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France and Spain best in class for green Covid recovery

Covid-19 recovery plans from Paris and Madrid have been deemed to be among the greenest in the world, but they have chosen different paths for how to structure their expenditure of EU money.

Since the €750bn ($890.75bn) Next Generation EU recovery fund survived a rocky approval process in December, countries have been busy drafting national recovery plans, which they must submit to the European Commission by the end of April. It is already evident there will be big divergences in just how green this spending is, but no country can ignore the climate question given that 37% of their EU recovery fund spending must be ring-fenced for climate action. Likewise, no money should go to projects that would harm the environment.

Analysis conducted by Energy Monitor of recovery measures and plans in European countries up to 10 February 2021 finds Spain’s plans to be the greenest. This is based on an analysis not just of national Covid-19 recovery plans but also airline bailouts and national environment strategies. Spain has a large amount of money available for municipalities and regions, with some sub-regional commitments going even further than national ones. France too ranks well for the climate-focus of its spending plans.

Energy Monitor‘s findings are backed up by the latest UN Environment Programme emissions gap report, which found France and Spain have the climate-friendliest recovery plans in the world after South Korea.

demonstrators-with-placards
Climate campaigners demonstrate in Madrid. (Photo by Gerard Julien/AFP via Getty Images)

Spanish focus

“The green part of Spain’s recovery fund has a very important role because the eco-transition ministry has lots of power inside this government,” says Luis Socías Uribe from the Spanish Confederation of Business Organisations. Spain’s Minister for the Ecological Transition, Teresa Ribera, is an influential voice in the government of Prime Minster Pedro Sanchez, and serves as its fourth vice-president.

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The Spanish fund has four main areas of focus: decarbonising industry, the circular economy, new energy technologies and water. “The most important one for big companies is the decarbonisation of industry,” says Socías Uribe.

However, the other three are also receiving government attention. Hydrogen is perhaps the biggest focus in the new energy category with demonstration projects set to receive significant amounts of money. Spanish Prime Minister Pedro Sanchez has said his government will invest €1.5bn from the recovery fund in developing hydrogen production over the next three years.

Renovating buildings, in line with the EU’s renovation wave strategy, will also be a big focus. The plan is to dedicate €5bn (18.7% of the total) to renovating housing and sustainable mobility, although the split between the two is not yet clear.

So far, Spanish companies are pleased with how the fund is shaping up, says Socías Urube, seeing it as a good opportunity to get funds for green projects they have wanted to carry out for a while.

“Companies are quite comfortable with the way priorities have been selected,” he says, but adds that they will remain vigilant. “We are identifying quite a lot of problems in the way money is starting to be distributed,” he states, suggesting multi-annual projects are a particular issue. “In Spain the budget is only designed for a year. It is hard for companies to know what money will be available in the following years until 2026.”

Socías Uribe admits the government is trying to increase information for companies, but says this still leaves lots of unanswered questions. “Which public administration will be in charge of distributing each part of the money depending on the topic?” he says. “How can companies work together in big projects that can fit EU flagship projects?”

As for recovery measures taken so far, the Energy Monitor analysis finds that in Spain less than 20% of recovery spending on energy has gone to fossil fuels, while 81% has gone to renewables. A total of 51% of that spend was for transport, while 49% was for power. Socías Urube says he expects this pattern to continue in Spain’s national recovery fund.

Recovery spending in Spain will be particularly important because the country has been so hard hit by the crisis, says Antonio Garamendi, president of the Spanish Confederation of Small and Medium Enterprises.

“The Commission forecasts a 12.4% fall in GDP for 2020, the largest among European countries, and estimations from national and international institutions suggest a difficult scenario in 2021,” he says. All efforts need to be focused “on the recovery and transformation of our economy, through reforms, investments” and elimination of bureaucratic hurdles. He says businesses are on board with the idea of transforming the economy to a more sustainable one.

French focus

There are likely to be few surprises for Spanish companies, as any money they receive will come solely from the €750bn EU recovery fund, which has specifications about how it can be spent. Not so in France, where EU money makes up only 40% of the government’s emerging Covid-19 recovery fund. That means France will have more flexibility in how its national fund is used.

“France maybe wanted to design a plan that could be complemented with ordinary resources, to have more chance to move from European priorities,” says Socías Urube. “Spain decided to design a plan just with EU resources and so the priorities are clear.”

Pascal Canfin, a French MEP from President Emmanuel Macron’s Renew Europe group who chairs the European Parliament’s environment committee, says his country’s €100bn fund will end up being greener than most national funds.

“France will receive €40bn of that from the EU recovery facility,” he says, noting that 30% of the French fund will be earmarked for green spending. “That means France will exceed the 37%, it will be closer to 40–50% of the money from the EU that is spent on climate,” he says.

The national plan, called ‘France Relance’, represents about 9.5% of French GDP, making it the biggest rescue fund as calculated by GDP, higher than Germany’s or the UK’s. The ecological transition is on track to receive €30bn, with €35bn set aside for business competitiveness and the same amount for social and territorial cohesion.

The French plan is still shaping up, but already there is a clear focus on transport in the €30bn ecological transition spending envelope. And like Spain, France is putting a big emphasis on emerging hydrogen technology. French Prime Minister Jean Castex has confirmed that in total €7bn will be available for hydrogen projects to make France a “spearhead of green hydrogen” by 2030.

“The French plan has massive support for speeding up the switch from diesel cars to plug-in hybrids and EVs [electric vehicles],” says Canfin. “You have also a lot of investment in trains, both high speed and local, and a big pot of money for housing renovation. There is money for where we are lagging behind, for the carbon budget and emissions reductions in the housing sector. That is why France reallocated a significant part of its recovery money to housing renovation and refurbishing.”

Already last year the French government prioritised EVs in its €8bn fund to help the automotive sector. This included raising France’s EV subsidy from €6,000 to €7,000 for private vehicle owners from 1 June to 31 December 2020. What form new spending on EVs will take is yet to be determined, but it could follow a similar approach.

French utility Engie is particularly interested in hydrogen investments. In January, the company signed a cooperation agreement with Total to develop and build the Masshylia project, which would be France’s largest renewable hydrogen production site. Given the government’s emphasis on hydrogen, projects like these could get recovery funding. Gwenaëlle Avice-Huet, Engie’s executive vice-president in charge of renewable energies, said in January that projects of this scale will enable the company to reduce its CO2 footprint.

However France’s recovery spending pattern so far has not been as promising as Spain’s. According to Energy Monitor’s analysis, 36% of the country’s energy-related recovery spend has gone towards fossil fuels, while 63% has gone to clean energy. Much of the former came in a €7bn bailout for Air France last year, which came with almost no green strings attached. Given the precarious situation of the aviation industry, another bailout may be necessary. It is unclear whether money from the EU recovery fund could be used for this under the ‘do-no-harm’ principle.

European context

That the national plans of France and Spain have both ended up prioritising many of the same areas – hydrogen, renovation and transport – is no accident. These are the policy priorities that have been set at EU level.

“There has been some guidance from the Commission about what they would like to see,” says Thijs Vandenbussche, an analyst with the European Policy Centre in Brussels. “I think businesses are really welcoming this EU initiative.”

The national plans must now be approved by the Commission and by a majority of the 27 EU member states, weighted by population.

Countries like France, where the EU money forms just one part of the national fund, may have an easier time passing Commission scrutiny because they can ring-fence the ‘greenest’ elements into the EU portion.

“In France we see they are more or less in line with what the EU had set forward, but there are still some questions – for instance there is a big focus on hydrogen, but it is a new technology that is just coming in,” says Vandenbussche. “It will be interesting to see how the EU and national levels interact.”

Because hydrogen is an emerging technology, which investments are green and which aren’t could become a tricky subject. Is building a gas pipeline that is used for fossil gas now but could be used for hydrogen gas in the future a green investment?

There are also big questions over whether investment in nuclear power could count toward the ring-fenced 37%. The Commission is expected to come out soon with a taxonomy proposal to define what is a green investment and what is not.

Vandenbussche notes there have been some lofty goals expressed for the use of these recovery funds, but the test will be whether national governments are willing to follow through and whether the Commission is willing to put its money where its mouth is by enforcing green requirements.

There may also be some temptation by national governments to repackage existing spending as green spending within the fund to meet requirements. “In France, you can question to what extent this is additional spending and how much was existing policy at national level,” he says.

Related content:

Energy Monitor is running a special series of analyses of post-Covid-19 climate and energy-related spend and policies, to determine whether countries really are building back better.

The data behind this series is based on Energy Monitor’s interpretation of work done by Energy Policy Tracker. This tracks public money commitments and policies that could impact a green recovery post-Covid-19. Policies are assigned on the criteria of which energy technology they benefit and whether they have environmental strings attached. While the original source had five categories, we have opted to distinguish solely between whether a measure benefits fossil fuels or clean energy (or nuclear power).

The measures are very different in nature and include countries’ Covid-19 recovery strategies, national climate policies and bailout measures for companies. We brand the whole package of measures as Covid-19-related government policy responses from an energy and climate perspective.

Our measurement of a country’s performance may not be fully complete as certain measures, such as tax incentives or new taxes, may not be included in our methodology.

The data covers the period from March 2020 to 10 February 2021.

Dave Keating

Senior writer Dave Keating is a US journalist and conference moderator covering European affairs from Brussels, with a focus on environment and energy.