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EU agency warning EU may miss its own climate targets triggers debate about policy alternatives

In a new report, the EU’s European Environment Agency (EEA) warns the EU that it is failing its climate targets, noting that the current 10-year trend is “going in the wrong direction”. The EEA takes stock annually of progress towards the 8th Environment Action Programme (8th EAP) objectives on the basis of a set of 28 headline indicators and corresponding targets. These were selected by the European Commission after consultation with stakeholders, EU Member States and the EEA, and they represent key aspects of the 8th EAP. They were outlined in the European Commission Communication on the 8th EAP monitoring framework.

The analysis focuses on a total of 28 main pledges, concluding that the EU is only on track (“very likely” to succeed) with five of them, and “likely but uncertain” in three more. It is “unlikely but uncertain” to succeed in 15 other areas, and ‘very unlikely” to succeed in five more.

The report furtermore details that when it comes to greenhouse gas (GHG) emissions from land use, land-use change and forestry, as well as energy consumption, there is little prospect of success. 

Legally protecting at least 30 percent of the EU’s land and sea areas by 2030 seems unrealistic, according to the analysis, which states that the goal to achieve 25 percent of EU agricultural land organically farmed by 2030 looks remote.

Also when it comes to energy consumption, the EU is about to miss its own targets. The report says the following about that:

“In the remaining years to 2030, the average annual pace of reduction seen in the past 10 years will have to be three times faster to meet the primary energy consumption target, and nine times faster to meet the legally binding final energy consumption target.”

The analysis furthermore focuses in particular on the EU’s “Land use, land-use change, and forestry” (LULUCF) strategy, stating:

“The latest Member State projections based on the current and planned policies and measures fall quite short of the target, while the past 10-year trend is mostly going in the wrong direction and will have to be reversed. Both the emission reduction and LULUCF targets are ambitious and have been agreed upon recently. (…)

Member States are still in the process of updating their National Energy and Climate Plans; in that context, they are continuing to develop policies and measures to close the gap between current projection levels and the target. Strengthened policies and measures would need to address all socio-economic sectors for the targets to be met.”

“The European Commission’s central green planning is not only harming the EU economy, causing deindustrialisation, as you cannot just experiment with energy supply and assume there will be no consequences. It is not even meeting its own targets. Time to abandon this, in line with public opinion, which is also turning against it.”

Alternatives to the current climate policy consensus  

Suggestions from scholars belonging to the Climate and Freedom International Coalition have been highlighted as a policy alternative to the current approach. In sum, this would mean that, according to EU policy commentator Pieter Cleppe that “instead of the Paris accord, agree an international treaty, whereby countries that sign up to such a Treaty enjoy the trade benefits if they pursue climate-friendly free market policies. These could include demonopolisation tax cuts – whereby the sale of monopoly shares in the energy sector would be exempt from capital gains tax for two years.

Other measures could be reciprocity for tax exemptions for investment into environmentally friendly innovation or clean tax cuts, specifically focused on two sectors that account for about half of all greenhouse gas emissions – the transport and electricity sectors. Furthermore, also liberalisation of markets would be something signatory governments would be rewarded for.

Thereby all conventional energy subsidies would be scrapped and an end would be made at government involvement into energy infrastructure or other economic activity, in order to insert a healthy dose of dynamism needed to generate innovation.”

Together with Rod Richardson, President of the Grace Richardson Fund, he has detailed how an international “Climate & Freedom Accord” could look like, thereby highlighthing studies showing how the free-est economies are the cleanest, but that competition itself accelerates decarbonization:

“Building on lessons learned, the Climate & Freedom Accord proposes a “clean sweep.” Nations would phase out the current distortionary and costly climate policies that impair markets and innovation, and replace them with a free market approach to decarbonization through innovation acceleration. Liberalization – freeing the people to unleash innovation – means an end to distortionary subsidies, bans, mandates, crony monopolies, state-ownership of enterprise, carbon taxes, tariffs and offset schemes, which all raise prices, cause stagnation and constrict essential investment.”

CoVictory Bonds, Loans and Savings Funds

In particular, the authors look at incentivising private debt to become an instrument for reducing greenhouse gas emissions. The idea here is that in every Accord nation, entrepreneurs and financiers could raise internationally reciprocal, private tax-exempt CoVictory Bonds, Loans and Savings Funds, to finance all property, plant and equipment (PP&E) in any Accord nation.  Tax free interest reduces the cost of debt by some 30% or more, driving investment in newer, cleaner technologies, while unlocking capital flows across borders. They write:

“Accord nations would gain access to vast tax-advantaged international capital flows for investment and development, via a new kind of internationally reciprocal leveraged supply side tax cut designed to accelerate innovation, growth, decarbonization and the expansion of free markets. Any kind of private debt used to finance PP&E or conservation investments would be tax exempt in all Accord nations, meaning no tax on interest. That reduces the cost of debt perhaps 30%. In every Accord nation, developers, entrepreneurs, banks, hedge funds, mutual funds, financiers of all kinds could raise tax exempt debt of any kind – let’s call these CoVictory bonds, loans, even savings accounts – then pool the funds and reinvest them in any accord nation in private PP&E or conservation projects. CoVictory Funds would accelerate private capital flows between free nations, to finance conservation and ever-cleaner development projects, providing a strong incentive to join a free market framework.

These tax exempt CoVictory funds would have exactly the same kind of tech neutral, decarbonizing benefit as does capital expensing. They lower the cost of capital for PP&E, accelerating the transition to the newest, cleanest technologies, without picking winners or losers. CoVictory Funds actually make clean technologies cheaper. They also increase the return on equity, attracting investment not only to the tax exempt debt, but also the taxable equity.

CoVictory funds have the added benefit of being internationalizable, useful for driving international capital flows through inclusive investment opportunities for everyone, from billionaires to anyone who has even a bank account. By contrast, traditional tax equity subsidies, like those in the US IRA, both create trade barriers, and benefit the largest investors the most… so often exclude smaller entrepreneurs, thus holding back innovation. Picking winners and losers means, actually, you pick a lot of losers.

By contrast, without favoring some over others, CoVictory Funds can be used as a new kind of easy to use, highly democratic and inclusive international incentive to expand free markets. Or replace the CBAM with an engine of global growth and innovative decarbonization. Or strengthen the energy security ties between nations of the free world. Or help rebuild the war shattered infrastructure of Ukraine. Or Israel. Or Gaza.”

Tax Cuts for the climate 

Other suggestions floated are for nations to implement several kinds of new incentives for technological or market innovation, alternatives to carbon taxes, regulation and subsidies:

  • “Clean Tax Cuts (CTCs) pick metrics, not technologies, to reward emission reductions with lower tax rates across the four sectors that produce 80% of GHG emissions: transportation, energy and power, industry, and real estate.
  • Demonopolization Tax Cuts accelerate competition-driven decarbonization by eliminating gains taxes for investors who break up monopoly and government-owned companies into a purely private, competitive framework.
  • Game Changer Tax Cuts reward firms that achieve difficult breakthrough innovations that eliminate a large share of greenhouse gas emissions, with 15 years of tax exemption on such profits.
  • Other fiscal streamlining proposals follow a similar strategy of reducing costs for new investment and innovation, to accelerate inclusive participation in expanding markets, globally.”