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The European Green Deal: A Transformative Mirage?


Ivana Isailović (@IsailovicIvana) is Assistant Professor in EU law, Faculty of Law at the University of Amsterdam, and a member of the Sustainable Global Economic Law project.

The European Green Deal currently stands as the most ambitious governmental program to tackle climate change. Although it was not under the spotlight in 2020, the program was set in motion “to transform the EU into a fair and prosperous society, with a modern, resource-efficient and competitive economy.”

The Green Deal is primarily an economic growth strategy that aims to decarbonize EU economies and “decouple economic growth from resource use.” Designed by the European Commission (the executive arm of the EU), the plan aims to decarbonize the economy and enhance protections for workers, consumers, and biodiversity. One of the central pillars of the plan is the proposed “European Climate Law,” which would make the goal of carbon neutrality by 2050 legally binding and allow the Commission to monitor Member States’ progress. To support decarbonization in industry, the Commission has announced legislative proposals that will reduce greenwashing by requiring companies to evidence their environmental impact claims using a standard methodology and strengthening labeling regulations for “green” products. The Green Deal also includes a plan to direct at least €1 trillion into sustainable investment, including at least €100 billion for the Just Transition Mechanism, designed to support territories whose economies are the most reliant on fossil fuels.

But despite its grand ambitions, the current Green Deal is unlikely to bring the economic and political transformations that are needed for a successful transition. The current framework reaffirms the neoliberal order in at least two respects. First, it leaves intact the EU investment and governance regime that restricts states’ regulatory and fiscal powers. Second, by focusing only on regional dynamics and inequalities between member states, the proposed “just transition” risks reproducing discriminations that are internal to the fossil fuel economy.

Reduced State Regulatory Autonomy Under Austerity 

The myriad rules regarding international trade, investment, and economic governance  in the EU have the potential to stall the bold changes needed to transition to a carbon-free economy.

For decades, scholars and activists have called attention to power asymmetries baked into the international investment regime. Arbitral tribunals, dominated by a small group of elite lawyers who tend to favor investors’ interests, have granted multibillion compensation awards to be paid by states to private actors. The looming threat of investor-state arbitration effectively restricts states’ regulatory powers to enact environmental policy.

For example, the Netherlands and Italy are both facing litigation under the Energy Charter Treaty (ECT), which has been weaponized by fossil fuel companies demanding compensation for “future profits” lost to climate regulation.  These cases were initiated in response to the Dutch  plan phase out coal and Italy’s ban on oil drilling. Both cases illustrate the threat that investment law poses to the ecological transition. None of this is new. Investor-state dispute settlement (ISDS) has plagued respondent states in the Global South for decades. Now, the chickens have come home to roost.

In response to these challenges, the EU is currently involved in efforts to ‘modernize’ the ECT to discourage investments in fossil fuels. A new generation of international investment treaties such as the Comprehensive and Economic Trade Agreement with Canada explicitly assert states’ ‘right to regulate’ for environmental protection and narrow down the definition of ‘expropriation’ and of ‘fair and equitable treatment,’ to ensure that states can enact green energy policy. At this point, however, it is unclear whether these changes will be enough to overcome the “regulatory chill”  that ISDS has already caused.

Besides the investment treaty regimes, EU economic governance structures also limit states’ ability to enact ambitious climate policy. Since the creation of the European Monetary Union in the 1990s, the EU has set monetary policies for the eurozone, and has enabled the coordination between Member States’ fiscal and economic policies. However, since the sovereign debt crisis in 2008, the EU has implemented neoliberal governance tenets and austerity measures. National budgets are closely surveilled through the European Semester framework–the main EU cycle for economic policy coordination—which privileges fiscal “stability” above social welfare and requires deficits and debts to stay below thresholds agreed upon by Member States (3% of states’ GDP for annual deficits and 60% of GDP for debt, with some exceptions such as those triggered by the COVID-19 crisis).

The massive investments implied in the Green Deal are incompatible with the regime of fiscal austerity. As the European Economic Social Committee clearly articulates in its opinion on the Just Transition Fund, the EU must choose: “either we really want to reverse the process of global warming and then we have to find huge sums to invest, or we just want to introduce some corrective measures to keep consciences and public finances in good order.” If green spending is not excluded from current economic governance rules, environmental protection will be subordinated to same austerity logic as other social policies.

A Limited Understanding of Social Justice

Further limitations in Green Deal are reflected in the thin notion of climate justice that informs the Just Transition Mechanism, which is silent on race, gender and class.

The Just Transition Mechanism directs funding to territories that depend most on fossil fuels and other carbon-intensive industries. According to the Commission, the Just Transition Fund will focus on economic diversification in these regions through re-skilling for workers and jobseekers.  According to a 2018 study, the coal industry employs nearly 500,000 people in the EU (273,000 directly, 215,000 indirectly), most of whom live in Poland (110,000 direct jobs). The study also shows that parts of the EU’s periphery—namely regions in Poland, Czechia, Romania and Bulgaria– will be particularly hard hit by the energy transition.

This kind of labor-driven policy is a must. It tackles the zero-sum nature of the transition and reinforces the legitimacy of EU policies in a context in which the support for Eurosceptic parties has been progressively growing. But a ‘just transition’ cannot only focus on fossil fuel jobs, and inequalities between regions. It must also address the disparate environmental burdens borne by racialized minorities, women, and low-income communities.

For instance, in the Green Deal the Commission rightly mentions ‘energy poverty’ as a major problem that needs to be addressed for a successful transition, but fails to address its gendered and racial aspects. Currently, more than 54 million Europeans are unable to keep their homes warm because they can’t pay their energy bills or don’t have access to high energy quality. While studies have started to examine the gendered dimension of energy poverty, very little has been done to surface the racial dimensions of this problem, even though discrimination against Roma communities is a well-known structural problem in the EU.

Roma communities face material deprivation and bear the brunt of environmental burdens. Many Roma households lack access to basic public services, including heat and electricity. In many districts, historical disparities are exacerbated by ongoing discrimination. Two cases in the Court of Justice of the European Union (here and here) reveal discriminatory practices in the installation of electricity meters in Roma communities. The Court stated that the companies’ justifications—concerns that meters would be tampered with or damaged—were rooted in racial stereotypes. These cases demonstrate of how the supply of energy is shaped by prejudice that marginalizes communities on the basis of race and ethnicity.

By targeting the workers who lose out in the shift to green energy, the Just Transition Mechanism tackles just one aspect of distributive justice.  It does not challenge the broader context of gendered and racialized inequality, in which precarious jobs are on the rise  and more than 20% of European population is at risk of poverty. As the International Labor Organization stresses, a truly “just” transition includes providing decent work for all, greater social inclusion, and the eradication of poverty.

To be successful, the Green Deal needs to confront the neoliberal and discriminatory logic that is embedded in the fossil fuel economy. For decades, NGOs, local communities, and scholars have developed frameworks to guide the necessary social and political transformations. To design a truly transformative plan, the Commission should take these ideas seriously, or it will end up missing the window of opportunity to address all the dimensions of the climate emergency.