POLITICO Pro Sustainability Insights: Circular batteries boost — Chemicals leaks — COP update

By Eline Schaart, Paola Tamma and Louise Guillot | @elineschaart | @paola_tamma | @l_guillot | View in your browser

With thanks to Eddy Wax, Kalina Oroschakoff, Anca Gurzu, Hanne Cokelaere and Laura Kayali

GOOD AFTERNOON READERS. Let's hope your Christmas is safer and more sustainable than this racoon's. It showed up drunk at a German Christmas market and was nabbed by firefighters to be taken to an animal shelter. However, it was instead handed over to a hunter, who shot it. As usual, send those tips, tricks and tales to Eline Schaart at eschaart@politico.eu, Paola Tamma at ptamma@politico.eu and Louise Guillot at lguillot@politico.eu.

CIRCULAR ECONOMY

EUROPEAN BATTERY SECTOR GETS BOOST TO GO CIRCULAR: The European Commission's competition authority today approved plans to funnel billions of euros of public cash into a multi-country battery project. The plan builds on a Franco-German initiative to promote battery cell production within the EU, and broadens it into a bloc-wide initiative covering everything from raw materials needed in manufacturing to cell production and recycling. The demand for batteries is expected to grow “very rapidly” in the coming years due to the bloc’s transition from combustion to electric engines.

Companies involved in the battery project include chemical multinationals BASF and Solvay, and recycling group Umicore.

Industry perspective: The head of the European metals industry, Mikael Steffas, told Eline earlier this year that the Continent needs to open more mines if Commission President Ursula von der Leyen wants to advance the green transition. Non-ferrous metals like aluminum, copper, brass, gold, nickel, silver, tin, lead and zinc are crucial to the technologies needed to decarbonize energy and transport. The EU gets about a fifth of such materials from its own mines.

FRANCE’S ANTI-WASTE BILL ROUND 2: French MPs today started the second reading of an anti-waste and circular economy bill;  a final vote is expected after December 20.

What’s in the bill? The draft legislation includes new rules to inform consumers more clearly on how to recycle packaging, includes new sectors under the extended producers’ responsibility scheme (obliging producers to manage waste they produce), new deposit-return schemes for glass bottles, and a ban on throwing away unsold products.

Leftover issues: It's still unclear if plastic bottles will be included in the deposit-return scheme. The senate also watered down a number of proposals during a first reading in September, such as delaying a ban of some single-use plastic items from the first quarter of 2020 to 2021.

CHEMICALS 

THE TOXIC NON-TOXIC ENVIRONMENT STRATEGY: Six years after it was first announced, the non-toxic environment strategy still hasn't been published. Environmental groups and some MEPs fear, based on leaks of the Green Deal communication seen by Eline, that the non-toxic environment plan will be replaced by an innovation strategy, which would be more lenient toward industry.

How did we get here? The Commission was obliged under its 7th Environment Action Program to publish a strategy on how to eliminate toxic substances from the environment by 2018. But the outgoing Commission backtracked on that commitment and said it would leave it up to the new Commission. But an internal document, dated July 5 and obtained by POLITICO through a freedom of information request, suggests that the non-toxic environment strategy "was not delivered because of a lack of internal consensus, and because some items are now outdated."

Read Eline’s full story here, or see below.

NGO LEAKS SUPPOSED CHEMICALS GREEN DEAL TEXT: The European Environment Bureau (EEB), an NGO, said it has seen a recent draft of the Green Deal text on chemicals — a text we have not been able to verify. In the text, the Commision allegedly promises to present a chemical innovation strategy which will “both help to protect citizens’ better against hazardous chemicals and encourage the development of more sustainable alternatives.” The text also outlines the Commission’s ambition to simplify the legal framework — with the aim to better health protection and increased global competitiveness — by reviewing how to better use EU agencies and scientific bodies to move toward a process of “one substance — one assessment.” Currently, some substances are reviewed by more than one agency. Bisphenol A, for example, has been audited by both the European Food Safety Agency (EFSA) and European Chemicals Agency (ECHA) — resulting in different outcomes.

The EEB said that the phrasing of the text it published is close to the European chemical industry’s position and at odds with the zero pollution ambition of Commission President Ursula von der Leyen’s Green Deal. “We don’t need simplification, but better regulation,” said Tatiana Santos, EEB’s manager of chemicals policy. The text is “really concerning,” she added: “It’s nonsense this will be under zero pollution [banner] and it doesn’t even mention the environment.”

NGO REPORT ACCUSES EU OF FAILING TO SCREEN EDCs: A report out today from environmental and health NGO Pesticide Action Network (PAN) suggests the EU is failing to protect people from pesticides that disrupt hormonal functioning. PAN says the EU is not meeting its own standards when it comes to testing for endocrine disrupting chemicals (EDCs), which pose a serious health risk and could cause cancers and reproductive problems. PAN’s experts found that 31 of the 33 pesticides for which it analyzed approval decisions, “no relevant testing — specific to assess endocrine disruption — was requested from industry.” The report added: “While OECD-tests are available and agreed since 2012, the most sensitive tests were never requested from industry and even the tests to just determine endocrine activity were requested only in very few cases.”

Toxic cycle: PAN says its report paints a worrying picture of the risk assessment cycle that pesticides undergo when they are checked for hazardous properties. The report alleges that the EU’s outdated detection methods are incapable of testing for EDCs and that evidence from the Joint Research Centre is ignored by risk assessors — all of which, according to PAN, leads to EU licenses being granted for EDC pesticides. The European Food Safety Authority and the European Commission did not immediately respond to requests for comment.

COP25

POLITICIANS TAKE OVER: We’re entering the final week of the COP25 climate talks in Madrid. Senior national officials arrive this week to try to hammer out some of the most politically challenging elements of the Paris climate accord. They include rules on how to use carbon markets and trade emissions reductions, as well as financial support for developing countries reeling from climate-related shocks such as hurricanes, storms and floods. Zack Colman and Kalina have the breakdown on what to expect this week here, or scroll below.

MEPs also in la casa: A delegation from the European Parliament arrived today in Madrid for the negotiations. The group is led by Green MEP Bas Eickhout, who said the group has a very clear mandate: The EU has to reduce its planned reductions in greenhouse gas emissions by 55 percent in 2030 compared to 1990, and become climate neutral by 2050 at the latest.

OCEANS OUT OF OXYGEN: World’s oceans are increasingly depleted of oxygen which threatens marine life, according to a new report by the International Union for Conservation of Nature. The decline of oxygen quadrupled in the past 50 years, the report said. The report, issued Saturday in Madrid, said that climate change and increasing greenhouse gases are the main drivers of ocean deoxygenation. Oceans are important carbon sinks, meaning that they absorb and store CO2 — but scientists estimated that between 1960 and 2010, the amount of CO2 dissolved in the oceans declined by 2 percent due to warmer waters.

On that note, European Commissioner for Environment, Oceans and Fisheries, Virginijus Sinkevičius, was in Madrid for the release of the report. He tweeted: “We have the technology, we have the financial means. We have the ambition and the public support. It’s NOW our opportunity to make the future story of Oceans a success.”

GREEN DEAL

2020 GREEN DEAL TIMELINE: As the European Commission is fleshing out the details of its Green Deal plan, here are some sustainability-related dates to keep in mind:

— By February: Proposal for an EU Biodiversity Strategy for 2030, outlining the EU’s vision for a global biodiversity framework

— By March: Proposal for a new Circular Action Plan, as well as a European Climate Law that would enshrine an objective for the EU to become climate neutral by 2050 in legislation.

— By the second semester: Present a green financial action plan, as well as a zero pollution proposal for air, water and chemicals.

— By October: Proposal for “a comprehensive plan” to increase the EU’s 2030 emissions reduction target to at least 50 percent and toward 55 percent.

— By the fourth quarter of 2020: Adopt a new EU Strategy on Adaptation to Climate Change. The date is still in brackets, meaning it could change.

In case you missed it, here are the dates (between December 11 and March 31) for when the Commission is expected to discuss its key proposals in the College of Commissioners.

REGIONS’ VIEWS ON GREEN DEAL: The Committee of the Regions last week set out its (non-binding) resolution on the Commission’s Green Deal pledge. “We can no longer close our eyes to the climate emergency … If the green transition does not start in our cities, in our municipalities, it will not happen at all, ” said Karl-Heinz Lambertz, head of the body representing sub-national governments.

ENVIRONMENT AND BIODIVERSITY

PARLIAMENT ON BIODIVERSITY: The Parliament's intergroup on biodiversity and sustainable development will return this mandate, according to the final list of such groups obtained by Laura Kayali. There will also be an intergroup on the Green Deal. The document is due to be approved by the Conference of Presidents this week.

ENVIRONMENT COUNCIL REBRAND: The Environment Council might be renamed the Climate Change and Environment Council, according to a proposal from the Finnish presidency seen by POLITICO. The document, dated November 25, details proposed changes to the Council’s working methods and requires a reinforced qualified majority to be adopted.

SUSTAINABLE FINANCE

DON’T BANK ON THE ECB SAVING THE PLANET: Christine Lagarde seems less keen to make big pledges on using the European Central Bank to fight climate change now that she’s actually in office. The newly appointed ECB president this week began rowing back on her call to put the institution’s financial firepower into greening the economy. “The mandate of the ECB is not about climate change,” she said. She described the environment and other objectives as “perhaps not primary ones, but secondary ones.” Bjarke Smith-Meyer has the story here or below.

Meanwhile, the European Banking Authority warned Friday that banks should act now to tackle climate change by measuring green lending on their books and creating sustainable business strategies. The Paris-based EBA published its action plan on sustainable finance, outlining a timeline for its own legal mandates on environmental, social and governance factors.

GREEN GLANCES

Thailand has become a center of the e-waste industry, but locals are worried about their health due to the toxic fumes produced by the recycling process, the New York Times reported.

The Fashion Industry Charter for Climate Action, an industry group, this afternoon called for cutting greenhouse gases along the fashion supply chain.

Over 600 institutional investors, managing more than $37 trillion in assets, urged governments to step up efforts to tackle the global climate crisis and achieve the goals of the Paris Agreement, in a joint statement issued today in Madrid.

The European Federation of Waste Management and Environmental Services on Friday published a position paper on chemical recycling.

Most Christmas sweaters contain plastic fibers that contribute to plastic pollution, according to a new study by the environmental charity Hubbub. The Guardian has more.

POLITICO PRO ARTICLES 

How Europe's non-toxic environment strategy became toxic

— By Eline Schaart

Advocates of tighter chemicals regulations have pushed for years for the EU to adopt a non-toxic environment strategy, but the Commission's latest plan calls it something else —  a “chemical innovation strategy.”

That's the result of a fierce lobbying battle between advocates of tough chemicals regulation and industry that fears being hobbled by red tape.

According to an internal presentation obtained by POLITICO, the Commission will promise a “chemical innovation strategy” in June, followed by a package of legislative measures later in its mandate.

The chemicals strategy is crucial to parts of the Ursula von der Leyen Commission's Green Deal program — applying to the Zero-Pollution Strategy, the Biodiversity Strategy, the Farm to Fork Strategy and the New Circular Economy Action Plan. The Green Deal is due to be presented to the European Parliament on Wednesday.

But environmental groups and some MEPs fear that the "chemical innovation strategy" would be a replacement for the "non-toxic environment strategy" that was delayed by the previous Commission — and that it would be more lenient toward industry.

Swedish MEP Jytte Guteland from the Socialists and Democrats described the innovation strategy as a “very negative thing,” adding the EU should focus on protecting people rather than helping industry create new chemicals.

“If the Commission is serious about the Green Deal, then the non-toxic environment strategy needs to be in there ... and can’t be diluted or less strong,” Guteland said.

“This U-turn is very worrying,” said Tatiana Santos, manager on chemicals policy at the European Environmental Bureau (EEB), an NGO, in reference to the presentation. “Shifting the language is not coherent with European Commission President Ursula von der Leyen’s guidelines, on the basis of which she was appointed by the European Parliament.”

Industry maintains it would be an improvement on the previous plan.

“A European innovation strategy for chemicals is what is needed to support non-toxic environment objectives,” said Marco Mensink, the director general of the chemicals industry lobby Cefic.

“If you support innovation taking place in Europe, leading to new chemicals made in Europe, then I think you start to have a comprehensive strategy," Mensink said, adding that "without homegrown innovative chemistry, it is difficult to see how Europe can deliver its own low-carbon and circular economy solutions.”

Earlier this year, Mensink told POLITICO in an interview that the industry didn’t support the wording “non-toxic environment” because “there’s no such thing.”

“We understand what is meant, but we think the branding is the wrong one,” he said.

Long history

The Commission was obliged under its 7th Environment Action Program to publish a strategy by 2018 on how to eliminate toxic substances from the environment.

But the last Commission backtracked on that commitment and said it would leave it up to the new von der Leyen team to come up with a proposal.

“We have done all the groundwork, there's a good foundation to go on, but the final chemicals strategy will have to be dealt with by the next Commission,” former Environment Commissioner Karmenu Vella said in an interview last month.

However, an internal document dated July 5 and obtained by POLITICO through a freedom of information request, suggests that the program has a much more turbulent background. The document indicates the non-toxic environment strategy "was not delivered because of a lack of internal consensus, and because some items are now outdated."

Other documents detail how the Commission's internal market department was unhappy with the scope and balance of a study on the non-toxic environment strategy — which was published in August 2017 and identifies gaps in current EU chemicals policy. DG GROW subsequently asked for co-ownership of the strategy along with the environment department — something that was agreed in December 2017.

More documents obtained through another freedom of information request show that the chemicals trade lobby was talking to the Commission about the non-toxic environment strategy as early as October 2014.

In a 2014 letter addressed to the environment, internal market and health departments, Cefic invited officials for a two-hour discussion to share its views.

The presentation during that meeting shows Cefic requested a strategy that includes an “objective application” of the precautionary principle — the philosophy written into EU law that requires policymakers to err on the side of caution to protect the public and avoid environmental damage. In other words, the industry group wanted Brussels to be judicious in its use of the principle.

The presentation also called for a “recognition of the societal benefits provided by chemicals.”

There are also mixed signals coming out of the new Commission.

During his confirmation hearing, Environment Commissioner Virginijus Sinkevičius was twice asked by German Green MEP Sven Giegold if he would commit to delivering the non-toxic environment strategy. Sinkevičius responded the strategy was not sufficient — stating that the new Commission’s plan “needs to go beyond” what the outgoing Commission proposed. 

Toxic debate

There's also concern on the part of national governments — with the Council of the EU calling on the Commission on three different occasions to publish a non-toxic environment strategy document.

The latest Council conclusions, dated October 4, asked the Commission to present “without any further delay” a strategy that would “fully address endocrine disruptors, combinational effects of chemicals and nanomaterials issues.”

On Wednesday, the REACH-UP initiative — a group of countries pushing for stricter chemicals legislation — sent a letter to both Sinkevičius and Commission Executive Vice President Frans Timmermans, who oversees the Green Deal, requesting a non-toxic environment strategy before the end of 2020.

The letter, signed by Austria, Belgium, Denmark, France, Luxembourg, the Netherlands, Norway, Spain and Sweden and seen by POLITICO, said that: “notably in regard to chemicals ... a renewed momentum is necessary” from the Commission.

EEB, the chemicals NGO, on Monday sent a letter to the Commission together with other environmental organizations calling for the non-toxic environment strategy to be included in the Green Deal.

Slovak MEP Martin Hojsík, a member of the centrist Renew Europe group on Parliament’s environment committee, said that it’s “with great concern that I hear that the Commission is diluting and omitting its commitments” on chemicals.

“Further inaction will not only lead to great human health and environmental impacts but will also slow down the solution to the climate emergency,” he said.

***

UN climate talks sputter on carbon market disputes

— By Zack Colman and Kalina Oroschakoff

MADRID — U.N. climate change talks enter the final week here on Monday as senior national officials arrive to try to hammer out rules to link the nascent carbon markets that are deemed critical to reaching the targets under the Paris Agreement.

So far, a deal to craft an international trading market to help reduce the carbon pollution driving up temperatures has proven elusive to the legions of largely technical experts gathered at the COP25 conference in the Spanish capital since last week.

Negotiators acknowledged that translating world leaders’ lofty promises to protect the climate into an actionable set of rules by the end of the conference on Friday will be a daunting task.

“Whenever you come here, you reach for the moon, and in the end of the day you reach the fence,” said Tosi Mpanu-Mpanu, a negotiator from the Democratic Republic of Congo.

The outstanding issues on the table are some of the most politically challenging elements of the Paris climate accord left over from last year’s conference in Poland. In addition to establishing the rules for international carbon trading, they include hiking the funding that rich nations provide to help developing countries adapt to the changing climate and rising seas and setting out a common schedule for nations to update their greenhouse gas goals.

Negotiators are still far from reaching a deal, as evidenced by several delays in delivering a clear set of proposals to govern carbon trading — a hurdle that has prompted some countries, such as South Africa and India, to harden their positions and call for even more aggressive action.

“They’re trying to escalate here, which is not the best sign,” said Brad Schallert, deputy director of international climate cooperation for the World Wildlife Fund.

Environmental, foreign and finance ministers from many countries are joining the second week of talks to apply political pressure, hoping to break stalemates. They won’t be joined by top U.S. officials, however, who have skipped the meeting after President Donald Trump started the one-year countdown in November to pull the world’s second-largest polluter out of the pact negotiated by his predecessor, former President Barack Obama.

Most heads of state are sitting out the Madrid talks, since this year’s conference is viewed as building out the technical rules in the agreement, in contrast with next year’s COP26 talks in Glasgow where countries are expected to update their national climate plans.

As expected, the most fraught discussions are over designing the rules that would underpin trading carbon emissions and offsets across borders. Negotiators want to set rules to ensure the system that allows polluters to buy credits from countries and projects that cut emissions will result in actual emissions reductions that wouldn’t otherwise have happened.

Brazil — which under President Jair Bolsonaro has backed away from climate action — is taking a hard-line stance by insisting any emissions reductions, from its massive forests or other projects, can be used both for its own Paris targets, as well as by the countries that pay it. Opponents say that amounts to “double counting” that will undermine the emissions trading system, and few believe the country’s position is tenable since it so far has attracted no major allies.

The EU has “zero willingness to compromise on double counting,” an EU negotiator said.

Brazil also wants to transfer old credits created through the 1997 Kyoto Protocol to the new Paris system, even though those credits were largely ineffective at reducing emissions. That stance has support from India and Saudi Arabia, observers said. China, the world’s largest greenhouse gas emitter, has been somewhat quiet in public, but holds many of those older credits.

Veterans of the climate talks suggested Brazil’s position may be little more than saber rattling in an effort to secure a generous transition of old credits to the Paris system. But reviving those credits would “water down” the Paris Agreement by allowing potentially billions of tons worth of questionable emissions credits to satisfy national emissions goals, said Kelley Kizzier, associate vice president of international climate with the Environmental Defense Fund.

“It doesn’t make any sense,” Kizzier said of Brazil’s posture. “It’s a major reason why countries would walk away from a deal here.”

Climate finance fight

Little progress has been made in overcoming one of the biggest hurdles in the talks: increasing the financial support that rich, industrialized nations send to poorer countries to help them develop clean energy and adapt to more ferocious storms or devastating droughts. Developing countries, especially African nations, small island states and Latin American states, are leading an effort to implement a levy on carbon emissions trading between countries. So far, wealthy countries have resisted that type of fee, which they say was not included in the Paris Agreement.

Countries are also haggling over the percentage of funding from carbon offset projects that will be diverted into the adaptation fund, which was part of the original Paris deal. South Africa has suggested 6 percent, WWF’s Schallert said, which would go beyond previously discussed limits.

Chile, which is hosting the conference that was moved from Santiago only weeks ago, has also pressed for countries to propose steeper emissions cuts than they pledged in 2015 in Paris. Even if those previous targets are met, the world will fall short of the greenhouse gas reductions needed to keep global temperatures rising above the 2-degree target that was agreed in Paris that scientists say is critical in heading off the worst effect of climate change.

“We will try to make as many countries commit to update their [national plans],” COP President Carolina Schmidt, the Chilean environment minister, said last week. She is backed by the least-developed and vulnerable island nations, which are seeking a clear signal countries are serious about their efforts.

But after the first week of talks, that effort is not going well.

Officials from Brazil and India pushed back on Schmidt’s call to increase their targets at a Wednesday meeting, said Shuo Li, a senior global policy adviser with Greenpeace China. Instead, they pressed for negotiators in Madrid to focus on implementing the Paris Agreement rather than trying to increase their emission reduction goals so soon.

But increasing that climate ambition is critical issue for small island states, since many may become uninhabitable if cuts in greenhouse gas emissions aren’t far deeper than what the industrialized countries promised in Paris.

“This is supposed to be the ‘ambition COP.’ We cannot wait another year for ambitious climate action. It must start now,” said Lois M. Young of Belize, who heads a negotiating bloc made up of small island states.

Some developing nations, such as India and others in the group countries that includes Bangladesh, Vietnam, Saudi Arabia and Egypt, have suggested setting up a monitoring regime to evaluate whether developed nations met the marks they set before 2020, said Elliot Diringer, executive vice president with the Center for Climate and Energy Solutions, underscoring a long-simmering distrust between the developed and developing worlds.

Aligning climate plans

Talks on trying to get countries’ national plans to cover the same time spans continues to run into resistance, with some negotiators blaming the European Union. Though it appears to be a technical matter, aligning the timing of nations’ emissions pledges under the Paris Agreement would make it easier to compare and speed up emission reductions.

EU regulation, for instance, runs on a 10-year cycle — something climate campaigners are keen to trim to five years. Brussels has balked at that, concerned that changes clash with the EU’s long-winded political process that typically takes years to get legislation past European lawmakers and EU member states.

Under the Paris Agreement, countries have some years still to work out those rules in detail. But country blocs such as the Africa Group won’t let up. Congo’s Mpanu-Mpanu said Saturday that the countries backed a five-year cycle.

“If you allow for 10-year cycles, you lock in weak ambition,” he said. ”It is important for us to come every five years and actually review, reassess where we are at.”

Loss and Damage

Another thorny issue that politicians will have to grapple with this week is how to support developing countries devastated by hurricanes, floods and other climate-related shocks, called “loss and damage” in climate negotiators’ lingo.

Vulnerable countries say they want a mechanism to help guarantee financial support, something wealthy nations have traditionally resisted. But negotiations in recent days suggest there may be signs that decades-old resistance from wealthier nations to consider the issue is thawing, as the worsening effects of climate change raise pressure on countries to reach a compromise.

But that doesn’t mean that vulnerable countries are close to getting what they are asking for. The struggle over the next few days will be to get wealthy nations to give up their long-held opposition to the loss and damage issues that were first put on the agenda in 1991 by Vanuatu, a nation of islands in the South Pacific.

“For the last six years developing countries have not seen progress on loss and damage finance,” said Harjeet Singh, advocacy group Action Aid’s global lead on climate change, who is involved in the negotiations.

Singh said Australia, the U.S., Canada and Japan in particular are “blocking” the loss and damage effort, and called on the EU to “break the deadlock and actually start engaging with these proposals.”

***

Don’t bank on the ECB saving the planet

— By Bjarke Smith-Meyer

Christine Lagarde seems less keen to make big pledges on using the European Central Bank to fight climate change now she’s actually in office.

The newly appointed ECB president this week began rowing back on her call to put the institution’s financial firepower into greening the economy. Her future colleagues on the Executive Board are also talking down the power of what Frankfurt can do for the environment.

“The mandate of the ECB is not about climate change,” Lagarde told EU lawmakers during her first public hearing as president on Monday. The central bank is primarily tasked with safeguarding price and financial stability.

“I’m fundamentally convinced that fighting climate change has to be a central plank of policy,” the Frenchwoman told the European Parliament’s Committee on Economic and Monetary Affairs (ECON).

However, she described the environment and other objectives as “perhaps not primary ones, but secondary ones.”

Back when she was a nominee seeking Parliament’s support, Lagarde suggested using the ECB’s €2.7 trillion bond-buying program to support green business. At a September hearing before the ECON committee, she said the program — known in central banking as quantitative easing (QE) — could buy assets based on the “taxonomy” of green business just agreed by Brussels.

“Her staff will very likely have informed her about potential limitations to use QE to fight climate change,” said ING’s chief economist, Carsten Brzeski.

The 63-year-old’s earlier climate pledges enthralled lawmakers and showed Lagarde’s willingness to talk on political challenges in the job.

Her fresh comments come as the new European Commission prepares to unveil its Green Deal package of initiatives next week despite facing a lack of funds to reduce the bloc’s greenhouse emissions. Protesters are also descending on COP25 climate talks in Madrid to urge governments to take the fight against climate change more seriously.

The move to reduce talk of environmentalism also comes after Jens Weidmann, Germany’s influential central bank governor, shot down the idea in October — stating that green politicking should be left to politicians, or otherwise central bank independence could be under threat.

“I agree with Mister Weidmann,” Lagarde said Monday. “But it doesn’t stop us from looking in our operations and identifying how we can be effective.”

The ECB could instead put greater focus on climate change in its macroeconomic projections and make sure that supervised banks are taking environmental risks seriously, Lagarde said. The ECB can also make sure its corporate pension portfolio for employees holds greener assets.

From dreams to reality

ECB watchers and think tankers chalk up the change in tone to Lagarde confronting the realities of the job — and unrealistic expectations.

“Maybe people expected more and that’s why she gives details that are less that what some people wanted,” said Grégory Claeys, who’s a research fellow at Brussels think tank Bruegel. “I never thought she would go for a fundamental change of the ECB’s instruments or grand schemes.” Secondary policies will still have some impact, he said.

Future colleagues on the ECB’s six-person Executive Board are reinforcing the pragmatic approach.

Two current nominees to the board, German professor Isabel Schnabel and Italian central banker Fabio Panetta, downplayed how much the ECB can do, in their own Parliament hearings this week. Eurozone leaders are set to approve their candidacies later this month.

“I think that one has to stress that the ECB will not be the institution that is able to really deal with climate change,” Schnabel told the ECON committee on Tuesday. “This needs to be done by the governments.”

Panetta told committee lawmakers on the same day that the sheer size of the ECB’s bond-buying program would “swallow up” the green bond market, which amounts to some €250 billion.

Market neutrality

The size of the green market is not the only limitation to green QE. The bond-buying program is guided by the principle of market neutrality, which ensures that debt from a coal mining company is treated the same as that of a wind power producer, for example.

An upcoming review of the ECB’s monetary policy toolkit could revisit that principle, Lagarde told lawmakers Monday.

But she refused to predict any future changes that might come from the review, which would need the support of eurozone central bankers in the ECB’s governing council.

Stan Jourdan, the head of campaign group Positive Money Europe, is hopeful. He said in an email that the review could still tweak the ECB’s investment criteria to reduce the amount of brown assets from carbon-heavy companies on its portfolio.

That probably won’t make much of a difference, according to Claeys of Bruegel.

“It will only add up for a few basis points on the cost for brown assets,” he said, stressing that the onus is Brussels and EU governments to introduce climate change initiatives — such as a tax on carbon emissions.

“Overall, [the ECB] might have a marginal positive effect in the fight against climate change and it will show that they care about the issue,” he said.