As Europe Unveils “green” Recovery Package, Trans-Atlantic Rift On Climate Policy Widens

The United States and Europe have each responded to the virus-induced recession with aggressive economic policy. But their tactics have diverged in one major respect: climate. 

That rift widened further on Wednesday when the European Commission — the bloc’s executive arm — unveiled a €750 billion ($824 billion) plan featuring heavy spending on long-term climate goals, such as electric vehicles, low-carbon electricity production and hydrogen fuels. 

The full details have not yet been finalized. But a preliminary version calls for spending €91 billion per year in grants and loan guarantees on renewable heating systems, rooftop solar panels, and other sustainability initiatives; €25 billion for renewable energy generation as well as a two-year €20 billion package to increase sales of low-carbon vehicles; and installing two million electric and hydrogen vehicle charging stations by 2025, according to a draft document obtained by Reuters. 

“Next Generation EU,” as the proposal has been dubbed, integrates many elements of the vaunted “Green Deal” that aims to make the bloc carbon-neutral by 2050 and that the European Union Parliament approved in January. Commission president Ursula von der Leyen has championed the green deal as a central mandate of her tenure. 

“The green deal elements will slipstream behind the broader economic mandate of the recovery” package announced today, said David Livingston, an energy specialist with the political risk consultancy Eurasia Group. “The current leadership in the EU views its strategic interests and geopolitical relevance as intrinsically intertwined with the global energy transition.”

Not so the US. 

The US federal government’s successive economic stimulus packages have so far provided no or little support for the renewable energy sector and other climate initiatives. Instead, the Trump administration’s relief efforts for the energy sector have focused on the oil and gas industry. 

“The current leadership in the US...sees the energy transition as at best irrelevant, and perhaps even a threat, to its strategic interests and geopolitical relevance,” said Livingston, “insofar as it erodes the value of prolific American oil and gas resources that have provided additional foreign policy leverage for the US over the past decade."

So far the Trump administration has declined to grant the oil and gas industry the kind of broad-based relief it has lobbied for. But a handful of targeted policies have provided support. For example, the Interior Department’s Bureau of Land Management has begun granting temporary breaks on what is normally a 12.5% royalty payment — akin to a tax — that all oil and gas companies producing on federal land must pay. The policy is designed to ease the burden on oil and gas firms contending with a historic decline in oil prices. 

Some experts say that the plan could actually result in increased money for federal coffers. Provided that such relief allows some oil wells to avoid being permanently shut down due to bankruptcy, “it is entirely plausible that the present value of the aggregate stream of royalty payments would be higher with such relief,” said Benjamin Zycher, an energy expert at the conservative-leaning American Enterprise Institute. 

More relief for oil and gas might be in the works. 

According to a report by commodities specialist publication Argus Media, citing industry officials, the White House is reviewing a proposed rule change that would allow oil and gas firms to defer royalty payments altogether for three months. Such a policy would allow smaller and independent oil and gas producers without deep pockets to survive a cash crunch that many now face as a result of the oil price crash. 

A government website shows the rule has been submitted, but the Office of Natural Resources Revenue (ONRR), which appeared to have jointly submitted it, declined to comment and the Department of the Interior (DOI) did not respond to emailed questions. 

At least one Democratic official, alerted to the rule by the Argus report, is urging the White House to reject the proposed rule, according to a letter posted today by Raul Grijalva, chairman of the Natural Resources committee in the House of Representatives. 

“Finalizing this rule as described would financially benefit oil and gas companies at public expense and create a ridiculous double standard for economic relief,” writes Rijalva. “While the administration is doing little to support clean energy companies struggling through the pandemic, DOI is already approving dozens, if not hundreds, of requests by oil and gas companies to reduce the royalty rates they must pay.”

As for the renewable energy sector, which has suffered heavy job losses and forced many planned projects to be shelved, the White House has not completely left it to weather the crisis on its own. In early May, the Treasury Department indicated it would allow wind farms whose completions have been delayed by the coronavirus past 1 January 2021 to still qualify for tax credits, Reuters reported. Renewables groups had lobbied hard for the measure. And approvals of at least some major wind and solar installations — such as a recent go-ahead on a solar project outside Nevada that would be large enough to power half of Las Vegas — are said to be receiving more flexibility than they might normally receive.

But the administration’s lenience lasted only so long. Just two weeks later, it ended a rent holiday for operators of wind and solar farms on federal lands by mailing bills to the owners asking for the last two years’ rent. It has also been accused of sitting on billions in already-approved loans for clean energy projects.

“Brown” stimulus and “green” stimulus

Critics of economic policies tailored to green initiatives argue that, in a crisis, the overriding objective must be to restore the economy as quickly as possible, even if that means postponing long-term climate objectives. 

But early this month a survey of 231 central bankers, G-20 finance ministers and top academics showed that the policies for reducing carbon emissions are also highly preferred as overall economic growth boosters.

The survey asked participants to rank 25 different economic policies — many of which received a test run during the 2008-09 financial crisis — according to four different criteria: speed of implementation, how much economic return each dollar of public investment would generate, climate impact potential, and overall desirability. 

Participants tended to rank policies tailored to a green economy as some of the most effective, according to the survey, forthcoming in the Oxford Review of Economic Policy. 

So far, the wealthy G20 nations have signed into law some $7.3 trillion in spending to combat the virus-induced economic downturn, warned the authors of the survey, among them economics Nobel prize laureate Joseph Stiglitz. Around 4% of economic policies are ‘green’ and have the potential to reduce long-run greenhouse gas emissions; another 4% are ‘brown’ and likely to increase long-run emissions beyond a base case scenario; and 92% are ‘colorless’ and maintain the status quo, according to an analysis that accompanied the survey. 

Choosing too many of these “brown” stimulus policies could “lock us into a fossil system from which it will be nearly impossible to escape,” the authors wrote.