suitable for reducing GHG emissions as effectively, cost-efficiently and socially equitably as possible and driving forward the transformation to climate neutrality: (1) bans and prohibitions, (2) state subsidies, or (3) other financial incentives, e.g. in the form of carbon pricing? The challenge is to find the right mix of instruments.
3. The administrative and technical implementation of the European Green Deal alone is very demanding: Complex requirements and short implementation deadlines can overburden both authorities and companies. Companies complain about bureaucracy and high implementation costs. The decisive question is whether political decision-makers take justified complaints into account and remedy the situation in time.
4. The geopolitical situation and international competition are becoming tougher for Europe, while external shocks such as pandemics and wars are causing uncertainty. Is the European Green Deal resilient and flexible enough to react quickly to external shocks without abandoning its objectives?
5. The low-hanging fruit of climate policy has already been harvested over the past 20 years: Until now, climate protection measures have mostly been binding for companies, e.g. as part of the emissions trading system for energy producers and energy-intensive industries or CO₂ reduction targets for the automotive industry. From now on, the transformation will also be clearly felt by large parts of the population, e.g. through rising petrol prices and heating costs.
6. Overall, politicians must strike a better balance between the classic triangle of sustainability goals: (1) protecting our natural resources, (2) creating conditions for an economy that can make profits, and (3) providing people with jobs, a decent income and an overall good quality of life.

Indeed, everything is intertwined. When presenting the European Green Deal in 2019, Ursula von der Leyen also emphasised the importance of its social dimension:

„We must also ensure that no one is left behind. In other words, this transition will either work for everyone and be fair, or it won’t work at all.”

My concern is that massive social conflicts related to the European Green Deal will be exploited by populists, undermine necessary transition efforts and also pose a serious threat to our free and democratic European societies.

My hope is that people will once again be more willing not only to confront each other with their own firmly held convictions and individual truths, but also to listen to each other in order to understand different perspective in order to jointly work out solutions for the common good.

This article is based on a keynote speech given by the author on 9 September 2024 opening the Vigoni Forum 2024 on the Chances and Risks of Societal Processes in the Context of the European Green Deal at the German-Italian Centre for European Dialogue Villa Vigoni, Menaggio/Italy.