Green Stimulus: Nice Work, If EU Can Get It

next long term budget. Most notably, it proposed an eye watering one point eight five trillion euros in stimulus spending over the next seven years, which must go to things classified as quote green. Notable parts of the propost spending include building renovations to improve efficiency, a massive rollout on electric vehicle charging infrastructure, and enough spending on hydrogen to make it competitive a lot sooner than it would be otherwise.

But of course, what does green actually mean? And how are all these buildings gonna get renovated? Have we decided which type of ev charging is going to be the standard? Is there a skilled workforce ready to go on hydrogen? If these questions, and I'm sure several several others can get answered, it'll put this mountain of cash to use, and it could also help proliferate green investment in new

industries globally. This weekend the show, we've got Dario Troum, energy transition analyst for BNF here to tell us about the announcement and what it will take for this money to get spent. Our discussion is based on report he wrote, How Green is the EU's trillion euro recovery plan. We did this one a few weeks ago, but we've done several more since then. Deep dives on buildings, hydrogen evs, and charging networks as written up in the plan being IF.

Users can get these reports on BNF dot com, to be NF mobile app, and the Boomberg terminal. As a reminder, BENIF does not provide investment or strategy advice. You can hear the full dist claimer at the end of the show. I'm Mark Taylor, You'redanna Perkins, and you're listening to switch on the BENF podcast. Hi Dario, Welcome to the show. Hi nice to be here. So we're here today and we're going to be talking about the EU stimulus and you've got some views on that. So this just came

out recently, did it not? Absolutely? Yeah, the Commission's kind of switched gear after spending a lot of time with number of states and the European Central Bank focusing on emergency liquidity provision, so you know, how do you avoid a run on banks and and companies struggling with the debt in times of crisis to actually focusing on the recovery.

So this announcement was sort of the big landmark the EU coming together putting forward a substantial amount of money or proposing a substantial amount of money to get us out of this crisis once the public health part has been taken care of, or even before considering that this COVID nineteen pandemic is still ongoing. Let's outline it a bit. So how much are we talking about here and what is this stimulus money going to? So there's two parts.

The one thing that's you know, really additive and is being proposed as as a new tool on on May twenty seven, few weeks ago, is the next generation EU. Have they quickly named a stimulus package for NEXTRA seven fifty billion euros of money that is specifically for COVID nineteen recovery. But um, you didn't just focus on on announcing this one off budget, but it's sort of folded

it in. It's multi annual budget negotiations, so every seven years UM that you need to get its budget approved by all the member states, and that's obviously a difficult discussion, in particular when you have the UK, one of the biggest contributors leaving and so what do you UH is attempting to do here is seizing the moment of this COVID nineteen crisis and the importance to develop a response

to push through a seven dred billion extra support. So if you put that together, it's a one point eight five trillion euros m. That's a lot of money. And the one overarching criteria which is making it particularly interesting for the energy transition is that for the first time or more of all of this money has to go to explicitly green investments. How do they determine what is considered to be green? So I mean certain things are

quite evidently green, So you know, solo project in with projects. Actually, one of the things that's been happening in the EU and in Bloomberg in general is very involved in is UM the taxonomy. So the taxonomy is a process through which essentially review all sorts of assets classes, whether they are physical assets or even managed assets. And you determine whether or not they're green, brown, or some shade of

the two in between. So there's some assets that are labeled as a transition assets in the process of becoming green, and that's actually turns out, you know, it's going to become a really useful tool to help the EU SS with and investors in general and portfolio holders what investments

counters green. The hydrogen is one, for example, where you need to be doing quite a bit more work to see whether it's really green hydrogen or blue hydrogen or offers a few hyrogen They are clearly their monies to be done. Do you feel like the EU is doing this to kind of spite the UK for leading? You know, the EU is getting some criticism for their response to COVID nineteen. Uh, their their lack of concentrated response, I guess on it, And now they're all coming together with

more money, even with their main contributing member out. Do you think it's an active spite So, I don't think it's it's spite. I think it definitely it should cause some reasons for reflection in the UK because there's a picture of the EU that was particularly problematic to too many people across the Union's first, you know, a bureaucratic establishment that is out of death touched with member states. That's probably the criticism that was unfair towards the people

in Bussels. But the otherwise that you as an integration mechanism which essentially only focused on adding new countries, granting those countries a certain access to the market, but also to a free movement of labor, and then every year organizing budget transfers from the most developed, which is oldest members towards the newest was sort of an equation that

people weren't so happy with anymore. Now what happened with COVID is, you know, unfortunately the crisis hit in two countries that were very hit, but the previous financial crisis as well, Italy in Spain. But this time one cannot blame it on mismanagement of financial sector or public budgets, and so there's a real rethinking around. You know, these

new funds, how do we distribute them? Clearly, we want to distribute them to aid the economies that were most hit by the COVID nighteing crisis, but also those that are in the worst position to deal with the economic downturn that that follows it. And you know, this shows that the you is not a one way street, but the cards can be reshuffered when it's needed. And and so in the proposal of the Commission, which certainly are still on the negotiation around really, how do you define

the criterias of who gets how much money? Uh? Spain, Italy, but even France UH and then Poland are among the countries are set to receive the most. Whilst you know, Germany, the obvious country that on one hand dealt very well with the with the public health crisis which was less aggressive in the country, but also the one that's been sitting on the most sound public budget of the large countries in the EU, is sort of ready to redistribute. And maybe just one one more thing on that to

show how important it is. Germany alone has done more than half of all of the emergency liquidity and recovery spending in the EU so far for twenty seven countries. So that just shows you how, you know the imbalances that you feels it needs to correct to avoid the youth from fragmenting. That is that that that's a lot of dynamics. There's clearly a lot of complexity around which countries need to benefit from the money in the stimulus package.

But then there are going to be specific industries that I assume that they want to see grow. So if you could talk a little bit about which in austries are most likely to benefit and maybe where they are in their development, because some of these industries are less

mature than others in terms of technology and price competitiveness. Yes, so in recent year, is the US refined its state aid mechanism because it's an internal market where everybody is supposed to play on a living playing field, and given that they you have been too ambitious on climate, the

rules tend to favor already green or cleaner industries. And so what's quite interesting now when this recovery package was put together is that a lot of the rules and infrastructure needed to ensure that the money flows to cleaner

assets is actually already in place now. As often when one tries to accelerate the timeline, what's clear is we've got a lot of money being announced and in some new sectors being the buzzwords of the recovery package, where we'll still need to see how do you deploy this money efficient So on one hand, we've had hydrogen UM where hydrogen strategy was due or issue in in the

coming weeks for the youth for the first time. But clearly this recovery announcement jumps a gun a bit on that and seems to say that hydrogen is set to benefit quite a bit. Now, what all the rules, with all the regulations of a hydrogen economy, how do you ensure that the sector coupling works being next just published a very big report on the issue. Clearly it's it's still work in progress to do for this money to

flow efficiency. Similarly, on charging infrastructure, you know the business models and their approach to incentivize and set up all these charges. I told farenwere to have lofty goals, but you need to see sort of you know, who is going to put these these charges in the ground. Um. Another example is energy efficiency, which in the leaked UM information we've had on the stimulus measure by far worth receiving the the most capitals spent. It's notoriously difficult projects

to ensure that investors. That means remodeling buildings right exactly in terms of energy efficiency. Yeah, you know, because the confinement obviously UM, the inequalities of where people were confined

and put them into light. I think everyone agreed that it was it was time to really increase the pace of energy efficiency and building retrofits in you plants, but also at Members States ever, so all over Europe you're you're hearing in in the early discussions around similar energy efficiency in which we fits are really going to be

at the top. But one of the reasons they haven't been doing as well as we wanted um so far is tied to the fact that there's a lot of clarity on incentives but use how do you do in buildings where it's a landlord to the benefit of tenants? How do you get things to to be replicable? So a lot of things to figure out, But do you want to announced a strategy in September the renovation with so this money is meant to be deployed over the course of the next seven years. Yeah, the seven fifty

billion temporary reinforcement as they call it. There there is some discussion over how long it needs to be spent, but it's typically going to be two too sweeyears. So some of the more thrifty Member states, Denmark and Company would like it would be more limited in time, so maximum two years investment, spending some even just until the end of this year. Whilst the Commission I think also acknowledging what we just discussed that deploying that cash is

not going to be that easy in certain sectors. I would like the money to be spread over a longer period, and it's that specifically tied to green stimulus in this regard.

This is all with the mind to reaching that zero by how close real aligned do you think each of the decisions along the way will be in making sure that is the year is obviously the you know, the eye catching net zero goal, but actually the one that is a bigger issue or a bigger challenges in the near term that you would like to increase its emissions production from levels to We also have to remember that that EU budget combines with national level efforts, so you know,

Germany is still spending over twillion euros a year on its renewable energy subsidies. It's announced its own recovery plan, frances is going to announce its own recovery plan in September so and so forth, so you know, it's it's definitely meaningful and and helping us build things in favor of of meeting It just seems like we're going to have to get very creative in terms of the scope of projects that the EU is looking at in order

to meet what are arguably pretty ambitious goals. And I know that ultimately you have to get there right that the stakes are very high. But in addition to hydrogen, in addition to massive rollout of charging infrastructure, do you anticipate that there will be other things that pop up that they will be willing to try and maybe be a little bit less safe with the money and trying

and investing in things that could potentially be a black swan. Well, actually, I would say in this case, you know, hydrogen is the black swan and uh and what matter is actually a bit more is you know, the people that are affected by these crisis need to see the result within the next two years and not in hydrogen economy all fair and well has a lot of potential. We need to press forward, but we can't put all our eggs

in that basket. And so in the in the meantime, you need to focus on things you can do right away. And we mentioned hydrogen, we mentioned charging infrastructure. All of these things depend on us being able to increase the amount of clean electricity we're producing. And right now you have auction results in Germany where projects cannot participate because they're not securing permits, so they're challenged in courts. The same thing is happening in Italy, the same thing is

happening in France. Much of Central and Eastern Europe is not yet sort of hadn't yet fully finalized the policies they need and gather the public support they need to roll out much more wind solar projects to to to increase our tam power. So the governments need to to remove some of the red tapes that you get more shovel ready project as as one likes to call it in the stimulus Strabon. I like that phrase. Actually shove

already is great. Let's project out and let's think about this in terms of like how feasible is it to remove this red tape because the European Union is full of a lot of independent countries and one of the things that we saw with COVID was kind of this pull back to individual borders. If we're taking its clean transition seriously, um, there's two things that we really need to focus on that we haven't been doing so far is one, you know, how do you help um existing

legacy capacity offline? And you managed to impact that has on the falihood of two communities tied to it, so thinking about calling gas in particular called top power plants that need to come offline over the next ten years. And the other is how do you ease and increase the acceptance of the new projects that you need to

replace those assets. And there we're seeing, you know, unfortunately the money talks and and one of the things that working well in Frances that you increase the level of tax revenue that uh the power plants, the solar and wind power plants generates for the local community, you allow that community to participate with equity in the project. And certainly when we're going to be building you know, bigger projects.

So far Europe has been such a victim to have because of all these Ratape has been tended to build quite small projects. When we're going to big build A one or hydrogen infrastructure, certainly some communities will have to receive some funding to compensate them for that. But Darius, it seems the biggest theme I'm hearing is that there's a lot of challenges before they can actually deploy any

cash at all. My other question is there's a lot of things that need to be cited, you know, in the charging infrastructure, in the the hydrogen infrastructure, that before companies can even start to do anything right, So is the bottleneck actually just deploying the cash. Yes, I think, you know, its going to be really important to show that this money is has you know, delivers results, um that the account for for the people that need the

most helping in the short term and definitely. But I guess what I'm saying is that that I haven't heard any examples yet where it's going to be simple just to give the money out and see see a result quickly. Is that true or not? I mean, one thing we have to remember is the European Union collectively has been really been building experiences around how to deploy money to clean investment. European Investment Bank, it's the largest public bank

in the world, supports in clean energy primarily now. In fact, it's it's completely excited for so few investments and there of course have already fun facilities mechanisms that have allowed money to flow to energy efficiency projects, clean energy projects, charging infrastructure, rollout good infrastructure. So you know, the role of that entity, and that's been in the bags for for quite a wild way before the recovery plans we

discussed is going to increase. And so what you have to expect is that a lot of the existing mechanisms are going to be enhanced and so perhaps actually the you know, the way is already there. We're just going to notice it a lot more because the volume of money going through that way it's going to increase. The other thing is just transitions funding. I think that's one thing that's important to mention, and that is quite new.

It's been quadrupled to forty billion from less in ten in this latest announcement, and there it's definitely going to be challenging to decide who deserves just transition funding the most because you're essentially trying to give people money for closing coal assets, and you know, does it go to the asset owner, does it go to the community that's impacted, what projects are useful to that community. You're probably not

just going to give hand outs. You have to show them that there is a way after call and that, you know, I think it's definitely a complex and very human discussion, which I'm sure the Commission is going to attract critically and regardless of the solution it takes to to deploy that money, But it's also very important one because so as far as I know today, we we've never had really the opportunity to anticipate the disappearance of certain sectors and try to to manage that social and

economic impact for the communities that are affected. Is the Just Transition funding specifically for projects that would lead to an outcome? Or is just transition part of the consideration of all of the money that's being deployed and is one thing that's kind of weighing in to the process.

So definitely a bit of both. So just transition is a theme that runs through the announcement, But the Just Transition Fund specifically, you know, the only countries that were qualify will be those that are suffering a serious dessileration of certain sectors. CODE is going to be the number one on that list in the coming years. But then they also be some for for the steel industry and other sectors that have been competitively blows switches from the

tree transition in recent years. So quite a big menu, but new territory. That's that's exciting, and that I think it's going to play an important part in UM helping us commit to the higher goal in Well, I'm glad you specifically brought up coal as a part of the just transition focus. But are there other things, other aspects of this that you maybe would like to see other parts of the world learn from. I think, you know, we've got the U where obviously everything will be depending

the the election results. UM. It's good to see that, you know. Nonetheless, Mr Trump is trying to put the infrastructure spending that he had on the table on the as part of the recovery discussion, so that that would still be beneficial to the US. In China, it's a slightly different discussion. Reviewables are incredibly cheap and competitive, and it's sort of an industry that's been caught in a

storm of over public insensialization. So a lot more expert has been put on on other new sectors which could be beneficial to the climate transition, so increased the digitialization, faster broadband, and also electricity transmission infrastructure and things like that. One of the things that's interesting is this crisis is happening um and closing quite as quite a big confidence

shock for for emerging economy. So typically when the world is going through a crisis, everybody prefers to put the money and safe havens, and this is happening at a time where actually a lot of emerging markets were growing fast.

We're taking on that to fund more public spending and you know, deploy more infrastructure for for for example, in in the freed energy industry, and a lot of these countries now are going to be needing more support from the global community, from countries but also in particular from the I m F and the World Bank. So we're seeing countries like South Africa, Indonesia, Vietnamsa are really really central to global climate ambition efforts prepare were consider a

faster transition um towards the economy. You're talking about the definitions of a green project and how those could come back to corporates and investors in terms of better defining what a green investment is, a green bond or a green project that could go into a green bond, etcetera, etcetera. Do you think the EU stimulus package will help define

terms for indust tree that will be carried out, you know, globally. Yeah, I think it's definitely you know, increasing the urgency of anyone who wants to get something funded by this stimulus money now is is raising to get the credentials it needs to In the ideal world, that means that your regulation is ready, in time, perfect. The taxonomy gets rolled out in every possible option on the table is labeled

as green, brown, or shade of boats. But what's also happening is that a lot of companies are doing virtue signaling now. So um, you know, I think the fact that European oil and gas majors all confirmed that they were going to strive towards net zero by twenty fifty at least in their European operations, and that they were committed to join the electrification trend and build clean energy.

That's clearly them put the positioning themselves to to benefit or contribute I guess both to to this green recovery. So I think, you know, it will be really a

too two part process. Is what the industry comes up with to financial sector is full of labels and credit rating agencies that are already qualifying things as green, that are that we're working with on a day to day basis, but also the EU now being under pressure to finalize the tools it needs to make sure that the money floats to green in a in a transparent way um and and that things are not wasted or green washed. Dario,

thanks for joining us, Thanks a lot. Bloomberginny F is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. BLOOMBERGUINNA should not be considered as information sufficient upon which to base an investment decision.

Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclined