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211. The Environmental Impact of Digital Over Cash Payments in Europe

Author:
Jan Sun, Hannah Zick, and Johanna Neuhoff
Publication Date:
06-2024
Content Type:
Special Report
Institution:
Oxford Economics
Abstract:
On behalf of the European Digital Payment Industry Alliance (EDPIA), our report on “The Environmental Impact of Digital over Cash Payments in Europe” seeks to evaluate carbon emissions across payment systems at point of sales. Businesses and governments are becoming more and more focused on mitigating the effects of climate change through processes and policies, and the payment sector is no exception. As digital payments become more prevalent—with the number of non-cash payments doubling from 21% in 2016 to 41% in 2022 in the euro-area alone according to the European Central Bank—there has been a growing need to understand the environmental effects of these shifting preferences. Although some evidence indicates that digital payments have a smaller environmental footprint than cash payments, there has not been a comparative lifecycle assessment done between the two of them. In addition, given large differences across geographies, the actual impacts of payment methods at points of sales (POS) can differ widely from country to country. To examine this issue, this study utilises a Life-Cycle Assessment (LCA) following the International Organization for Standardization (ISO) guidelines. A method Oxford Economics has added to its toolkit, the LCA is a holistic approach that appraises environmental impacts across stages of a product lifecycle on a variety of categories. Which, in this case, includes a total of different 18 categories including for example, global warming potential, mineral resource scarcity, and ionizing radiation. This cradle-to-grave approach is used for three purposes: Firstly, to consider the separate processes of cash and non-cash payments in order to isolate the environmental “hotspots” and their respective impacts. Secondly, to understand the processes in three countries with different rates of payment adoption—Italy, Germany, and Finland—for comprehensive results. Thirdly, to compare the environmental impact of cash and non-cash payments at point of sales in the different impact categories.
Topic:
Climate Change, Economics, Carbon Emissions, Radiation, and Digital Payments
Political Geography:
Europe, Finland, Germany, and Italy

212. The Security Side of Gulf Visions. Adapting Defence to the Connectivity Age

Author:
Eleanora Ardemagni
Publication Date:
03-2024
Content Type:
Special Report
Institution:
Italian Institute for International Political Studies (ISPI)
Abstract:
The GCC states are adapting defence strategies to the challenges raised by their “Visions”, their post-hydrocarbon national plans. Far from being just economic programmes, the Visions are broad national transformation platforms displaying also a security dimension, and with many security implications. New cities and industrial poles, infrastructures, mega events and tourism raise unprecedented security risks, at which the GCC states are answering through a combination of economic-oriented foreign policy, multipolar international alliances, and ambitions towards “defense autonomisation”. What are the Visions’ security dimensions and implications, and how does the post-oil path affect and reshape foreign policies? This Report analyses how GCC states are adapting deterrence and defence tools to the connectivity age, navigating a troubled neighbourhood of both conventional and asymmetric threats. In a central but more vulnerable Gulf, how may the EU and NATO accommodate transformations in GCC states’ defense policies, postures, and means, to support their own security?
Topic:
Security, Foreign Policy, Defense Policy, Gulf Cooperation Council, and Strategic Planning
Political Geography:
Europe, Middle East, India, Saudi Arabia, Qatar, United Arab Emirates, United States of America, and Gulf Nations

213. The Sky Is Not the Limit. Geopolitics and Economics of the New Space Race

Author:
Alessandro Gili
Publication Date:
01-2024
Content Type:
Special Report
Institution:
Italian Institute for International Political Studies (ISPI)
Abstract:
Space is a contested domain for its very nature and today it is evidently becoming an increasingly important enabler of economic and military power. An increasing number of actors, infrastructures and technologies deployed in space also raises concerns for safety and security, especially in cyberspace. Many countries are striving to achieve space capabilities and autonomous access to space, and this is having a tremendous geopolitical impact, especially since space is emerging as an increasingly critical military and strategic domain. The development of the new space economy, which is increasingly involving the private sector and many industrial actors and services, will also be a game changer for the international economy. The space race likewise implies disruptive technologies that could contribute massively to the energy and digital transitions, accelerating solutions that could benefit humanity. A new international governance system for space is therefore needed urgently, considering that the current rules are no longer able to respond to a sector evolving at such a rapid pace. Which actors are leading the race? Which economic sectors could benefit the most and what could the new space economy mean for the world? How is space emerging as a military domain against a backdrop of increasing international tensions? What would a new system of global governance for space look like?
Topic:
Economics, Politics, Infrastructure, Geopolitics, Regulation, and Energy Security
Political Geography:
Russia, China, Europe, India, Italy, Global Focus, United States of America, and Space

214. The changing dynamics of European electricity markets and the supply-demand mismatch risk

Author:
Conall Heussaff and Georg Zachmann
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Meeting Europe’s 2030 climate targets will require massive clean-electricity investment. To facilitate these investments, state-backed de-risking schemes such as contracts for difference (CfDs) are needed. Their role in supporting renewables has been consolidated by the European Union’s recently agreed electricity market design reform. Under such state-backed schemes, the distribution of costs between the market and the state will depend on the balance of supply and demand. Lower demand will decrease spot-market prices, reducing market costs but increasing the cost to CfD-issuing states. If electrification of European energy demand does not keep pace with the electricity supply expansion, tens of billions of euros annually could be channelled through state contracts, generating costs that must ultimately be recovered from consumers. A cost-efficient, managed transition will require European coordination of electricity supply, demand and network investments. Clean electricity supply and demand should be synchronised through a combination of state interventions and market mechanisms. Undersupply of clean power will mean a failure to meet climate targets, but oversupply can be costly too. To manage the costs of renewable de-risking schemes and to accelerate energy-system decarbonisation, flexible electricity systems should be promoted, policies to encourage electrification could be implemented and cost-recovery arising from state-backed renewable support schemes should be fair.
Topic:
Climate Change, Markets, Electricity, Energy, and Supply and Demand
Political Geography:
Europe

215. Overcome divisions and confront threats: Memo to the Presidents of the European Commission, Council and Parliament

Author:
Maria Demertzis, André Sapir, and Jeromin Zettelmeyer
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
In the last five years, the European Union managed to find its way through a series of major shocks, including the pandemic and the 2022 surge in energy prices. The response was in many ways remarkable, including unprecedented EU borrowing to fund the NextGenerationEU economic recovery programme and a coordinated reduction in energy demand. However, these crises have left the EU in a bruised state. The pandemic recession and energy-support measures have squeezed fiscal space. Higher energy prices have persisted and EU industrial competitiveness has been eroded. The productivity and per-capita income gap with the United States has widened. Meanwhile, the world around the EU has become more threatening and fragmented. The military situation in Ukraine remains precarious. China has become both more authoritarian and more assertive. The US shift toward protectionism has become entrenched. There is less consensus for measures to combat climate change. In the face of all this, the challenges confronting you are substantial. In the next five years, you must continue to support Ukraine while implementing measures to reinvigorate EU growth, meet the 2030 climate targets and lay the ground for meeting the 2040 goals, and secure faster emissions reductions beyond the EU’s borders. Social cohesion needs to be restored to head off threats to the EU model. More needs to be done to improve EU external security. Promoting growth and enhancing cohesion will entail further deepening of the single market in areas with the highest growth impact, doing more to support innovation and defending competition, openness and multilateralism. Safeguarding the European Green Deal means boosting green industrialisation and fair burden-sharing, while scaling up international climate finance. Strengthening security requires continued support for Ukraine and the addressing of economic security risks. Underpinning all of this, a serious effort must be made to improve EU governance – and it must be done without creating further division.
Topic:
Security, European Union, European Parliament, European Commission, Energy, Regional Politics, Competition, European Council, and Threat Assessment
Political Geography:
Europe

216. How to finance the European Union’s building decarbonisation plan

Author:
Ugnė Keliauskaitė, Ben McWilliams, Giovanni Sgaravatti, and Simone Tagliapietra
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
By 2030, the European Union must reduce emissions from the heating and cooling of buildings – responsible for 13 percent of EU emissions – by the equivalent of the annual emissions of Slovakia. This requires a near tripling of the current decarbonisation rate. But the time gap between high upfront costs and long-term payback from renovation works deter consumers from investing in energy renovation. To address these challenges, the EU has introduced a policy toolkit that includes strengthened price signals against fossil-fuel heating through emissions trading, and setting energy-consumption reduction targets in the Energy Performance Building Directive (EPBD). EU countries must take the EPBD targets seriously and implement policies to accelerate building retrofits and the adoption of clean heating. If they don’t, there is a risk that EU climate targets will not be met, and the costs for households of subjecting domestic heating to emissions trading could be almost twice the higher costs seen during the 2022 energy crisis. We estimate that achieving the EPBD’s energy savings targets requires filling an investment gap of about €150 billion per year up to 2030. This is a daunting but feasible goal. By leveraging energy savings from electrification and retrofitting to reduce renovation costs, the investment gap could be more than halved. Additionally, effective use of EU funds and emissions trading revenues will further shrink the gap. A mix of grants, preferential loans and obligations is needed, as no single policy will speed up energy renovations. Prioritising grants for the worst-performing buildings, often occupied by vulnerable consumers, will yield climate benefits and benefits in terms of improved air quality, health, productivity, energy security and lower future government outlays to alleviate energy poverty. Traditional public subsidies have not successfully engaged the banking sector, which now must help to foster private-public financing mechanisms. Countries also need to adjust relative energy prices for heating through taxation and subsidies, and expand one-stop-shops to streamline the renovation process for consumers.
Topic:
European Union, Carbon Emissions, Decarbonization, and Energy
Political Geography:
Europe

217. Re-energising Europe’s global green reach

Author:
Giovanni Sgaravatti, Simone Tagliapietra, and Cecilia Trasi
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The goals of decarbonisation, competitiveness and strategic autonomy will underpin the implementation of the European Green Deal during the 2024-2029 European Union institutional cycle. To strike the right balance between these sometimes conflicting objectives, EU policymakers should focus on both domestic and international aspects of the Green Deal. Domestically, they must ensure implementation of the agreed climate plan, avoiding inaction or delay. Internationally, they must establish a new green-diplomacy and partnerships strategy, which will support global decarbonisation while addressing competitiveness and strategic autonomy concerns. The current EU approach to green diplomacy is uncoordinated, lacking a clear strategy and appropriate resources. Given the EU’s limited share of annual global emissions, supporting decarbonisation abroad is fundamental to meet the global net-zero emissions goal. The EU’s green diplomacy and partnerships need to be strengthened and expanded in a pragmatic and coherent manner. The main priorities include focusing on the implementation of international emissions reduction pledges, a new diplomatic push for carbon pricing and international green taxation, the creation of streamlined partnerships for green industrialisation with major partner countries and the promotion of new global trade and climate agreements. To succeed in these, a revision of the current governance of EU global green action will be required.
Topic:
Climate Change, European Union, Partnerships, Carbon Emissions, and Green Transition
Political Geography:
Europe

218. The implications of the European Union’s new fiscal rules

Author:
Zsolt Darvas, Lennard Welslau, and Jeromin Zettelmeyer
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
European Union countries are required by the EU Treaty to keep their budget deficits within 3 percent of GDP, and their public debt within 60 percent of GDP. A new framework to enforce these rules is based on country-specific debt sustainability analyses (DSA) and uses a single indicator, a measure of public expenditure, as the annual fiscal policy target. These changes are welcome. To assess the sustainability of public finances, it is much better to focus on the likely evolution of the debt path than to rely on simple numerical rules. Public expenditures net of changes to tax policy are a far better target for fiscal policy than the deficit, since they are under the control of the government and cannot give rise to pro-cyclical fiscal policy (excess spending in good times, fiscal cuts in bad times). These features could increase the framework’s efficiency and improve compliance. However, the new framework also contains numerical safeguards to ensure a minimum pace of debt and deficit reduction. These might overwrite the DSA-based requirements and could undermine the rationale for the new rules and the incentives for compliance. The safeguards could also introduce some pro-cyclicality and, more importantly, could hold back increases in public investment. Our calculations show that the new framework will require ambitious fiscal adjustments from high-debt countries, though less than would have been required by the previous framework. Numerical safeguards will not be a significant constraint in the first application of the framework in 2024, except in the case of Finland. In the next application, in 2028, they imply for France and Italy greater fiscal adjustment than required by the DSA and the 3 percent benchmark. There is ambiguity about the consistency of the new fiscal rules and the largely-unchanged excessive deficit procedure (EDP), and whether proposed reforms and investment will influence the DSA. This could interfere with the successful application of the framework. We recommend that the EDP should require the same adjustment as the DSA, a method- ology should be developed to estimate the quantitative impact of proposed investments and reforms, and the DSA methodology should be revised. In case EU countries’ investment plans on aggregate do not fill the green public-investment gap, we recommend a new EU facility to foster such investments.
Topic:
Budget, European Union, Investment, and Fiscal Policy
Political Geography:
Europe

219. How much does Europe pay for clean air?

Author:
Miquel Oliu-Barton and Juan Mejino Lopez
Publication Date:
06-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Despite significant progress, air pollution still causes €600 billion in losses each year in the European Union – equal to 4 percent of its annual GDP. These costs stem from productivity losses such as increased absenteeism, the reduction of in-job productivity and harm to ecosystems. Air pollution costs are disproportionately high in eastern Europe and Italy, where losses are projected to remain above 6 percent of GDP until 2030. The EU’s 10 percent most-polluted regions suffer 25 percent of the burden of mortality attributable to air pollution. Measures against air pollution should be prioritised, not delayed, in these regions. Promoting clean air boosts economic growth by €50 billion to €60 billion every year. The EU’s increasing commitment to cleaner air is reflected by a threefold increase in the funds allocated to promoting clean-air policies, from €7 billion annually for the period 2014-2020 to €25 billion annually for 2021-2027, notably supported by the Recovery and Resilience Facility (RRF). EU financial support must continue beyond 2026 when the RRF terminates. The EU Ambient Air Quality Directive sends a strong signal but leaves loopholes: exceptions and postponements may jeopardise overall progress on cleaner air. Fossil-fuel consumption is one of the main obstacles to achieving clean-air targets. Yet fossil fuels subsidies were fourteen times higher than EU clean-air funds between 2014 and 2020, and are projected to remain five times higher for the years ahead. Ammonia, an important precursor of fine particulate matter mainly stemming from agriculture, is insufficiently regulated. Effectiveness of clean-air policies is context-dependent. Identifying concrete actions for each region and quantifying the potential gains are required to accelerate the transition to cleaner air. Phasing out coal use in residential heating is most profitable in eastern Europe, while reducing industrial and agricultural emissions would reap more benefits in the north of Italy.
Topic:
European Union, Economic Growth, Productivity, and Air Pollution
Political Geography:
Europe

220. A conceptual framework for the identification and governance of European public goods

Author:
Gregory Claeys and Armin Steinbach
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The challenging current policy environment has raised the question of which policy decisions should be taken at national level and which at European Union level. As a general rule, the EU should be responsible only for the provision of European public goods (EPGs), while countries are better placed to provide national public goods. However, in practice, the situation is rarely that simple. We offer a framework for identification of EPGs with three main insights. First, a decision to provide a public good at national level, EU level or a combination of both depends on the degree of heterogeneity of preferences across countries and the efficiency case for EU-level provision. When preferences vary and the efficiency case is weak, goods should be provided at national level. When preferences are similar and the efficiency case is strong, goods should be provided at the EU level. When preferences differ but there is a strong efficiency case, a trade-off arises. Second, institutional and legal instruments exist already to manage this trade-off. These include: competence transfers, decision-making modalities, variable participation of countries, centralisation of delivery and funding, and compensating negatively affected countries to achieve greater alignment of preferences. Third, both the efficiency case for EPGs and the distribution of preferences over their provision may change over time. This could be because the world around the EU changes (for example, giving greater weight to an efficiency case, eg in areas related to defence) or because preferences change, for example, as result of a pandemic, or because a particular institutional or compensation practice convinces dissenters that they can be better off inside than outside a multi-country arrangement governing the provision of a public good. An implication is that the question ‘should public goods be provided at the national or European level?’ may be the wrong question to ask. The right question is how to find institutional arrangements for public-good provision, to maximise the benefits of public goods for EU members.
Topic:
Governance, European Union, Institutions, and Public Goods
Political Geography:
Europe