Leading the transition towards a lower carbon emissions economy

The European fiscal stimulus plans to boost the economic recovery after the COVID-19 crisis incorporate long-term goals related to the transition towards a climate-neutral economy. Greening the recovery is a great opportunity to face the global warming threat but it also poses significant policy challenges as in the short term the public support tend to “keep current activities going, rather than to give them a new green direction”. 

Ben Mcwilliams, Simone Tagliapietra and Georg Zachmann from Bruegel argue in this report that the European Union should send strong signals to the market agents with the clear message “that low-carbon investment will from now on generate the largest pay-offs”. 

This signal will guide today´s private investments towards green projects contributing to the carbon emissions reduction and at the same time to the fiscal consolidation, that will follow the recovery phase in the medium term when governments seek to reduce their high levels of public debt, by raising revenue through taxation of carbon. 

They consider that the best way to send this signal to the market agents is by announcing “a significant increase in carbon prices after 2021”, that could be articulated through “revisions of the EU Emission Trading System and the Energy Taxation Directive”. In their estimates these reforms could provide annual additional revenues of €90 billion at the European Union.