INTRODUCTION – DELIVER TODAY, PREPARE FOR TOMORROW
Honourable Members,
In just under 300 days, Europeans will take to the polls in our unique and remarkable democracy.
As with any election, it will be a time for people to reflect on the State of our Union and the work done by those that represent them. But it will also be a time to decide on what kind of future and what kind of Europe they want. Among them will be millions of first-time voters, the youngest of whom were born in 2008. As they stand in that polling booth, they will think about what matters to them. They will think about the war that rages at our borders. Or the impact of destructive climate change. About how artificial intelligence will influence their lives. Or of their chances of getting a house or a job in the years ahead.
Our Union today reflects the vision of those who dreamt of a better future after World War II. 
A future in which a Union of nations, democracies and people would work together to share peace and prosperity. They believed that Europe was the answer to the call of history. When I speak to the new generation of young people, I see that same vision for a better future. That same burning desire to build something better. That same belief that in a world of uncertainty, Europe once again must answer the call of history.
And that is what we must do together.
Honourable Members, This starts with earning the trust of Europeans to deal with their aspirations and anxieties. And in the next 300 days we must finish the job that they entrusted us with. I want to thank this House for its leading role in delivering on one of the most ambitious transformations this Union has ever embarked on. When I stood in front of you in 2019 with my programme for a green, digital and geopolitical Europe I know that some had doubts. And that was before the world turned upside down with a global pandemic and a brutal war on European soil.
But look at where Europe is today.
We have seen the birth of a geopolitical Union – supporting Ukraine, standing up to Russia’s aggression, responding to an assertive China and investing in partnerships. We now have a European Green Deal as the centrepiece of our economy and unmatched in ambition. We have set the path for the digital transition and become global pioneers in online rights. We have the historic NextGenerationEU – combining 800 billion euros of investment and reform – and creating decent jobs for today and tomorrow.  We have set the building blocks for a Health Union, helping to vaccinate an entire continent – and large parts of the world.
We have started making ourselves more independent in critical sectors, like energy, chips or raw materials.
I would also like to thank you for the ground-breaking and pioneering work we did on gender equality. As a woman, this means a lot to me. We have concluded files that many thought would be blocked forever, like the Women on Boards Directive and the historic accession of the EU to the Istanbul Convention. With the Directive on pay transparency we have cast into law the basic principle that equal work deserves equal pay. There is not a single argument why – for the same type of work – a woman should be paid less than a man.
But our work is far from over and we must continue pushing for progress together. I know this house supports our proposal on combating violence against women. Here too, I would like that we cast into law another basic principle: No, means no. There can be no true equality without freedom from violence.
And thanks to this Parliament, to Member States and to my team of Commissioners, we have delivered over 90% of the Political Guidelines I presented in 2019.
Together, we have shown that when Europe is bold, it gets things done. And our work is far from over – so let’s stand together. Let’s deliver today and prepare for tomorrow.
EUROPEAN GREEN DEAL
Honourable Members,
Four years ago, the European Green Deal was our answer to the call of history. And this summer – the hottest ever on record in Europe – was a stark reminder of that. Greece and Spain were struck by ravaging wildfires – and were hit again only a few weeks later by devastating floods. And we saw the chaos and carnage of extreme weather – from Slovenia to Bulgaria and right across our Union.
This is the reality of a boiling planet.
The European Green Deal was born out of this necessity to protect our planet. But it was also designed as an opportunity to preserve our future prosperity. We started this mandate by setting a long-term perspective with the climate law and the 2050 target. We shifted the climate agenda to being an economic one.
This has given a clear sense of direction for investment and innovation. And we have already seen this growth strategy delivering in the short-term. Europe’s industry is showing every day that it is ready to power this transition. Proving that modernisation and decarbonisation can go hand in hand.
In the last five years, the number of clean steel factories in the EU has grown from zero to 38. We are now attracting more investment in clean hydrogen than the US and China combined.
And tomorrow I will be in Denmark with Prime Minister Mette Frederiksen to see that innovation first hand. We will mark the launch of the first container ship, powered by clean methanol made with solar energy.
This is the strength of Europe’s response to climate change.
The European Green Deal provides the necessary frame, incentives, and investment – but it is the people, the inventors, the engineers who develop the solutions.
And this is why, Honourable Members, as we enter the next phase of the European Green Deal, one thing will never change. We will keep supporting European industry throughout this transition.  We started with a package of measures – from the Net-Zero Industry Act to the Critical Raw Materials Act.
With our Industry Strategy, we are looking at the risks and needs of each ecosystem in this transition. We need to finish this work. And with this, we need to develop an approach for each industrial ecosystem. Therefore, starting from this month, we will hold a series of Clean Transition Dialogues with industry. The core aim will be to support every sector in building its business model for the decarbonisation of industry.
Because we believe that this transition is essential for our future competitiveness in Europe.
But this is just as much about the people and their jobs of today. Our wind industry, for instance, is a European success story. But it is currently facing a unique mix of challenges. This is why we will put forward a European Wind Power package – working closely with industry and Member States.
We will fast-track permitting even more.
We will improve the auction systems across the EU. We will focus on skills, access to finance and stable supply chains. But this is broader than one sector: From wind to steel, from batteries to electric vehicles, our ambition is crystal clear: The future of our clean tech industry has to be made in Europe.
Honourable Members,
This shows that when it comes to the European Green Deal:
We stay the course. We stay ambitious. We stick to our growth strategy. And we will always strive for a fair and just transition!
That means a fair outcome for future generations – to live on healthy planet. And a fair journey for all those impacted – with decent jobs and a solemn promise to leave no one behind. Just think about manufacturing jobs and competitiveness: a topic we are discussing a lot these days.
Our industry and tech companies like competition. They know that global competition is good for business. And that it creates and protects good jobs here in Europe. But competition is only true as long as it is fair. Too often, our companies are excluded from foreign markets or are victims of predatory practices. They are often undercut by competitors benefitting from huge state subsidies.
We have not forgotten how China’s unfair trade practices affected our solar industry. Many young businesses were pushed out by heavily subsidised Chinese competitors.
Pioneering companies had to file for bankruptcy. Promising talents went searching for fortune abroad. This is why fairness in the global economy is so important – because it affects lives and livelihoods. Entire industries and communities depend on it.
So, we have be to be clear-eyed about the risks we face. Take the electric vehicles sector. It is a crucial industry for the clean economy, with a huge potential for Europe. But global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies. This is distorting our market. And as we do not accept this from the inside, we do not accept this from the outside.
So I can announce today that the Commission is launching an anti-subsidy investigation into electric vehicles coming from China. Europe is open for competition. Not for a race to the bottom. We must defend ourselves against unfair practices.
But equally, it is vital to keep open lines of communication and dialogue with China. Because there also are topics, where we can and have to cooperate. De-risk, not decouple – this will be my approach with the Chinese leadership at the EU-China Summit later this year.
Honourable Members,
In the European Union, we are proud of our cultural diversity. We are a ‘Europe of the Regions’ with a unique blend of languages, music, art, traditions, crafts and cuisines. We are also a continent of unique biological diversity. Some 6 500 species are found only in Europe. In northern Europe, we find the Wadden Sea, a world natural heritage site and unique habitat offering a home to rare species of flora and fauna and a vital resource for millions of migratory birds. And with the Baltic Sea we have the largest area of brackish sea in the world. South of that is the European Plain, characterised by vast tracts of moorland and wetland.
These regions are important allies against ongoing climate change. Protected moors and wetlands absorb enormous volumes of greenhouse gases, secure regional water cycles and are home to unique biodiversity.
And Europe is a continent of forests.
From the mighty coniferous forests of the North and East, via the last remnants of virgin oak and beech forest in central Europe to the cork oak forests of southern Europe: all these forests are an irreplaceable source of goods and services. They absorb carbon dioxide, supply wood and other products, generate fertile soils, and filter the air and the water. Biodiversity and ecosystem services are vital for all of us in Europe.
Loss of nature destroys not only the foundations of our life, but also our feeling of what constitutes home. We must protect it. At the same time, food security, in harmony with nature, remains an essential task.
I would like to take this opportunity to express my appreciation to our farmers, to thank them for providing us with food day after day. For us in Europe, this task of agriculture – producing healthy food – is the foundation of our agricultural policy. And self-sufficiency in food is also important for us.
That is what our farmers provide. It is not always an easy task, as the consequences of Russia’s aggression against Ukraine, climate change bringing droughts, forest fires and flooding, and new obligations are all having a growing impact on farmers’ work and incomes.
We must bear that in mind. Many are already working towards a more sustainable form of agriculture. We must work together with the men and women in farming to tackle these new challenges. That is the only way to secure the supply of food for the future.
We need more dialogue and less polarisation. That is why we want to launch a strategic dialogue on the future of agriculture in the EU. I am and remain convinced that agriculture and protection of the natural world can go hand in hand. We need both.
ECONOMY, SOCIAL AND COMPETITIVENESS
Honourable Members,
A fair transition for farmers, families and industry. This is the hallmark of this Mandate. And it is all the more important as we face strong economic headwinds. I see three major economic challenges for our industry in the year ahead: labour and skills shortages, inflation, and making business easier for our companies.
The first has to do with our labour market. We have not forgotten the early days of the global pandemic. When everyone predicted a new wave of 1930-style mass unemployment. But we defied this prediction. With SURE – the first-ever European short-time work initiative – we saved 40 million jobs.
This is Europe’s social market economy in action. And we can be proud of it!
We then immediately restarted our economic engine thanks to NextGenerationEU. And today we see the results. Europe is close to full employment. Instead of millions of people looking for jobs, millions of jobs are looking for people. Labour and skills shortages are reaching record levels – both here and across all major economies. 74% of SMEs are saying they are facing skill shortages. In the peak of the tourist season, restaurants and bars in Europe are running reduced hours because they cannot find staff. Hospitals are postponing treatment because of lack of nurses. And two thirds of European companies that are looking for IT specialists cannot find them. At the same time millions of parents – mostly mothers – are struggling to reconcile work and family, because there is no childcare. And 8 million young people are neither in employment, education or training.
Their dreams put on hold, their lives on stand-by. This is not only the cause of so much personal distress. It is also one of the most significant bottlenecks for our competitiveness. Because labour shortages hamper the capacity for innovation, growth and prosperity. So we need to improve access to the labour market.
Most importantly for young people, for women. And we need qualified migration. In addition, we need to respond to the deep-rooted shifts in technology, society and demography. And for that, we should rely on the expertise of businesses and trade unions, our collective bargaining partners. It is almost forty years since Jacques Delors convened the Val Duchesse meeting that saw the birth of European social dialogue.
Since then, social partners have shaped the Union of today – ensuring progress and prosperity for millions. And as the world around us changes faster than ever, social partners must again be at the heart of our future. Together we must focus on the challenges facing the labour market – from skills and labour shortages, to new challenges stemming from AI.
This is why together with the Belgian Presidency next year, we will convene a new Social Partner Summit once again at Val Duchesse. The future of Europe will be built with and by our social partners.
 
The second major economic challenge: persistent high inflation. Christine Lagarde and the European Central Bank are working hard to keep inflation under control. We know that returning to the ECB’s medium-term target will take some time. The good news is that Europe has started bringing energy prices down. We have not forgotten, Putin’s deliberate use of gas as a weapon and how it triggered fears of blackout and an energy crisis like in the 70s. Many thought, we would not have enough energy to get through the winter. But we made it.
Because we stayed united – pooling our demand and buying energy together. And at the same time, different to the 70s, we used the crisis to massively invest in renewables and fast-track the clean transition. We used Europe’s critical mass to bring prices down and secure our supply. The price for gas in Europe was over 300 euros per MWh one year ago. It is now around 35. So we need to look at how we can replicate this model of success in other fields like critical raw materials or clean hydrogen.
The third challenge for European companies is about making it easier to do business. Small companies do not have the capacity to cope with complex administration. Or they are held back by lengthy processes. This often means they do less with the time they have – and that they miss out on opportunities to grow. This is why – before the end of the year – we will appoint an EU SME envoy reporting directly to me. We want to hear directly from small and medium sized businesses, about their everyday challenges.
For every new piece of legislation we conduct a competitiveness check by an independent board. And next month, we will make the first legislative proposals towards reducing reporting obligations at the European level by 25%.
Honourable Members,
Let’s be frank – this will not be easy. And we will need your support. Because this is a common endeavour for all European institutions. So we also have to work with Member States, to match the 25% at national level. It is time to make business easier in Europe!
But European companies also need access to key technologies to innovate, develop and manufacture. This is a question of European sovereignty as the Leaders underlined in Versailles. It is an economic and national security imperative to preserve a European edge on critical and emerging technologies. This European industrial policy also requires common European funding. This is why – as part of our proposal for a review of our budget – we proposed the STEP platform.
With STEP we can boost, leverage and steer EU funds to invest in everything from microelectronics to quantum computing and AI. From biotech to clean tech. Our companies need this support now – so I urge for a quick agreement on our budget proposal. And I know I can count on this House. And there is more when it comes to competitiveness.
We have seen real bottlenecks along global supply chains, including because of the deliberate policies of other countries. Just think about China’s export restrictions on gallium and germanium – which are essential for goods like semiconductors and solar panels. This shows why it is so important for Europe to step up on economic security.
By de-risking and not decoupling. And I am very proud that this concept has found broad support from key partners. From Australia to Japan and the United States. And many other countries around the world want to work together. Many are overly dependent on a single supplier for critical minerals. Others – from Latin America to Africa – want to develop local industries for processing and refining, instead of just shipping their resources abroad.
This is why later this year we will convene the first meeting of our new Critical Raw Materials Club. At the same time, we will continue to drive open and fair trade. So far, we have concluded new free trade agreements with Chile, New Zealand and Kenya. We should aim to complete deals with Australia, Mexico and Mercosur by the end of this year. And soon thereafter with India and Indonesia. Smart trade delivers good jobs and prosperity.
Honourable Members,
These three challenges – labour, inflation and business environment – come at a time when we are also asking industry to lead on the clean transition. So we need to look further ahead and set out how we remain competitive as we do that. This is why I have asked Mario Draghi – one of Europe’s great economic minds – to prepare a report on the future of European competitiveness.  Because Europe will do “whatever it takes” to keep its competitive edge.
DIGITAL & AI
Honourable Members,
When it comes to making business and life easier, we have seen how important digital technology is. It is telling that we have far overshot the 20% investment target in digital projects of NextGenerationEU. Member States have used that investment to digitise their healthcare, justice system or transport network. At the same time, Europe has led on managing the risks of the digital world. 
The internet was born as an instrument for sharing knowledge, opening minds and connecting people.  But it has also given rise to serious challenges. Disinformation, spread of harmful content, risks to the privacy of our data. All of this led to a lack of trust and a breach of fundamental rights of people. In response, Europe has become the global pioneer of citizen’s rights in the digital world. The DSA and DMA are creating a safer digital space where fundamental rights are protected. And they are ensuring fairness with clear responsibilities for big tech.
This is a historic achievement – and we should be proud of it. The same should be true for artificial intelligence.  It will improve healthcare, boost productivity, address climate change. But we also should not underestimate the very real threats. Hundreds of leading AI developers, academics and experts warned us recently with the following words:
“Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war.”
AI is a general technology that is accessible, powerful and adaptable for a vast range of uses – both civilian and military. And it is moving faster than even its developers anticipated.  So we have a narrowing window of opportunity to guide this technology responsibly.
I believe Europe, together with partners, should lead the way on a new global framework for AI, built on three pillars: guardrails, governance and guiding innovation. Firstly, guardrails. Our number one priority is to ensure AI develops in a human-centric, transparent and responsible way. This is why in my Political Guidelines, I committed to setting out a legislative approach in the first 100 days.
We put forward the AI Act – the world’s first comprehensive pro-innovation AI law. And I want to thank this House and the Council for the tireless work on this groundbreaking law.  Our AI Act is already a blueprint for the whole world. We must now focus on adopting the rules as soon as possible and turn to implementation.
The second pillar is governance.  We are now laying the foundations for a single governance system in Europe. But we should also join forces with our partners to ensure a global approach to understanding the impact of AI in our societies. Think about the invaluable contribution of the IPCC for climate, a global panel that provides the latest science to policymakers. I believe we need a similar body for AI – on the risks and its benefits for humanity.
With scientists, tech companies and independent experts all around the table.  This will allow us to develop a fast and globally coordinated response – building on the work done by the Hiroshima Process and others. The third pillar is guiding innovation in a responsible way. Thanks to our investment in the last years, Europe has now become a leader in supercomputing – with 3 of the 5 most powerful supercomputers in the world. We need to capitalise on this.
This is why I can announce today a new initiative to open up our high-performance computers to AI start-ups to train their models. But this will only be part of our work to guide innovation. We need an open dialogue with those that develop and deploy AI. It happens in the United States, where seven major tech companies have already agreed to voluntary rules around safety, security and trust. 
It happens here, where we will work with AI companies, so that they voluntarily commit to the principles of the AI Act before it comes into force. Now we should bring all of this work together towards minimum global standards for safe and ethical use of AI.
GLOBAL, MIGRATION AND SECURITY
Honourable Members,
When I stood here four years ago, I said that if we are united on the inside, nobody will divide us from the outside. And this was the thinking behind the Geopolitical Commission. Our Team Europe approach has enabled us to be more strategic, more assertive and more united. And that is more important than ever. Our heart bleeds when we see the devastating loss of life in Libya and Morocco after the violent floods and earthquake.
Europe will always stand ready to support in any way we can. Or think about the Sahel region, one of the poorest yet fastest growing demographically. The succession of military coups will make the region more unstable for years ahead. Russia is both influencing and benefiting from the chaos. And the region has become fertile ground for the rise in terrorism.  This is of direct concern for Europe – for our security and prosperity.
So we need to show the same unity of purpose towards Africa as we have shown for Ukraine. We need to focus on cooperation with legitimate governments and regional organisations. And we need to develop a mutually beneficial partnership which focuses on common issues for Europe and Africa. This is why, together with High Representative Borrell, we will work on a new strategic approach to take forward at the next EU-AU Summit.
Honourable Members,
History is on the move. Russia is waging a full-scale war against the founding principles of the UN Charter. This has raised immense concerns in countries from Central Asia to the Indo-Pacific. They are worried that in a lawless world, they might face the same fate as Ukraine. We see a clear attempt by some to return to bloc thinking – trying to isolate and influence countries in between.
And it comes at a time when there is a deeper unease by many emerging economies about the way institutions and globalisation work for them. Those concerns are legitimate. These emerging economies – with their people and natural assets – are essential allies in building a cleaner, safer and more prosperous world. Europe will always work with them to reform and improve the international system. We want to lead efforts to make the rules-based order fairer and make distribution more equal.
This will also mean working with new and old partners to deepen our connections. And Europe’s offer with Global Gateway is truly unique. Global Gateway is more transparent, more sustainable, and more economically attractive. Just last week I was in New Delhi to sign the most ambitious project of our generation.
The India-Middle East-Europe Economic Corridor. It will be the most direct connection to date between India, the Arabian Gulf and Europe: With a rail link, that will make trade between India and Europe 40% faster. With an electricity cable and a clean hydrogen pipeline – to foster clean energy trade between Asia, the Middle East and Europe. With a high-speed data cable, to link some of the most innovative digital ecosystems in the world, and create business opportunities all along the way. These are state-of-the-art connections for the world of tomorrow. Faster, shorter, cleaner.
And Global Gateway is making the real difference.
I have seen it in Latin America, South-East Asia and across Africa – from building a local hydrogen economy with Namibia and Kenya to a digital economy with the Philippines. These are investments in our partners’ economy. And they are investments in Europe’s prosperity and security in a fast-changing world.
Honourable Members,
Every day, we see that conflict, climate change and instability are pushing people to seek refuge elsewhere. I have always had a steadfast conviction that migration needs to be managed. It needs endurance and patient work with key partners. And it needs unity within our Union. This is the spirit of the New Pact on Migration and Asylum. When we took office, there seemed to be no possible compromise in sight.
But with the Pact, we are striking a new balance. Between protecting borders and protecting people. Between sovereignty and solidarity. Between security and humanity. We listened to all Member States and focused on all routes. And we have translated the spirit of the Pact into practical solutions. We were fast and united in responding to the hybrid attack that Belarus launched against us. We worked closely with our Western Balkan partners and reduced irregular flows.
We have signed a partnership with Tunisia that brings mutual benefits beyond migration – from energy and education, to skills and security. And we now want to work on similar agreements with other countries. We stepped up border protection. European Agencies deepened their cooperation with Member States.
Allow me to thank in particular Bulgaria and Romania for leading the way – showcasing best practices on both asylum and returns. They have proved it: Bulgaria and Romania are part of our Schengen area. So let us finally bring them in – without any further delay.
Ladies and Gentlemen,
Our work on migration is based on the conviction that unity is within our reach. An agreement on the pact has never been so close. Parliament and the Council have a historic opportunity to get it over the line. Let us show that Europe can manage migration effectively and with compassion. Let’s get this done!
Honourable members,
We know that migration requires constant work. And nowhere is that more vital than in the fight against human smugglers. They attract desperate people with their lies. And put them on deadly routes across the desert, or on boats that are unfit for the sea. The way these smugglers operate is continuously evolving. But our legislation is over twenty years old and needs an urgent update. So we need new legislation and a new governance structure.
We need stronger law enforcement, prosecution and a more prominent role for our agencies – Europol, Eurojust and Frontex. And we need to work with our partners to tackle this global plague of human trafficking. This is why the Commission will organise an International Conference on fighting people smuggling. It is time to put an end to this callous and criminal business!
UKRAINE
Honourable Members,
On the day when Russian tanks crossed the border into Ukraine, a young Ukrainian mother set off for Prague to bring her child to safety. When the Czech border official stamped her passport, she started crying. Her son didn’t understand. And he asked his mother why she was crying. She answered: “Because we are home.” “But this is not Ukraine,” he argued. So she explained: “This is Europe.”
On that day, that Ukrainian mother, felt that Europe was her home. Because “home is where we trust each other”. And the people of Ukraine could trust their fellow Europeans. Her name was Victoria Amelina. She was one of the great young writers of her generation and a tireless activist for justice. Once her son was safe, Victoria returned to Ukraine to document Russia’s war crimes. One year later she was killed by a Russian ballistic missile, while having dinner with colleagues. The victim of a Russian war crime, one of countless attacks against innocent civilians. Amelina was with three friends that day – including Héctor Abad Faciolince, a fellow writer from Colombia. He is part of a campaign called “Aguanta, Ucrania” – “Resist, Ukraine”, created to tell Latin Americans of Russia’s war of aggression and attacks on civilians. But Héctor could never imagine becoming the target himself. Afterwards, he said he didn’t know why he lived and she died.
But now he is telling the world about Victoria. To save her memory and to end this war. And I am honoured that Héctor is here with us today. And I want you to know that we will keep the memory of Victoria – and all other victims – alive. Aguanta, Ucrania. Slava Ukraini!
Honourable Members,
We will be at Ukraine’s side every step of the way. For as long as it takes. Since the start of the war, four million Ukrainians have found refuge in our Union. And I want to say to them that they are as welcome now as they were in those fateful first weeks. We have ensured that they have access to housing, healthcare, the job market and much more.
Honourable Members,
this was Europe answering the call of history. And so I am proud to announce that the Commission will propose to extend our temporary protection to Ukrainians in the EU. Our support to Ukraine will endure. We have provided 12 billion euros this year alone to help pay wages and pensions. To help keep hospitals, schools and other services running. And through our ASAP proposal we are ramping up ammunition production to help match Ukraine’s immediate needs.
But we are also looking further ahead. This is why we have proposed an additional 50 billion euros over four years for investment and reforms. This will help build Ukraine’s future to rebuild a modern and prosperous country. And that future is clear to see. This House has said it out loud: The future of Ukraine is in our Union. The future of the Western Balkans is in our Union. The future of Moldova is in our Union. And I know just how important the EU perspective is for so many people in Georgia.
Honourable Members,
I started by speaking of Europe responding to the call of history. And history is now calling us to work on completing our Union. In a world where some are trying to pick off countries one by one, we cannot afford to leave our fellow Europeans behind. In a world where size and weight matters, it is clearly in Europe’s strategic and security interests to complete our Union. But beyond the politics and geopolitics of it, we need to picture what is at stake. We need to set out a vision for a successful enlargement.
A Union complete with over 500 million people living in a free, democratic and prosperous Union. A Union complete with young people who can live, study and work in freedom. A Union complete with vibrant democracies in which judiciaries are independent, oppositions are respected, and journalists are protected.
Because the rule of law and fundamental rights will always be the foundation of our Union – in current and in future Member States. This is why the Commission has made the Rule of Law Reports a key priority. We now work closely with Member States to identify progress and concerns – and make recommendations for the year ahead. This has ensured accountability in front of this House and national parliaments. It has allowed for dialogue between Member States. And it is delivering results.
I believe that it can do the same for future Member States. This is why I am very happy to announce that we will open the Rule of Law Reports to those accession countries who get up to speed even faster. This will place them on an equal footing with Member States. And support them in their reform efforts. And it will help ensure that our future is a Union of freedom, rights and values for all.
This is in our shared interest. Think about the great enlargement of 20 years ago. We called it the European Day of Welcomes. And it was a triumph of determination and hope over the burdens of the past. And in the 20 years since we have seen an economic success story which has improved the lives of millions. I want us to look forward to the next European Day of Welcomes and the next economic success stories. We know this is not an easy road.
Accession is merit-based – and the Commission will always defend this principle. It takes hard work and leadership. But there is already a lot of progress. We have seen the great strides Ukraine has already made since we granted them candidate status.  And we have seen the determination of other candidate countries to reform.
Honourable Members,
it is now time for us to match that determination. And that means thinking about how we get ready for a completed Union. We need to move past old, binary debates about enlargement. This is not a question of deepening integration or widening the Union. We can and we must do both. To give us the geopolitical weight and the capacity to act.
This is what our Union has always done. Each wave of enlargement came with a political deepening. We went from coal and steel towards full economic integration. And after the fall of the Iron Curtain, we turned an economic project into a true Union of people and states. I believe that the next enlargement must also be a catalyst for progress. We have started to build a Health Union at 27. And I believe we can finish it at 30+. We have started to build European Defence Union at 27. And I believe we can finish it at 30+.
We have proven that we can be a Geopolitical Union and showed we can move fast when we are united. And I believe that Team Europe also works at 30+.
Honourable Members,
I know this House believes the same. And the European Parliament has always been one of the main drivers of European integration. It has been so throughout the decades. And it is once again today. And I will always support this House – and all of those who want to reform the EU to make it work better for citizens. And, yes, that means including through a European Convention and Treaty change if and where it is needed!
But we cannot – and we should not – wait for Treaty change to move ahead with enlargement. A Union fit for enlargement can be achieved faster. That means answering practical questions about how a Union of over 30 countries will work in practice. And in particular about our capacity to act. The good news is that with every enlargement those who said it would make us less efficient were proven wrong. Take the last few years. We agreed on NextGenerationEU at 27. We agreed to buy vaccines at 27. We agreed on sanctions in record time – also at 27. We agreed to purchase natural gas – not only at 27 but including Ukraine, Moldova and Serbia.
So it can be done. But we need to look closer at each policy and see how they would be affected by a larger Union. This is why the Commission will start working on a series of pre-enlargement policy reviews to see how each area may need to be adapted to a larger Union. We will need to think about how our institutions would work – how the Parliament and the Commission would look.
We need to discuss the future of our budget – in terms of what it finances, how it finances it, and how it is financed. And we need to understand how to ensure credible security commitments in a world where deterrence matters more than ever.  These are questions we must address today if we want to be ready for tomorrow. And the Commission will play its part. This is why we will put forward our ideas to the Leaders’ discussion under the Belgian Presidency.
We will be driven by the belief that completing our Union is the best investment in peace, security and prosperity for our Continent. So it is time for Europe to once again think big and write our own destiny!
CONCLUSION
Honourable Members, Victoria Amelina believed that it is our collective duty to write a new story for Europe. This is where Europe stands today. At a time and place where history is written. The future of our continent depends on the choices we make today. On the steps we take to complete our Union.
The people of Europe want a Union that stands up for them in a time of great power competition. But also one that protects and stands close to them, as a partner and ally in their daily battles. And we will listen to their voice.
If it matters to Europeans, it matters to Europe. Think again about the vision and imagination of the young generation I started my speech with. It is the moment to show them that we can build a continent where you can be who you are, love who you want, and aim as high as you want.
A continent reconciled with nature and leading the way on new technologies.
A continent that is united in freedom and peace.
Once again – this is Europe’s moment to answer the call of history. Long live Europe. 
Presented by Ursula Van der Leyen, President of the European Commission
Compliments of the European CommissionThe post EU 2023 State of the Union Address by President von der Leyen first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Agenda highlights
The high-level week of the 78th session of the UN General Assembly starts on 18 September 2023. The first day of the general debate will be on Tuesday, 19 September.
The President of the European Council, Charles Michel, will address the General Assembly on behalf of the EU and will participate in a series of side events.
EU priorities at the 78th UN General Assembly
Every year, the Council adopts priorities for the UN and the UN General Assembly, which guide the EU’s work for the year to come.
The Council’s priorities for the 78th UN General Assembly (September 2023–September 2024) centre around a commitment to multilateralism and a rules-based international order. Taking into account multiple global crises such as Russia’s illegal war against Ukraine, the situation in the Sahel and the climate emergency, the overarching priorities are:

accelerating implementation of sustainable development goals
strengthening global governance in line with the UN Secretary-General’s proposals on ’Our Common Agenda’
building global partnerships

EU priorities at the 78th United Nations General Assembly: Council approves conclusions (press release, 20 July 2023)

Climate ambition summit
On 20 September, President Michel will attend the climate ambition summit.
World leaders will discuss how to tackle climate change and accelerate the pace and scale of a just transition.

Climate ambition summit, 20 September 2023

Bilateral meetings
In the margins of the UN General Assembly, President Michel will meet with leaders from around the world.
The EU at the UN General Assembly
The EU is committed to multilateralism, with a strong and effective UN at its core. Since 1974, the EU has been a permanent observer at the UN General Assembly.
Following the adoption of a UN General Assembly resolution in May 2011, the EU has had the ability to speak early among other major groups and can be represented by the EU external representatives (the President of the European Council, the EU High Representative for Foreign Affairs and Security Policy, the European Commission and the EU delegation).
Since 2011, the President of the European Council has addressed the General Assembly on behalf of the EU. (EU at the UN General Assembly – background information)
Programme:

17/09/2023 4:00pm

Meeting of the European Union – United Nations – African Union

17/09/2023 5:45pm

EU-UN Principals meeting

19/09/2023 8:00am

Welcome reception hosted by UN Secretary-General António Guterres

19/09/2023 9:00am

Opening of the 78th General Assembly’s General Debate

19/09/2023 3:00pm

High-level event: ‘Towards a fair international financial architecture’

20/09/2023 10:00am

High-level meeting on ‘Pandemic prevention, preparedness & response’

20/09/2023 10:00am

(16:00 CEST) Climate ambition summit

21/09/2023 (Time TBC)

President Charles Michel’s address to the 78th UN General Assembly’s General Debate

Compliments of the European Council.The post European Council | UN General Assembly, New York, 18-22 September 2023 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Platform for Collaboration on Tax (PCT) – a joint initiative of the IMF, OECD, UN and World Bank Group – released a new report on carbon metrics of its partners. The report aims to help policymakers, businesses and other stakeholders strengthen their understanding of different carbon pricing metrics of the four largest international organizations.
Carbon pricing has emerged as the policy strategy to monetize the cost of the emission of carbon dioxide and other greenhouse gases, such as the damage caused by climate change. In the last decade, international organizations have developed diverse metrics on carbon pricing. The PCT’s new report, “Carbon Pricing Metrics: Analyzing Existing Tools and Databases of Platform for Collaboration on Tax (PCT) Partners,” showcases this rich array of approaches of the PCT Partners (the IMF, OECD, UN and the World Bank Group) and provides a comparison of various metrics, including other carbon pricing metrics. The study shows that the existing metrics of the PCT Partners complement each other and give a comprehensive picture of the carbon pricing landscape. According to the report, the PCT Partners concur on a crucial message: Energy prices are poorly aligned with climate, environmental and health costs. Carbon pricing signals to date are insufficient.
This report was prepared under the PCT’s environmental taxation/climate and tax workstream, which brings together experts from the four international organizations. Following the release of the report, the PCT Partners will hold a launch event in September 2023 with expert speakers, who will discuss the key takeaways from the report.
The full report can be reached here.
For questions and comments, please contact the PCT Secretariat at taxcollaborationplatform@worldbank.org 
Compliments of the OECD, IMF, World Bank Group and the UN.The post OECD, IMF, WB, UN | The Platform for Collaboration on Tax Releases – New Report on Carbon Pricing Metrics first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

European Central Bank | 6 September 2023

Frontloading green investment significantly reduces medium-term costs and risks facing households and firms
Not expediting green transition drags down firms’ profitability and households’ purchasing power while pushing up credit risk for banks
Further delaying transition means missing Paris Agreement goals and exacerbating impact of costly physical risks

The European Central Bank (ECB) today published the results of its second economy-wide climate stress test. The results show that the best way to achieve a net-zero economy for firms, households and banks in the euro area is to accelerate the green transition to a rate that is faster than under current policies.
“We need more decisive policies to ensure a speedier transition towards a net-zero economy in line with the goals of the Paris Agreement. Moving at the current pace will push up risks and costs for the economy and financial system. There is a clear need for speed on the road to Paris,” says ECB Vice-President Luis de Guindos.
The stress test analyses the resilience of firms, households and banks to three transition scenarios, which differ in terms of timing and ambition:

an “accelerated transition”, which frontloads green policies and investment, leading to a reduction in emissions by 2030 in line with the goals of the Paris Agreement;
a “late-push transition”, which continues on the current path, but does not speed up until 2026 (and is still intense enough to achieve Paris-aligned emission reductions by 2030);
a “delayed transition”, which also starts only in 2026, but is not sufficiently ambitious to reach the Paris Agreement goals by 2030.

The results show that firms and households clearly benefit from a faster transition. While a speedier transition initially involves greater investment and higher energy costs, financial risks decrease significantly in the medium term. Both profits and purchasing power are less negatively affected as the frontloaded investment in renewable energy pays off earlier and ultimately reduces energy expenses. In the accelerated transition, green investment by euro area firms rises to €2 trillion by 2025, while amounting to only €0.5 trillion in the other two scenarios. In the late-push transition, green investment catches up with the accelerated transition by 2030, as they both reach a total of €3 trillion, while it remains lower in the delayed transition. For it to catch up, green investment needs to be increased swiftly, putting firms at higher risk, particularly in energy-intensive sectors such as manufacturing, mining and electricity, with debt levels rising and profits falling around twice as much as for the average euro area firm.
If firms are at risk, so are the banks that lend to them. Banks are exposed to the highest credit risk if the transition has to be rushed at a later stage and investment is required quickly at higher costs. In the late-push transition, banks can expect their credit risk to rise by more than 100% by 2030 compared with 2022, while in the accelerated transition, the increase is only 60%.
Moreover, delaying the transition, and not acting at all, leads to even higher costs and risks in the long run. While it entails less investment overall, missing emission reduction targets exacerbates the impact of physical risk on the economy and the financial sector significantly.

Chart 1
More ambitious emission reduction targets driven by timely and intensive investment lead to lower credit risk for banks in the medium term

Source: ECB calculations based on Orbis, Urgentem, Eurostat, Network for Greening the Financial System, Broad Macroeconomic Projection Exercise (BMPE) projections, International Renewable Energy Agency (IRENA, 2021) and Intergovernmental Panel on Climate Change (IPCC, 2022) data.
Notes: Panel a) displays euro area cumulative investment across time, representing the debt acquired by euro area firms in each scenario between 2023 and 2030. Panel b) presents median corporate loan portfolio probabilities of default for significant institutions in the euro area.

The second economy-wide climate stress test follows up on the results of the first economy-wide stress test exercise published in September 2021. It complements the ECB Banking Supervision climate stress test, which analysed risks for individual banks from a bottom-up perspective in July 2022, by having a wider scope and looking at firms, households and the banking sector from a top-down perspective. The ECB’s economy-wide climate stress is part of its climate agenda and ongoing work to improve understanding of climate-related risk.
Compliments of the European Central BankThe post ECB | Faster green transition would benefit firms, households and banks, ECB economy-wide climate stress test finds first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Digitalization, done right, can equip governments to improve revenue collection and spending efficiency.

International Monetary Fund – September 7, 2023

Digitalization is a transformative force as powerful as the advent of the printing press in the 15th century or electricity in the 19th. Yet some governments have been slow to harness the potential of digital technology to improve delivery of public services and strengthen public finance.
A two-pronged policy approach is required—connecting unconnected households to the internet and accelerating and strengthening the adoption of digital solutions in the public sector. We outline strategies for pursuing these policies in a new staff discussion note on government technology, or govtech.
Encouraging digital adoption
Emerging and developing countries have the most potential to leapfrog their development trajectory by adopting digital technologies. These countries lag considerably behind in internet connectivity, a key enabler for adopting and using digital technologies. Globally, about 2.7 billion people still need to be connected. Within countries, a digital divide persists across age and gender. Bridging this divide and benefiting from digitalization takes adequate digital infrastructure.
Our estimates show that $418 billion of investment in digital infrastructure is needed to connect unconnected households. The bulk of these investment needs are in emerging market and low-income developing economies, with the latter’s requirements estimated at 3.5 percent of GDP. Government support can be crucial in achieving universal connectivity by incentivizing or directly investing in building internet infrastructure, especially in regions where profitability remains challenging.

In addition to infrastructure, affordability and digital literacy are crucial. Internet subscription costs remain high in low-income developing countries, where, relative to average incomes, the average cost is nine times the amount citizens in advanced economies spend. To make internet access more affordable, governments can consider offering discounts or vouchers on subscription fees. Additionally, promoting digital literacy programs is essential to overcome reluctance among specific populations, particularly older individuals, to embrace new digital technologies.

The power of govtech
Digitalization enables governments to leverage technology to enhance revenue collection, improve efficiency of public spending, strengthen fiscal transparency and accountability, and improve education, health-service delivery, and social outcomes. These can be achieved through better decision-making processes, adoption of international standards and practices, transformation of public financial management processes and systems, and improved taxpayer and trader services to support voluntary compliance and trade facilitation.
Adopting govtech in fiscal operations can strengthen public finance on both revenue and spending sides. IMF staff analysis shows that e-filing, e-invoicing and electronic fiscal devices could lead to a significant increase in tax revenues. For example, the adoption of e-invoicing and electronic fiscal devices could improve revenue mobilization by up to 0.7 percent of GDP. Digitalization’s impact on revenue administration is enhanced by expanding digital connectivity and ensuring sufficient staffing and expertise among tax officials. Similarly, the automation of budget payments using digital technologies is associated with more budget transparency. Our analysis suggests that digitalization is generally associated with an improvement in the efficiency of expenditure.
Digitalization can also improve the effectiveness of social spending and the quality of public service delivery. Digital interventions, such as providing students with equipment and software, can improve education outcomes. In healthcare, govtech can help improve quality of care, increase the coverage of underserved populations, and optimize resource utilization. Electronic health records, telemedicine, and digital platforms for patent licensing, procuring medicine, and monitoring infectious diseases are areas of digital innovation in health care.
Digitalization can also help strengthen social safety nets through better identification, verification of eligibility, and provision of delivery mechanisms. For example, integrating digital ID and creating extensive socio-economic data can enable governments to better target and accurately verify beneficiaries receiving social assistance.
But these benefits from digitalization can materialize only if it is done right. Implementing large digitalization programs is a complex undertaking and requires careful planning, adequate resources, political support, and appropriate change management processes. Digitalization may require changes in regulations and established processes, adequate staffing and expertise among officials, and strong safeguards for data security and privacy to protect sensitive information. Without adequate safeguards, implementing complex digital solutions could even be counterproductive and facilitate corruption.
By adopting an approach to digitalization where citizens’ needs are the primary focus and engaging in close collaboration with stakeholders, govtech can help overcome these challenges and unlock its full potential to enhance public services for society. The IMF stands ready to support countries through its capacity development in implementing govtech solutions for public finance.

Authors: David Amaglobeli, Ruud de Mooij, Mariano Moszoro
Compliments of the IMF

The post IMF | Harnessing GovTech to Tax Smarter and Spend Smarter first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Policy brief by John Springford , Sander Tordoir | Published 12 June 2023.

CER study raises concerns about wasteful European subsidies, as shipping costs increasingly discourage imports from faraway countries

European policy-makers are worried about losing out to subsidised production in the US and China in the booming global market for green technologies. A new CER policy brief, ‘Europe can withstand American and Chinese subsidies for green tech’, shows that the EU can be competitive in green goods and should use subsidies to producers with caution.
According to the analysis, the EU has a sizeable share of global exports in green goods, although not as large as China’s – and the US is languishing behind both. China’s share of global exports in ‘low carbon technology (LCT)’ goods has exploded, from 23 per cent in 2019 to 34 per cent last year, but the EU’s share has also grown from 19 per cent to 23 per cent last year, while the US is stuck on 13 per cent of the global market.
The CER also shows that the EU should continue to excel in domestic production of some of these green technologies, because supply chains are shortening as technologies mature, and companies are expanding production nearer to consumers to reduce shipping costs. Across six key categories of green goods that are at the heart of US, Chinese and EU green industrial policy (electric vehicles, batteries, heat pumps, solar, wind turbines and electrolysers), the pull of geographical distance on trade increased significantly in almost all cases between 2017 and 2022. For example, for every 1 per cent increase in distance between two trade partners, exports of electric vehicles fell by 1.3 per cent in 2022, up from 0.9 per cent in 2017.
The EU should be cautious about directly subsidising green production, as the US and China are doing. In a world where distance between trade partners is increasingly important, and where markets for green technologies are rapidly maturing, money will be put into companies that would have robust demand for their products anyway. A subsidies race may also distort the EU single market, weaken incentives to innovate, and create excess production capacity, while any protectionist backlash risks slowing the green transition by driving up the prices of inputs that the EU needs to decarbonise.

Commenting, one of the report’s authors, John Springford, said: “The market for many green goods are nascent, and it is unsurprising that the EU’s policies to cut emissions has led to skyrocketing demand for green tech that EU manufacturers cannot yet fulfil – but they will over time.”
Sander Tordoir, the other author, said: “The EU should focus its subsidies on sectors where short-term help is needed to help infant European industries achieve scale, such as hydrogen, and to avoid dependencies on other countries in markets for goods in which global oligopoly or duopoly might arise, like wind turbines.”
SUMMARY OF THE RESULTS:

In the global market for green technologies, many European countries are worried about losing out to subsidised production in the US and China. However, the EU has a sizeable share of global exports in green goods, although not as large as China’s – and the US is languishing behind both.
Across six categories of green goods that are at the heart of US, Chinese and EU green industrial policy (electric vehicles, batteries, heat pumps, solar, wind turbines and electrolysers), in almost all cases the negative impact of geographical distance on trade increased significantly between 2017 and 2022. The EU should continue to excel in domestic production of some of these green technologies, because supply chains are shortening as technologies mature, and companies are expanding production nearer consumers to reduce shipping costs.
All this suggests that the EU should be cautious about directly subsidising green production, as the US and China are doing. In a world where distance between trade partners is increasingly important, and where markets for green technologies are rapidly maturing, money will be put into companies that would have robust demand for their products anyway. A subsidies race may also distort the EU single market, weaken incentives to innovate, and create excess production capacity. Any protectionist backlash from other trade partners could slow the green transition by driving up the prices of inputs that the EU needs in order to decarbonise.
The EU should focus its subsidies on sectors where short-term assistance is needed to help infant European industries, such as hydrogen, achieve scale. It should also prioritise support to markets for goods, like wind turbines, in which a global oligopoly or duopoly is likely to arise, and in which a dependence on China would be risky. That way, the EU will help new businesses to grow while minimising handouts to those that do not need them.

Download the  complete report here.

Compliments of the Centre for European Reform  CER.

The post CER Policy Brief | Europe can withstand American and Chinese subsidies for green tech first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Blog post by Luis de Guindos, Vice-President of the European Central Bank | Moving towards carbon neutrality as quickly and boldly as possible is by far the best way to slow down climate change. It may take more effort in the short run, but in the long run it will cost less overall, says ECB Vice-President Luis de Guindos. We need to reach carbon neutrality to avoid existential risks to nature, people and our economies. And we need to start making changes soon. Procrastinating may be easier and less costly today, but means we will pay a higher price tomorrow: the damage to our environment and economies from rising temperatures will be much more severe. In fact, the sooner and faster we complete the necessary green transition, the lower the overall costs and risks. This is one of the main outcomes of our second economy-wide climate stress test. Let me talk you through the findings.
The ECB economy-wide climate stress test is a tool that allows us to measure the future impact of climate risk on companies, households and the financial system. Its top-down modelling ensures a harmonised approach and provides unprecedented coverage of companies and financial institutions in the euro area.[1] It uses granular datasets, particularly data on firms’ geographical location and their greenhouse gas emissions. This allows us to identify firms that are vulnerable to transition and physical risk across sectors and regions. The results of the first ECB economy-wide climate stress test exercise were published in September 2021.[2] The first exercise focused on how physical and transition risks increase the probability of companies defaulting on their debt. It showed that the short-term costs of an early green transition are always more than offset by the long-term benefits of avoiding the physical risks of a “hot house world” in which the green transition does not happen.
This second economy-wide climate stress test exercise builds on the previous one, but also focuses on the timing and ambition of transitioning towards net zero and its financial consequences for companies and households in the context of a changing macroeconomic environment. More specifically, it asks two questions. Given today’s circumstances, what are the costs and risks associated with a transition to net-zero emissions in the short and medium-term? And what impact would the different transition pathways have on the economy and the financial system?
What’s new in our top-down climate stress testing framework
We have upgraded and added several features to our stress testing framework since 2021. First, we have constructed new short-term transition scenarios based on the climate scenarios of the Network for Greening the Financial System.[3] Second, we have developed new climate risk models that account for recent developments in the European energy sector, particularly the increase in energy prices triggered by Russia’s invasion of Ukraine. Third, we have calculated the investment needed to successfully transition towards net-zero emissions in a more granular way.
We designed three transition scenarios covering the period until 2030. The “accelerated transition” scenario assumes a jumpstart of the transition with rapid and severe increases in energy prices. Investment in renewable energy sources in the short term leads to a reduction in emissions by 2030. This would be compatible with the long-term temperature targets of the Paris Agreement (+1.5°C increase relative to pre-industrial levels).
In the other two scenarios, current macroeconomic and geopolitical conditions lead to a delay in green transition efforts until the end of 2025. In the “late-push transition” scenario, the green transition starts in 2026 and is intense enough to achieve emission reductions by 2030. The expected results are comparable to those in the accelerated transition, but they come at a higher cost, as the policies needed to achieve them are more ambitious and abrupt. In the “delayed transition” scenario, the transition also starts in 2026 but is more gradual and slower than in the late-push transition. It is therefore not ambitious enough to achieve emission targets in line with the Paris Agreement goals by 2030.
The green transition and potential ways forward
Under the three scenarios, how would greenhouse gas emissions, global temperatures and investment efforts develop? Chart 1, panel a) shows the historical and projected emission pathways compared with a baseline scenario that assumes that nothing will be done beyond currently implemented policies. In the long term the temperature increase in the delayed transition scenario is substantially higher than in the other two scenarios at 2.6°C compared with 1.5°C relative to pre-industrial levels. A delayed transition is therefore expected to lead to much higher physical risk in the long term via more frequent and more intense wildfires and floods than we are already currently experiencing.[4]
The transition towards net zero requires substantial investment in energy-efficient and renewable energy, such as solar and wind energy, as well as in phasing out fossil fuels. Chart 1, panel b) presents the total required investment based on bottom-up estimates for the three scenarios. An accelerated or late-push transition would require companies and households to invest significant funds from the very start of the transition, with green investment adding up to around €3 trillion by 2030. Under the delayed transition, the reduced efforts made until 2030 would result in a smaller increase in the funds needed. However, emission reductions would be lower and accompanied by heightened physical risk in the long term owing to the failure to meet the net-zero target of the Paris Agreement.

Chart 1
Emission pathways and green investment required in the three transition scenarios

Source: ECB calculation based on Orbis, Urgentem, Eurostat, NGFS and International Renewable Energy Agency (IRENA; 2021).
Notes: In panel a), historical aggregated data on emissions are provided by the European Environment Agency and are available until 2020. Quarterly emissions data for 2021 and 2022 are taken from Eurostat and aggregated at yearly frequency to complete the timeseries. Temperature increases refer to the year 2100. Emission pathways until 2050 correspond to the NGFS’s Net Zero 2050 (+1.5°C), the nationally determined contributions (NDC) scenario (+2.6°C) and current policy scenario (>+3°C). In panel b), green investment consists of investment in: i) renewable-based energy, and ii) carbon mitigation activities. Cumulated green investment is based on bottom-up estimates for the 2.9 million European non-financial corporations covered in the climate stress test exercise.

The short and medium-term financial impact of transition risk
The results of the second exercise show that an accelerated transition scenario would lead to the lowest financial risk and lowest long-term physical risk. In all three scenarios, the probability of default of banks’ loan portfolios increases in the short term owing to transition risk (Chart 2, panel a). The accelerated and delayed transitions would lead to similar risk levels by 2030, but banks’ credit risk is expected to increase further in the delayed transition after 2030 because physical risk will develop more severely in the long term.
A late-push transition would be the most severe in the medium-term because of the higher costs of the green transition and the greater impact on companies’ profitability and debt. Expected losses in 2030 under the late-push transition would be almost double those under a baseline scenario (with no further transition risk). A late-push transition would be particularly detrimental for those banks most vulnerable to transition risk. Such banks could face expected losses of 2% of their loan portfolios[5] compared with losses of only 1% for the median bank.
The impact of the green transition will differ greatly across economic sectors (Chart 2, panel b). Energy-intensive sectors such as mining, manufacturing and electricity will experience the strongest effects on their credit risk because they produce the highest emissions and, as such, will come under the most pressure to reduce their carbon footprint and invest in renewable-based energy sourcing and production (particularly the electricity sector).

Chart 2
Accelerated transition leads to lower credit risk and is aligned with the Paris Agreement goals

Source: ECB calculations based on Orbis, Urgentem, Eurostat, NGFS, International Renewable Energy Agency (IRENA; 2021) and Intergovernmental Panel on Climate Change (2022).
Notes: Panel a) shows the median probabilities of default (PDs) of corporate loan portfolios and total expected losses of significant banks in the euro area. Corporate loan portfolio PDs are calculated as the average borrower-level PD, weighted by their loan size. The baseline scenario comprises NGFS current policies only, with no additional transition risk, and serves as a benchmark scenario. In panel b), tail changes represent percentage point changes in borrower-level PDs for the 75th percentile firm in each sector and scenario. ICT stands for the Information and Communication Technology sector.

Green policy measures to achieve net zero
Financing the transition towards a carbon-neutral economy is one of the most pressing challenges facing Europe today. The results of the new climate stress test exercise show that the earlier the transition happens, the lower the costs and risks for the economy and financial system. The effective and coordinated mobilisation of green finance is more necessary than ever to support the European Union’s efforts to take the lead in the transition towards net zero. Here are some of the policy measures that will help achieve this goal.

Phasing out fossil fuels – moving away from high emission and polluting energy sources towards renewable-based energy is essential to achieve the Paris Agreement goal of net-zero emissions. Carbon policies, if well-designed, can compress the demand for fossil fuels and stimulate the production of cheaper renewable energy sources, while containing inflationary pressures.[6]

Filling the green investment gap – firms would greatly benefit from progress towards a capital markets union (CMU), which would help them undertake the massive amounts of green investment required. The CMU would facilitate cross-border access to funds, strengthen risk-sharing, avoid fragmentation and foster integration[7]. There is a need for sustainable finance products, such as green loans and bonds, and funds with environmental, social and governance standards. It is also important to prevent the “greenwashing” of funds.[8]

Setting up reliable transition plans – companies and financial institutions need to align their business models and operations with transition targets. This requires immediate and long-term planning in the form of credible and transparent transition plans. To further foster the green transition, transition plans compatible with EU policies implementing the Paris Agreement should become legally binding and publicly disclosed.[9]

Designing prudential climate tools – the green transition is a potential source of systemic risk, as certain regions are more vulnerable to climate risks with potential spillover effects across sectors and to the financial system. We therefore need tools to address such risks, involving both microprudential and macroprudential measures.[10]

Conclusion
The first top-down economy-wide climate stress test showed that the short-term costs of an early green transition are always more than offset by long-term benefits stemming from the reduced physical risks. By including new elements in the original framework and focusing on transition risk over the next eight years, the second climate stress test exercise shows that acting immediately is more effective and comes at a lower cost in terms of financial stability, transition costs and physical risks. Early and strong policy action – designed properly and implemented timely – is required to mobilise funds for green investments and to support Europe’s transition towards a carbon-neutral economy. If we act now, it will be better all round – for nature and our economies. Let’s take the fast-track to Paris before it is too late.
Compliments of the European Central Bank.The post ECB | Need for speed on the Road to Paris first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.