The effectiveness of EU green transformation remains to be seen

In recent years, economic stall, political fragmentation, and protracted geopolitical crises have tested the confidence and patience of European people. Faced with various problems, the European Commission has chosen to promote the "green and digital transformation" of the European economy as its priority direction of economic development. Although the EU is betting on green transformation to revitalize the economy, the actual effect is not yet obvious, and the lack of investment stamina has seriously restricted its pace of transformation. Whether the EU's green revolution will be effective remains to be seen.

In recent years, affected by geopolitical factors such as the "long tail effect" of the COVID-19 epidemic and the Ukraine crisis, the EU's economic recovery has faced multiple obstacles. The European Commission predicts that the EU and Eurozone economies will grow by 1% and 0.8% respectively in 2024. In May this year, the inflation rates in the EU and Eurozone were 2.7% and 2.6% respectively, which rebounded from the figures of 2.6% and 2.4% in April. They were still above the inflation target of 2%, and the core inflation rate remained higher. Faced with downward pressure on the economy, in June this year, the European Central Bank overtook the Federal Reserve and announced that it would cut the three key interest rates in the euro zone. However, as interest rates are still at restrictive levels, the economic recovery of the euro zone is still subject to certain constraints.

Economic stalling, political fragmentation, and protracted geopolitical crises test the confidence and patience of European people. Faced with various problems, the European Commission has chosen to promote the "green and digital dual transformation" of the European economy as its priority direction of economic development, hoping to use the "net zero" goal as a booster for economic transformation and technological innovation.

In 2019, the European Union announced the "European Green Agreement", which kicked off the EU's new green policy and accelerated the green transformation. In February this year, European Commission President Von der Leyen said that the EU has no time to waste in fighting climate change and should become a leader in the climate field. To this end, the EU has also "handled special matters" to accelerate the promotion of green and low-carbon related regulations and policies. This year, it has successively passed the "Critical Raw Materials Act", the Electricity Market Design Reform Related Bills, and the "Net Zero Industry Act" and "Sustainable Products" Key legislation such as the Ecological Design Regulations aim to promote the green transformation of local industries and achieve the goal of carbon neutrality as soon as possible.

Specifically, the Critical Raw Materials Act lists 34 key raw materials and 17 strategic raw materials needed for green transformation and digital transformation, and claims that improving the availability of related materials is the key to increasing local production capabilities of batteries, solar panels and other clean technologies. The "Net Zero Industries Act" designs a package of policy plans for the production capacity development and technological innovation of green industries in the EU, proposes medium-and long-term development goals for green industry production capacity, and details measures to boost various industries to promote the construction of a new regulatory model. The EU is also actively promoting electricity market reform, aiming to further get rid of the electricity market's dependence on fossil fuels. In addition, the EU has also revised the "Regulations on Ecological Design of Sustainable Products", introducing a "digital passport" for products for the first time, and using relevant green environmental protection requirements as a rigid indicator for public procurement to promote technological progress and green transformation of enterprises.

The implementation of the EU's Green New Deal combination for nearly five years has boosted the confidence of EU countries and enterprises in developing green industries to a certain extent. Among them, Italy invested 450 million euros to accelerate the development of green hydrogen energy, and allocated 2.2 billion euros to update community renewable energy facilities through electricity price incentives and direct subsidies. EU companies have also increased investment in new energy. Swedish lithium battery manufacturer Norvo has received more than 13 billion euros in funding to expand its battery factory. The "2023 Carbon Dioxide Emissions" report released by the International Energy Agency also shows that the EU's total carbon dioxide emissions in the energy sector will be reduced by nearly 9% in 2023, half of which will be contributed by clean energy growth.

Although the EU is betting on green transformation to revitalize the economy, the actual effect is not yet obvious. Taking agricultural products as an example, European Commission policies stipulate that farmers are obliged to use at least 4% of their arable land for non-productive functions or crop rotation, and reduce the use of chemical fertilizers by at least 20%. Affected by these policies, EU agricultural production is expected to decrease by 12% from current levels by 2030. Faced with the dilemma of green industry policies exceeding the actual development level and being "acclimatized", the European Commission had to relax policies and make concessions. It is expected that the implementation of relevant policies will face more resistance in the future.

In addition to negative spillover effects, the lack of stamina for green investment in the EU has seriously restricted its pace of transformation. The "European Climate Neutralization Observatory" organization, which tracks the progress of the EU's carbon neutrality, said that insufficient funding has led to the overall progress of the EU's green transformation being too slow. The investment gap in addressing climate change in the fields of energy, construction and transportation alone is as high as 406 billion euros. If the EU wants to achieve emission reduction targets by 2030, the average annual investment amount needs to double.

In addition, green transformation requires inclusive cooperation from the international community, and the trend of protectionist policies has made the EU's path to green development full of doubts. The EU Green Bill contains a number of contents to expand local production and strengthen control over key raw materials and green production capacity. On July 4, local time, the European Commission's website issued an announcement, deciding to impose temporary countervailing duties on electric vehicles imported from China starting from the 5th, with a maximum period of four months. The Belgian Bruegel Institute believes that the goal of the relevant green bill is not to achieve carbon neutrality faster, but to allow production to return, which is essentially a protectionist act. German Deputy Chancellor and Minister of Economy Harbeck even bluntly said that any trade restrictions will delay the rapid development of green energy in Europe.

Green transformation is the general trend, but it must be based on reality. In an interview with German media, Hungarian Prime Minister Orban, the new EU rotating presidency, said that the EU green policy promoted by von der Leyen ignored the EU's economic and industrial interests. Reuters reported that the rising cost of living for European people is dampening society's enthusiasm for green energy transformation. Industry associations and ordinary people believe that the EU's strict green industry policies may open the door for foreign products to seize the market.

At the same time, in the European Parliament election that ended in June, the European Green Party lost, while the right-wing party group, which was skeptical about green industry policies, won. The changing and political game within the European Parliament may trigger a shift in EU green policy.

Against the backdrop of the rise of right-wing forces in Europe, Hungary, the new EU presidency, announced its rotating slogan-"Make Europe Great Again." Whether the EU's green revolution can be effective and truly make Europe's economy "great again" remains to be seen.