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New EU industrial strategy: The challenges to tackle

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MEPs want the EU's future industrial strategy to help businesses survive the COVID-19 crisis and face the digital and environmental transitions. Find out how.

European enterprises have been hit hard by the COVID-19 pandemic, as many have had to shut or reduce their workforce while finding new ways to work within new restrictive measures. Before making the necessary digital and green transitions,  industry  in the EU needs to recover from the pandemic.

During the November plenary, MEPs are set to reiterate their call for the European Commission to revise its March 2020 proposal on the EU's new industrial strategy. In a draft report adopted on 16 October, the members of the industry, research and energy committee demanded a shift in the EU approach to industrial policy in the wake of the pandemic by helping businesses cope with the crisis and face the digital and environmental transitions.

How the Parliament foresees the EU's industry landscape

Industry represents more than 20% of the EU’s economy and employs about 35 million people, with many millions more jobs linked to it at home and abroad. In addition it accounts for 80% of goods exports. The EU is also a top global provider and destination for foreign direct investment.

In the context of the new industrial strategy, the EU should enable companies to contribute to its climate-neutrality targets - as outlined in the Green Deal road map - support firms, particularly small and medium enterprises in the transition to a digital and carbon-neutral economy and help create high-quality jobs, without undermining the EU’s competitiveness.

According to MEPs; such a strategy should consist of two phases: a recovery phase to consolidate jobs, reactivate production and adapt to a post-COVID period; followed by reconstruction and industrial transformation.

Read about the main EU measures to kick-start the economic recovery.

Empowering smaller firms to achieve sustainable growth

Small and medium-sized enterprises are the backbone of the EU economy, accounting for more than 99% of all European business. The industrial strategy should focus on them, as many have contracted debts due to national coronarivus measures, reducing their investment capacity, which is likely to trigger sluggish growth in the long-term.

Helping industry recover from the socio-economic crisis

The COVID Recovery Fund is part of the first phase in responding to the emergency and should be distributed according to the level of damage suffered, challenges faced and amount of financial support already received through national aid schemes.

Preference should be given to companies and smaller firms oriented towards the digital and environmental transformation and thus investing in environmentally sustainable activities.

MEPs want to:

  • Ensure that the green and digital transitions are fair and socially just and are followed by initiatives to train workers.
  • Create a new impact assessment of the potential costs and burdens of the transition for European companies, including small and medium-sized enterprises.
  • Make sure that state aid provided in the emergency phase does not lead to permanent distortions in the single market.
  • Bring strategic industries back to the EU.

Investing in greener, digital and innovative enterprises

During the second phase, the industrial strategy should ensure competitiveness, resilience and long-term sustainability. Goals include:

  • Focusing on the social aspects of the structural change.
  • Revitalizing territories that rely on fossil fuels using the Just Transition Fund, which is part of the EU's climate finance plan.
  • Ensuring EU subsidies go to environmentally sustainable companies and enhancing sustainable financing to companies in the decarbonisation process.
  • Using the Border Carbon Adjustments mechanism to help protect EU manufacturers and jobs from unfair international competition.
  • Having a research-based pharmaceutical industry and a medicine shortage risk mitigation plan.
  • Exploiting the circular economy, privileging the "energy efficiency first" principle, energy savings and renewable energy technologies.
  • Using gas to transition away from fossil fuels and hydrogen as a potential breakthrough technology.
  • Investing in artificial intelligence and implementing a single European digital and data market, building a better digital taxation system and developing European standards on cybersecurity.
  • Investing more in research and development.
  • Revising EU antitrust rules to ensure global competitiveness.

Climate change

ECB sets up climate change centre

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The European Central Bank (ECB) has decided to set up a climate change centre to bring together the work on climate issues in different parts of the bank. This decision reflects the growing importance of climate change for the economy and the ECB’s policy, as well as the need for a more structured approach to strategic planning and co-ordination.The new unit, which will consist of around ten staff working with existing teams across the bank, will report to ECB President Christine Lagarde (pictured), who oversees the ECB’s work on climate change and sustainable finance.“Climate change affects all of our policy areas,” said Lagarde. “The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves.”The climate change centre will shape and steer the ECB’s climate agenda internally and externally, building on the expertise of all teams already working on climate-related topics. Its activities will be organised in workstreams, ranging from monetary policy to prudential functions, and supported by staff that have data and climate change expertise. The climate change centre will start its work in early 2021.

The new structure will be reviewed after three years, as the aim is to ultimately incorporate climate considerations into the routine business of the ECB.

  • The five work streams of the climate change centre focus on: 1) financial stability and prudential policy; 2) macroeconomic analysis and monetary policy; 3) financial market operations and risk; 4) EU policy and financial regulation; and 5) corporate sustainability.

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Environment

UK and France can lead mobilization of tropical forest protection investment

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Lack of adequate finance has long been one of the biggest challenges facing natural climate solutions. Currently, the primary sources of revenue from forests, marine ecosystems, or wetlands come from extraction or destruction. We need to change the underlying economics to make natural ecosystems worth more alive than dead.  If we don’t, the destruction of nature will continue at pace, contributing to irreversible climate change, biodiversity loss and devastating the lives and livelihoods of local and Indigenous people, writes Emergent Executive Director Eron Bloomgarden.

The good news is that 2021 is off to a promising start. Earlier this month at the One Planet Summit, significant financial commitments were made for nature. Chief among these was UK Prime Minister Boris Johnson’s pledge to spend at least £3 billion of international climate finance on nature and biodiversity over the next five years. Prior to this announcement, 50 countries committed to protect at least 30% of their lands and oceans.

This is welcome news. There is no solution to the climate or biodiversity crises without ending deforestation. Forests make up roughly a third of the potential emissions reductions needed to achieve the targets set in the Paris Agreement. They hold 250 billion tons of carbon, a third of the world’s remaining carbon budget for keeping temperature rise to 1.5 degrees Celsius above the pre-industrial age. They absorb approximately 30% of global emissions, hold 50% of the world’s remaining terrestrial biodiversity, and support the livelihoods of more than a billion people who depend on them. In other words, ending tropical deforestation (in parallel with decarbonizing the economy) is essential if we are to keep on the pathway to 1.5 degrees and preserve our essential biodiversity.

The question is how to commit this funding in a way that drives toward ending deforestation, for good.

For this, tropical forest protection needs to happen across entire countries or states, working with governments and policymakers, who with the right mix of public and private funding, can commit to reducing deforestation at massive scale.

This isn't a new idea, and it builds on lessons learned over the past two decades. Central among those is that large scale programs will not materialize in the absence of massively increased levels of both public and private support. Even funding support amounting to hundreds of millions of dollars is not always sufficient to give countries confidence that large-scale forest protection programs are worth the up-front investment in monetary and political capital.

The scale of funding needed is far beyond what can realistically be achieved with government-to-government aid flows or conservation funding alone; private sector capital has to be mobilized as well.

The best way to achieve this is by using international markets for carbon credits and capitalizing on the growing demand from the private sector for high-quality, high-impact offsets as they race toward net-zero emissions goals. Under such a system, governments receive payments for the emission reductions they achieve through preventing forest loss and/or degradation.

The key is for donor governments like the UK, France and Canada to help build the infrastructure to value nature properly, including supporting conservation and protection, as well as the establishment and expansion of voluntary and compliance carbon markets that include crediting for forest credits.

On this latter point, following Norway’s lead, they can use part of their pledged funding to establish a floor price for the credits generated by large-scale programs. This approach leaves the door open for private buyers to potentially pay a higher price in light of the soaring demand for such credits, while giving the governments of forest countries peace of mind that there is a guaranteed buyer no matter what happens.

We are at an inflection point where significant new forest protection programs could be mobilized by a quantum increase in public and private finance. Donor governments are in a position now to secure US$ billions in co-funding from a range of private actors in order to support national forest protection programs that generate carbon credits. Channeling additional public and mission-driven funds will catalyze private investment and would be transformative in accelerating the development of this critical market, which would benefit the green recovery, the creditworthiness of forest countries, and the well-being of the planet and humanity.

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Environment

Climate Diplomacy: EVP Timmermans and HR/VP Borrell welcome the US return to the Paris Agreement and engage with Presidential Climate Envoy John Kerry

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Following the inauguration of President Biden, the EU is immediately engaging with the new US Administration on tackling the climate crisis. In a bilateral videoconference on 21 January, Executive Vice-President for the Green Deal, Frans Timmermans, will discuss the preparation of the COP26 climate summit with the US Special Presidential Envoy for Climate John Kerry. Executive Vice-President Timmermans and High-Representative/Vice President Josep Borrell issued a Joint Statement, welcoming the decision by President Biden for the United States to re-join the Paris Agreement: “We are looking forward to having the United States again at our side in leading global efforts to combat the climate crisis. The climate crisis is the defining challenge of our time and it can only be tackled by combining all our forces. Climate action is our collective global responsibility. COP26 in Glasgow this November will be a crucial moment to increase global ambition, and we will use the upcoming G7 and G20 meetings to build towards this. We are convinced that if all countries join a global race to zero emissions, the whole planet will win.”

The EU submitted a new Nationally Determined Contribution to the UNFCCC Secretariat in December 2020, as part of its implementation of the Paris Agreement. The EU has committed to a 55% net reduction of its greenhouse gas emissions by 2030, compared to 1990 levels, as a stepping stone to achieving climate neutrality by 2050. The Joint Statement is available online here.

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