The Green Deal is a landmark package worth more than €1 trillion aimed at positioning Europe as a global leader in tackling climate change and achieving wider sustainable development.
It provides a roadmap for all EU countries, including Ireland, to achieve climate neutrality by 2050 covering areas such as climate, energy, circular economy, biodiversity, agriculture, industry and transport, and is enshrined in Europe’s first climate law.
Russell Smyth, partner, KPMG sustainable futures, explains: "The EU Commission has pledged to mobilise €1 trillion in sustainable investment over the next decade. This will shift a significant proportion of public and private capital towards investments and reforms that support climate objectives."
Financing the Green Deal
To fund the transition to net zero emissions, the EU needs investment of about €330 billion every year by 2030, Conor Linehan, head of environmental and planning at William Fry and a member of the firm’s ESG & Sustainability practice group, says. “The EU budget is set to play a significant role in reaching these targets, with €503 billion being invested over the next seven years in a range of climate and environmental projects from small individual household energy renovations to large-scale installations of electric vehicle charging networks.”
He explains that public funding is not enough. “Private capital markets are needed to bridge the gap in funding and the EU has launched a wide-ranging and highly impactful programme to reorient private investment in support of its Green Deal with a target investment of €279 billion.
"The use of private investment to fund public projects, while novel is not unheard of and, according to the head of the European Central Bank, parallels can be drawn between the private market financing of the Green Deal and the great mobilisation of US capital markets in the late 19th century to fund building of the railroad network in the form of railroad bonds."
How the Green Deal impacts Europe
According to Linehan, the Green Deal will finance a host of diverse projects, from the modernisation of public heating infrastructure, supporting the installation of solar panels in private homes and making industrial companies more energy efficient to modernising public electricity supply in EU member states.
“Aside from the direct, and indeed multiple indirect impacts of the Green Deal on public investment however, the private investment sector is also set to be transformed by the EU climate-neutral targets.
“Green capital markets are already well advanced; the EU is the location of choice for green bond issuance, with about 60 per cent of all green senior unsecured bonds issued globally in 2020 originating in the EU and the market is seeing rapid growth – since 2015, the outstanding volume of green bonds issued in the EU has grown almost eight-fold and in 2020 about half of the green bonds issued worldwide were in euro.”
Ireland’s green plans
In Ireland, the funding will be used for sectors that are typically difficult to decarbonise, such as agriculture. Smyth says: “It is likely one of the most difficult sectors of Ireland’s economy to decarbonise in a fair and just way. The EU-funded Common Agriculture Policy will aid and support farmers to encourage a move to more climate-friendly farming practices while aligning with the aims of the Green Deal, and the EU Farm to Fork Strategy.”
Ireland’s recently legislated Climate Action and Low Carbon Development (Amendment) Bill seeks to support the transition to net zero by 2050, aligning with the Green Deal, explains Smyth. This legislation provides a strong message to sustainability-conscious private investors (Irish and foreign investors) that Ireland is serious about its decarbonisation journey. Attracting this private investment is key to realising Ireland’s ambitions.