European Green Deal and Just Transition

The European Green Deal and Just Transition are critical concepts guiding the European Union's efforts to address climate change while ensuring social fairness. This article provides a comprehensive overview, drawing insights from the working paper by Sebastiano Sabato and Boris Fronteddu, assessing the compatibility and implementation of these two crucial initiatives.

Understanding the European Green Deal and Just Transition: An Overview

Public concern about global warming has significantly influenced European policy-making, notably in the 2019 European Parliament electoral campaign. The newly elected Commission President, Ursula von der Leyen, made transforming Europe into the "first climate-neutral continent" a key priority. This ambition is embodied in the European Green Deal (EGD).

Crucially, the EGD aims to ensure a "just transition for all." This means mitigating the social and employment impacts of shifting to a climate-neutral model, especially for vulnerable regions and economic sectors. The goal is to gain broader social acceptance for the necessary transformations, making the transition not just green, but also socially fair.

What is a Just Transition? ILO Guidelines Explained

The concept of a "just transition" originated from trade union demands in the 1980s. It stresses that the shift towards a low-carbon society must "create decent work and quality jobs." The International Labour Organisation (ILO) formalized this in 2015 with its "Guidelines for a just transition towards environmentally sustainable economies and societies for all."

These guidelines link the just transition to sustainable development and its goals, such as poverty eradication, social protection, and decent job creation. Key principles include:

• Distributional Justice: Opportunities and costs must be shared fairly across individuals, social groups, sectors, communities, regions, and countries.
• Procedural Justice: Ensures the participation of citizens and all stakeholders in decision-making and implementation.

Effective implementation requires:

• Context-Sensitive Strategies: Policies must recognize diverse national, regional, and sectoral conditions, avoiding a one-size-fits-all approach.
• Coherent Policy Frameworks: Integration of macroeconomic, industrial, social, and environmental policies to create synergies and address trade-offs.
• Capacity Building: Providing decision-makers and stakeholders with robust indicators and data for impact assessment and evaluation.
• Policy Integration: Setting up institutional arrangements for coordination across governance levels and between public, private, and social actors.
• Social Consensus: Transition must not be top-down; it requires meaningful consultation and strong social dialogue at all levels.
• Financial Resources: Mobilizing public and private investment, with a key role for governments in ensuring protection from risks and participation in opportunities.

The European Green Deal: Core Objectives and Approach

Launched on December 11, 2019, the EGD is a new growth strategy aiming to transform the EU into a fair and prosperous society. Its core objectives are:

• To achieve "zero net emissions" of greenhouse gases by 2050.
• To decouple economic growth from resource use.
• To protect, conserve, and enhance the EU's natural capital.
• To safeguard citizens' health and well-being from environment-related risks.

The EGD intends to mainstream sustainability across all EU policies, including budget, macro-economic, fiscal, taxation, research, innovation, education, and trade. It emphasizes that economic growth, social fairness, and environmental progress are compatible and mutually reinforcing. The European Pillar of Social Rights (EPSR) is presented as the reference framework to ensure "no one is left behind."

Actions are structured around eight macro-areas, from climate ambition to clean energy, circular economy, sustainable mobility, and preserving biodiversity. Governance relies on policy integration and coordination, with the European Semester playing a key role.

European Green Deal and ILO Just Transition Framework: Compatibility Analysis

Comparing the EGD with the ILO's Just Transition Guidelines reveals a significant overlap, at least discursively. Both initiatives share a broad framework encompassing green growth and just transition, viewing them as compatible with environmental goals.

Key Similarities and Focus Areas

• Comprehensive Policy Framework: The EGD covers a broad array of policy areas, aligning with the ILO's call for an integrated approach across economic, social, and environmental objectives.
• Synergies and Trade-offs: Both frameworks acknowledge the need to create synergies between policies and identify potential trade-offs. The European Semester is designed to be a feedback mechanism for this.
• Multi-Scalar Approach: The EGD's Just Transition Mechanism (JTM) is territorially and sectorally focused, aligning with the ILO's emphasis on context-sensitive strategies.
• Stakeholder Involvement: The EGD emphasizes involving the public and stakeholders, including an "active social dialogue," consistent with the ILO's principle of social consensus.
• Funding: Both highlight the need for significant financial resources, although the EGD places a stronger emphasis on mobilizing private capital in addition to public investment.

Social Dimension and Potential Misfits

The EGD adopts a rather targeted approach to just transition, focusing on regions and sectors most affected by the changes. It addresses education and training to help workers adapt to a greener economy.

However, a potential "misfit" arises. While the ILO framework supports targeted measures, it firmly places them within strong, universal social protection systems that guarantee social rights to all citizens. The EGD initially seemed to rely more on a social investment-oriented understanding, potentially neglecting broader distributional effects and general social protection.

This risk is mitigated by the EGD's explicit reference to the European Pillar of Social Rights (EPSR). The EPSR, with its comprehensive list of social rights, aims to ensure a better balance between social-investment and traditional social protection policies. Its inclusion is intended to put the Pillar at the center of the transition towards climate neutrality, digitalization, and demographic change.

Implementing the European Green Deal: Tools and Challenges

The success of the EGD hinges on its implementation. Two critical tools are the European Semester and financial instruments.

The European Semester: Integrating Green Priorities

Historically focused on macroeconomic and fiscal policies, the European Semester has gradually incorporated social dimensions. For the 2020 cycle, the Commission explicitly refocused it on UN Sustainable Development Goals (SDGs) and the EGD, aiming to put "sustainability and the well-being of citizens at the centre of economic policy."

The 2020 Annual Sustainable Growth Strategy (formerly Annual Growth Survey) introduced "competitive sustainability" based on four dimensions:

1. Environmental sustainability: Focusing on green investments.
2. Productivity growth: Through research, innovation, digital transition, and education.
3. Fairness: Implementing EPSR principles, promoting cohesion, and considering a European Unemployment Benefit Reinsurance Scheme.
4. Stability: Ensuring responsible economic, fiscal, and financial policies.

This integration of the environmental dimension is a significant change, paving the way for a more comprehensive policy approach. The Semester's Country Reports 2020 now include specific sections on environmental sustainability, SDG performance, green growth indicators, and investment guidance for the Just Transition Fund.

The European Semester and COVID-19

The COVID-19 pandemic introduced unprecedented challenges. Despite initial doubts about the EGD's fate amid economic recession, the Commission reaffirmed its commitment. The 2020 Country-specific Recommendations (CSRs) emphasized addressing the pandemic, disregarding fiscal constraints temporarily, and prioritizing efforts for recovery on the green and digital transition. The Next Generation EU recovery plan further confirmed this focus, aligning investments with EGD priorities.

Financing the European Green Deal: Investments for a Just Transition

Achieving the EGD's ambitious objectives requires massive financial, political, and human investment. The European Commission estimates around €260 billion in additional annual investments for energy and climate goals by 2030, while the European Court of Auditors suggests even higher figures.

The Sustainable Europe Investment Plan

This plan aims to mobilize one trillion euros in public and private investment over ten years (2021-2030) for a "socially just transition." Key financial contributions include:

• €503 billion from the EU budget.
• €114 billion from national co-financing.
• €25 billion from Innovation and Modernisation Funds.
• €279 billion from InvestEU, attracting private investment.
• €100 billion for a Just Transition Mechanism (JTM).

The JTM, a core pillar, supports regions and sectors hardest hit by the transition. It consists of:

1. A specific facility within InvestEU.
2. A public loans facility from the European Investment Bank (EIB).
3. A Just Transition Fund (JTF), providing subsidies for transformation and reconversion. Initially €7.5 billion, it was increased to €40 billion under the Next Generation EU plan.

Implementation of the JTF relies on close cooperation between the Commission, national, and local authorities, guided by territorial transition plans submitted by Member States within the European Semester framework.

European Taxonomy of Sustainable Activities: A Thorny Debate

To guide private investment, the EU established a framework to define "sustainable" economic activities – the European taxonomy. This classification aims to increase visibility for sustainable investment and combat greenwashing. The "Next Generation EU" plan states that the taxonomy will guide recovery investments.

However, the legislative process faced challenges:

• Vagueness and Sector Exclusion: The final agreement on the taxonomy was rather vague, explicitly excluding only solid fossil fuels. Debates over including or excluding sectors like nuclear energy highlighted deep divisions among Member States.
• Social Criteria: The European Trade Union Confederation (ETUC) and NGOs advocated for the inclusion of social criteria (human rights, labor standards) alongside environmental criteria. The adopted text expanded minimum social guarantees beyond ILO conventions.
• Ideological Underpinnings: Critics from the scientific community questioned the action plan's reliance on the assumption that "finance supports the economy by providing funding for economic activities and ultimately jobs and growth," arguing this correlation is not universally accepted.

Challenges and Future Outlook

Estimating the precise cost of the transition is complex due to exogenous factors like raw material price volatility and the impact of the COVID-19 pandemic. The EGD's reliance on electrification and digitalization also depends on securing critical raw materials, often produced outside the EU, raising concerns about supply chains and global social consequences.

The massive injection of private capital hoped for by the Commission means that the implementation of the just transition funding structures will likely rekindle diverging interests among stakeholders. While the EGD is presented as a science-based policy, its funding strategy's underlying assumptions are subject to debate.

Conclusion: A Green and Just Future for Europe?

The European Green Deal, at least discursively, aligns significantly with the ILO's Just Transition Guidelines. It aims to create a coherent policy framework integrating economic, social, and environmental objectives, identifying potential trade-offs, and emphasizing education, training, and context-sensitive initiatives.

While potential inconsistencies regarding universal social rights exist, the EGD's reference to the European Pillar of Social Rights seeks to ensure a broader social safety net. The European Semester has evolved to incorporate environmental dimensions and SDGs, ensuring that the costs and opportunities of the transition are fairly shared.

However, the massive financial requirements and the reliance on private capital, guided by the European taxonomy, highlight ongoing challenges and potential conflicts among stakeholders. The success of the EGD and its promise of a truly green and just transition will ultimately depend on its meticulous implementation and the ability to reconcile diverse interests amid a changing global landscape.

European Green Deal and Just Transition FAQ for Students

What is the main goal of the European Green Deal?

The main goal of the European Green Deal is to transform the EU into the first climate-neutral continent by 2050, decoupling economic growth from resource use, and protecting natural capital and citizens' health from environmental risks. It also aims to ensure a socially fair transition for all.

How does the Just Transition concept relate to the European Green Deal?

The Just Transition concept, guided by ILO guidelines, ensures that the shift towards a climate-neutral economy is also socially fair. It aims to cushion the social and employment consequences of this transition, particularly for vulnerable regions and workers, by creating decent jobs and providing social protection. The EGD explicitly incorporates this principle to gain social acceptance for its ambitious environmental goals.

What are the key implementation tools for the European Green Deal's just transition?

Key implementation tools include the European Semester, which integrates environmental and social priorities into economic policy coordination, and financial instruments like the Just Transition Mechanism and the Just Transition Fund. These provide targeted support and investments for regions and sectors most affected by the transition, along with efforts to mobilize private capital through mechanisms like the European taxonomy of sustainable activities.

What are some of the challenges in financing the European Green Deal?

Financing the European Green Deal faces challenges such as the immense scale of required investments (hundreds of billions annually), the difficulty in precisely estimating costs due to external factors like raw material prices, and ensuring the mobilization of massive private capital. The implementation also highlights potential ideological divisions regarding the role of finance and the criteria for classifying sustainable economic activities.

How does the European Green Deal address social fairness beyond employment?

Beyond employment, the European Green Deal integrates social fairness through its explicit reference to the European Pillar of Social Rights (EPSR). The EPSR provides a comprehensive framework of social rights and principles, aiming to ensure that no one is left behind. This includes addressing issues like energy poverty and ensuring universal social protection and inclusion, complementing targeted measures for specific sectors and regions.