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InvestEU to catalyse European sustainable economy only if EU policymakers step up

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Photo by RL Hyde on Flickr

In 2015, the EU committed with 194 other countries to strengthen the global response to the threat of climate change by limiting global temperature rises to well below 2 degrees above pre-industrial levels (aiming for 1.5 degrees).

For doing so, it specifically required to align financial flows with that goal. The agreement to make financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development is essential to provide the means for the wide-ranging transformation needed to achieve deep decarbonisation of the economy.

With its potential for leveraging up to €650 billion, InvestEU which is part of the next EU budget can drive investments towards key areas for Europe’s transition to a sustainable economy, but only if policy-makers make sure InvestEU becomes resolutely Paris-aligned. However, as it stands, InvestEU will not be able to catalyse the European transition to a green economy.

A €650 billion opportunity to deliver Europe’s transition to a sustainable economy

InvestEU is the successor of the Juncker Plan – also known as European Fund for Strategic Investments (EFSI) – established in 2008 during the global financial crisis as a means to help the European economy. Ten years onwards, InvestEU is the European Commission’s answer to the need for mobilising capital to address market failures and investment gaps as part of the post-2020 EU budget. With a proposed budget of €15.2 billion the power of the Fund is to leverage an expected forty-times this amount in private investments to spur the economic sectors usually left out of big investments decisions.

This is particularly crucial for supporting the transition to a green economy. The investment gap in climate-related sectors such as energy efficiency is estimated between €177 and €294 billion annually, half of which is investment in energy efficiency in households. Such investments could boost the economy of entire regions as it would not only reduce energy poverty but help develop an economic sector and create entire local value chains.

Beyond that, InvestEU will also financially contribute to several other EU Programmes and Funds such as Horizon Europe, Europe’s flagship research and innovation programme or European Cohesion Policy funds that promote regional development across Europe. Both regional development and innovation are crucial for achieving a low carbon economy and InvestEU’s wide contribution places the Fund as a lynchpin for delivering Europe’s transition to a decarbonised economy.

InvestEU’s cross-sectoral capabilities is particularly adapted to the demands of decarbonising a whole society. This week the European Commission will release the new EU Long-Term Climate Strategy for 2050, which will show how each sector of the economy and society will contribute to moving to a decarbonised society. In times where transformations are required from every sector to achieve deep decarbonisation, InvestEU’s ability to support a variety of areas through synergies with other EU budget funds and policy areas is more important than ever to achieve a net zero emissions economy by 2050.

EU Parliament can still ensure a Paris-aligned InvestEU

But as things stand InvestEU is not removing some of the main barriers that hamper the achievement of EU goals regarding sustainability, competitiveness and inclusive growth. In the Commission’s proposal InvestEU’s contribution to climate-related projects – also called climate mainstreaming – remains too low with a proposed 30% share of the Fund dedicated to achieving EU climate goals and does not match the Fund’s size or relevance for the transition. Energy efficiency investments are not facilitated even though this is where the Fund could make the greatest impact and fossil fuel investments are still eligible. This last point is particularly worrisome as it could divert significant funds from investing in productive and future-proof projects, but it also goes against both Europe’s own climate and energy commitment under the Paris Agreement.

In the European Parliament, the text is entering its final phase of negotiations. The Industry, Research and Energy (ITRE) Committee voted a progressive opinion. Two main outcomes of the opinion are the Fund’s increased climate mainstreaming share and the inclusion of the energy efficiency first principle, which requires to first consider energy efficiency measures before investing. While this decidedly recognises InvestEU’s role for Europe’s decarbonisation, members of the Committee however failed to vote a fossil fuel exclusion, effectively undermining efficiency of EU spending and Paris-alignment.

Now with the Parliament Committee in charge of InvestEU to decide on the text’s fate on 3rd of December, it is crucial it upholds the positive changes and excludes fossil fuel subsidies. It is now in the hands of the Budget and the Economic and Monetary Affairs Committees to ensure InvestEU lives up to its potential and contributes to catalysing Europe’s sustainable economy investments. Adopting a decidedly Paris-aligned stance would ensure the Parliament represents European commitment on climate ahead of negotiations with the European Council.

Less than a week before the world meets at COP24 to press forward with the Paris process, making sure Europe’s investment decisions for the next seven years are Paris-compatible is not just essential for the climate but for the credibility of Europe’s role as climate leader on the international scene.