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Russia-Europe: Nothing New on the Western Economic Front?

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Since the autumn of 2020, the “Navalny Factor” has dominated the public and political discourse on Russia-EU relations. This factor fitted snugly into Brussels’ system of values that defines Europe’s principal approaches to its largest partner in the post-Soviet space. The nadir in the political dialogue was reached in October 2020, with the European Union adopting anti-Russian chemical cyber sanctions; November–December saw a period of somewhat smoothing out the particularly sharp angles. Yet, this was followed by Alexey Navalny’s return to Moscow from Berlin in January 2021, his subsequent arrest and several court sentences passed on him, as well as what Brussels deems a largely failed Moscow visit of Josep Borrell, High Representative of the Union for Foreign Affairs and Security Policy. All this doomed Russia–EU relations to an even deeper low. In early March 2021, the “insulted and injured” EU Ministers of Foreign Affairs spearheaded the adoption of new restrictive measures in the Council of the European Union as part of the Framework of Global Human Rights Sanctions Regime instituted on December 7, 2020. In addition, Charles Michel, President of the European Council, announced an upcoming revision of the EU’s strategic approach to Russia.

Frozen dialogues

The pressing political crisis backgrounded economic relations that had traditionally formed one of the key foundations of Europe–Russia relations. Nord Stream 2 was an exception, as many in the European establishment are attempting to turn this commercial project into an instrument for putting political pressure on the Kremlin.

Seven years ago, in the spring of 2014, Brussels one-sidedly froze the principal mechanisms of its economic and political collaboration with Russia, including bilateral summits, a number of sectoral/industrial dialogues, and inter-governmental consultations between EU member states and Russia. Additionally, stiff sectoral sanctions were imposed on several leading Russian financial and industrial entities. The well-known Mogherini guiding principles adopted in March 2016 became, in Andrey Kortunov’s opinion, something of the lowest common denominator for the diverse standings of EU members, as these principles enshrined a compromise between hard- and soft-liners in managing relations with Russia. The main economic issues were hidden behind the concepts of “selective engagement” and “bolstering internal stability”. In the summer of the same year, Sergey Lavrov proposed auditing the relations with a view to finding which connections would allow to restore constructive cooperation. Five years later, this proposal still elicits no response from his European colleagues. Ultimately, Russia’s Ministry for Foreign Affairs began to describe the European Union as an “unreliable partner” that bases its approaches to Russia on its short-term interests. Apparently, this applies to the economic area as well, including the Eurasian Economic Union track.

Bilateral cooperation

Over recent years, economic cooperation has mostly shifted to Russia working with individual EU states, primarily those forming the backbone of its economic potential: Germany, the Netherlands, Italy and France. These four countries [1] account for over half the mutual foreign trade that, together with investments, constitute the foreign economic framework of Russia–EU relations. Despite exports and imports significantly dropping from USD 262 bn in 2019 to USD 192 bn in 2020, the EU remains Russia’s leading partner, ahead of China. Its 27 states (without the UK) now account for 37% of Russia’s trade turnover (42.5% in 2019, over 50% in 2013), while China accounts for 20% (18% in 2019, about 11% in 2013). The commodity composition has not changed much since 2014: in exchange for primary and secondary energy sources, Russia receives machinery and equipment. The restrictive measures did have a negative impact on mutual trade but it was rather limited. Actors from other states, particularly from Southeast Asia, are successfully moving into the sanctions-affected segments. Russia’s sluggish economic and political reforms remain a traditionally negative factor. Russia never accumulated a critical mass of competitive small- and medium-sized businesses. In addition to red tape and corruption, European business complains of protectionism and of the Russian authorities demanding product localization and import substitution. 2020 saw added complaints that anti-COVID lockdown restrictions hindered cross-border travel for highly skilled professionals.

Transport and logistics offer good prospects for joint activities. In 2020, despite the pandemic and despite disruptions in global supply chains in the spring, European and Russian companies managed to expand their co-operation‒primarily in providing rail and truck container shipping. Russia’s objective advantages as an overland transit space between China and Europe lay the foundations for a long-term cooperation within China’s Belt and Road Initiative. Cooperation in using transport routes via the Arctic Ocean shows promise as well.

As the number of European economic entities in Russia’s economy shrinks [2] during the 2020 pandemic in particular, EU companies have continued to invest directly in Russia. The number of Russian investors in EU states is also gradually rising. Unfortunately, there is no reliable data broken down by their quantitative, cost, sectoral and regional structure. Recent high-profile deals include founding the Wintershall Dea energy concern in Germany, 33% of which is owned by a Russian partner. Total accumulated FDI of EU companies in Russia is about three times Russia’s investment in Europe.

Being a commercial project, Nord Stream 2 remains the most significant stumbling block in Euro-Atlantic and intra-EU relations alike. Even though most EU politicians and experts recognize the project’s importance for European energy security and sovereignty, hardliners support the American extra-territorial sanctions and continue to insist that the project be shut down [3].The key context is grounded in the need to continue transit shipping of the bulk of Russian gas via Ukraine as a guarantee of the latter’s treasury continuing to receive foreign currency payments from Gazprom and of its gas pipeline system’s modernization. The arguments used here focus on the need to maintain European solidarity and counter “the Kremlin’s gas aggression and uncontrolled expansion.”

The energy track shows a particular need for resuming full-fledged Russia–EU relations. As of today, the Gas Advisory Council (GAC) is represented by expert Work Stream 2, “Internal markets”, co-chaired by Andrey Konoplyanik for Russia and Wim Groenendijk for the EU (established in 2011 to reduce infrastructural and regulatory risks in bilateral gas relations). Two other GAC work streams (“Long-Term Gas Scenarios” and “Outlooks and Developing Gas Transportation Infrastructure”) have virtually stopped working. At the same time, trilateral Russia–EU–Ukraine talks on Russian gas deliveries and transit via the Ukrainian gas pipeline system were launched in May 2014. In 2019, the participants reached a new five-year transit agreement.

“Green” challenges and economic cooperation opportunities

In December 2019, the EU adopted the European Green Deal, a strategy determining the parameters for transitioning to a new energy paradigm by 2050. This paradigm will largely inform the way the EU will interact with Russia in the coming decades. In 2020, the European Commission adopted additional documents setting forth specific directions of the new course in industrial policies and digital transformation, in hydrogen energy, critically important raw materials, energy-efficient construction and building modernization, the closed-cycle economy, agriculture and forestry, and biodiversity. The particulars are still being actively discussed in the European political and expert communities. In 2021–2022, a new legal framework will be adopted and requisite mechanisms launched on the basis of these discussions.

All the areas announced in the New Green Deal open new avenues for European and Russian economic entities in implementing various cooperation projects. Hydrogen energy in all its aspects appears to be the most intelligible area in terms of possible co-operation. These aspects include manufacturing, storing, transporting and using environmentally-friendly hydrogen, which, in Russia’s view, includes not only green but also blue, turquoise and yellow Н2. Last summer, the Eastern Committee of the German Economy (ECGE) and the Russian-German Foreign Trade Chamber (RGFTC) protested against Russia not having been mentioned in the German and European hydrogen strategies. These actions triggered movement and, by the autumn of 2020, a discussion had been launched on a series of bilateral entrepreneurial projects. Germany’s Federal Ministry for Economic Affairs and Energy and Russia’s Ministries of Energy and of Industry and Trade launched informal contacts in the area. Despite operational difficulties in using Н2 and hydrogen technologies, the Russian-German initiative has good prospects for promoting joint projects on the EU market, including the European Clean Hydrogen Alliance [4] In addition to big reserves of methane and fresh water, besides major surplus capacities of low-carbon hydropower plants and nuclear power plants generating cheap energy, coupled with the significant potential of renewable energy sources and unique Russian know-how (such as research conducted by the Technological Hydrogen Valley consortium established in November 2020), European stakeholders are interested in using Gazprom’s existing pipeline and storage infrastructure as well as in deliveries of various equipment, including that for hydrogen electrolysis and pyrolysis. In mid-February 2021, Denis Manturov, Russia’s Minister for Industry and Trade, speaking at a conference on Russia-Germany strategic cooperation, announced the intention to put hydrogen technologies on the list of priorities for second-generation special investment contracts.

Russia is extremely wary (adopts a de-facto negative stance) of the “carbon border adjustment mechanism” that entails imposing a tax on the “carbon footprint” of imported goods as part of the energy transition, which could result in multi-billion losses for Russian exporters of oil, gas, coal, steel and several other “carbon-intensive goods.” Moscow still has a chance to stand up for its interests, though the window for action is very small. It might be expedient to establish specialized expert groups on the issue, both in Russia and at the level of international multilateral dialogue, including by submitting the results of the discussion to the relevant UN agencies, including UNIDO and UNCTAD.

Let us note as an aside that the European Union is continuing to collaborate with Russia on a series of initiatives as part of long-term partnerships in climate and the environment: these are cross-border cooperation, the Northern Dimension programs, and partnerships for implementing the Paris Accords. Specific projects, including those in waste disposal and processing, wastewater treatment, increasing energy efficiency, entail equipment deliveries from the EU, which creates the prerequisites for cooperation in these areas. Bilateral initiatives implemented by Germany’s Federal Ministry for the Environment, Nature Conservation and Nuclear Safety and Russia’s Ministry for Natural Resources and the Environment also hold a special place in this process. These projects are, for instance, “Climate-neutral economic activities: introducing best available technologies (BAT) in the Russian Federation”, “Climate-neutral waste management” and “Peat bog restoration in Russia with a view to preventing fires and mitigating climate change”. In 2019, the parties agreed to resume the activities of the Russian-German Coordination Council on Environmental Protection. The German-Russian Agricultural and Political Dialogue has never ceased its activities; among other things, it works on forestry-related interactions.

Prospects

Another positive note is that Russian academic bodies can continue their collaboration with their EU partners under the 9th EU research and innovation framework program Horizon Europe, which runs until 2027. Some of the results obtained (such as in medicine, IT, digital, hydrogen and other technologies) might ultimately be put to commercial use. This applies fully to bilateral cooperation as well, for instance, cooperation with Germany: in late 2018, implementation was launched of a ten-year roadmap for academic and educational partnership.

Despite the evidently crying need to resume sectoral dialogues between Russia and the EU, this is unlikely to happen in the near future. The principal reason for this is a deep value-based conflict and a lack of progress in implementing the Minsk Agreements, which makes it impossible to put on the agenda the issue of lifting or at least mitigating the many restrictive measures introduced by the EU. In the near future, economic interaction will still be based on market entrepreneurial cooperation that partly relies on government and regional support instruments as well as on bilateral inter-agency mechanisms (such as the Russian-French Council for Economic, Financial, Industrial, and Trade Matters (CCIFR) and the Russian-German High-Level Working Group on Strategic Cooperation in Economy and Finance (JWG)).

An important role is played by interest groups; the above-mentioned Germany ECGE and RGFTC are traditionally seen as the most advanced of these. In addition to their own existing lobbying mechanisms, which have acquitted themselves well, in December 2020 these groups spearheaded the establishment of a German-Russian Economic Council. The French-Russian Chamber of Commerce and Industry, the Economic Council of French and Russian Enterprises, and the Russia-France Business Cooperation Council represent the interests of French companies, while Italian businesses are represented by the Italian-Russian Chamber of Commerce, with the European Business Association [5] standing for European businesses.

Russian business operating in the EU is essentially disorganized and can only count on the Russian state for support. We are mostly talking about Trade Missions, which were transferred in 2018 from the purview of the Ministry for Economic Development to that of the Ministry of Industry and Trade. Currently, the difficult process of reforming them is under way, and it will show whether they will be able to fit into the system that supports market interests of Russian businesses‒small- and medium-sized in particular‒on international markets, including those of Europe. We believe the activities of the Trade Mission in Berlin deserve special attention. On 6 May, it will celebrate its centennial. It has been active in introducing new instruments for co-operation with Russian economic actors. Internationally-based bodies of the Russian Export Centre are only now finding their way around European countries and seeking their niche in this area.

The current level of Russia’s bilateral interaction with EU states could advance preservation of their present potential and help achieve progress in some cooperation niches, including the European Green Deal. Russia’s negative image in the European media remains a powerful hindrance. This image is being formed, among other things, by the decisions of the European Council, including prolongation of existing sanctions and imposition of new ones. This picture makes small- and medium-sized businesses more wary of possible business ties with Russia and indefinitely postpones their willingness to establish contacts. Joint state formats, such as the Russian-French Cross Year of Regional Cooperation (2021), the Year of Germany in Russia (2020–2021) and the Russian-German Cross Year of Economy and Sustainable Development (2020–2022) are intended for countering these negative trends.

No breakthrough in Russia’s economic and political cooperation with EU states should be expected in 2021–2022. Co-operation dynamics will be informed by the EU’s successes in combating the coronavirus pandemic and by possible positive signals from the Russian regions to European and Russian business concerning planned steps for improving the framework state of the economy. As of the early spring of 2021, European entrepreneurs were mostly pessimistic. For instance, while the German business community positively assessed the prospects for their economic cooperation with China, the US and the Eurozone (a poll conducted by the German Chamber of Commerce and Industry (DIHT)) (with figures of +15, +11 and +6 points for bottom line expectations), the prospects for cooperation with Russia were mostly viewed negatively (-19 points). Unlike their parent companies, the top management of their Russian subsidiaries were more optimistic in late 2020 about the prospects for working in Russia (a poll conducted by the ECGE and the RGFTC). They particularly noted the importance of and the need for the EU to co-operate more closely with Russia on such matters on the bilateral agenda as industrial modernization and increased efficiency, waste processing and management, energy and climate, alignment of rules and standards. It is noteworthy that the respondents did not view such areas as space, mobility, and production of natural resources in 2021 as particularly significant.

In conclusion, I would like to refer to the opinion of Oliver Hermes, Head of the Eastern Committee of the German Economy, expressed at the 24th Potsdam Meetings in mid-November 2020 to the effect that only a powerful joint economic space stretching from Lisbon to Vladivostok would allow German and, consequently, European industry to pool the technological know-how and market potential of Western and Eastern Europe and Central Asia and become the leader in digital and green technologies in the future. He believes that specialized institutions need to be established right now to launch EU-EAEU talks on a single market. Yet, the signal sent to Brussels during Germany’s presidency of the Council of the European Union has so far fallen on deaf ears of the European Commission. Apparently, the time for a constructive response has not yet come.

From our partner RIAC

1. Germany is the backbone partner in Russia-EU relations who largely defines their qualitative and quantitative contents.

2 For instance, there were 4,274 legal entities with German capital in 2019, with 3,971 in 2020.

3 It appears that the EU failed in its attempts to introduce an effective mechanism for counteracting third countries’ extra-territorial sanctions by late 2020. See also Ivan Timofeev’s opinion.

4 Russian companies’ experience of interacting with the European Clean Hydrogen Alliance is interesting in terms of the participation by Russian actors in other similar alliances with the status of an “Important Project of Common European interest” (IPCEI)

5 The EU–Russia Industrialists Roundtable Association was established in 1997 and was active until 2014. It held its last events in 2015. Apparently, its participants are not interested in restoring this once-effective mechanism for discussing existing problems and possible solutions to them.

Ph.D in Economics, Deputy Director of the RAS Institute for Europe, Head of the Country and Regional Researches Department, Head of the German Research Center

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Carbon Market Could Drive Climate Action

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Authors: Martin Raiser, Sebastian Eckardt, Giovanni Ruta*

Trading commenced on China’s national emissions trading system (ETS) on Friday. With a trading volume of about 4 billion tons of carbon dioxide or roughly 12 percent of the total global CO2 emissions, the ETS is now the world’s largest carbon market.

While the traded emission volume is large, the first trading day opened, as expected, with a relatively modest price of 48 yuan ($7.4) per ton of CO2. Though this is higher than the global average, which is about $2 per ton, it is much lower than carbon prices in the European Union market where the cost per ton of CO2 recently exceeded $50.

Large volume but low price

The ETS has the potential to play an important role in achieving, and accelerating China’s long-term climate goals — of peaking emissions before 2030 and achieving carbon neutrality before 2060. Under the plan, about 2,200 of China’s largest coal and gas-fired power plants have been allocated free emission rights based on their historical emissions, power output and carbon intensity.

Facilities that cut emissions quickly will be able to sell excess allowances for a profit, while those that exceed their initial allowance will have to pay to purchase additional emission rights or pay a fine. Putting a price tag on CO2 emissions will promote investment in low-carbon technologies and equipment, while carbon trading will ensure emissions are first cut where it is least costly, minimizing abatement costs. This sounds plain and simple, but it will take time for the market to develop and meaningfully contribute to emission reductions.
The initial phase of market development is focused on building credible emissions disclosure and verification systems — the basic infrastructure of any functioning carbon market — encouraging facilities to accurately monitor and report their emissions rather than constraining them. Consequently, allocations given to power companies have been relatively generous, and are tied to power output rather than being set at absolute levels.

Also, the requirements of each individual facility to obtain additional emission rights are capped at 20 percent above the initial allowance and fines for non-compliance are relatively low. This means carbon prices initially are likely to remain relatively low, mitigating the immediate financial impact on power producers and giving them time to adjust.

For carbon trading to develop into a significant policy tool, total emissions and individual allowances will need to tighten over time. Estimates by Tsinghua University suggest that carbon prices will need to be raised to $300-$350 per ton by 2060 to achieve carbon neutrality. And our research at the World Bank suggest a broadly applied carbon price of $50 could help reduce China’s CO2 emissions by almost 25 percent compared with business as usual over the coming decade, while also significantly contributing to reduced air pollution.

Communicating a predictable path for annual emission cap reductions will allow power producers to factor future carbon price increases into their investment decisions today. In addition, experience from the longest-established EU market shows that there are benefits to smoothing out cyclical fluctuations in demand.

For example, carbon emissions naturally decline during periods of lower economic activity. In order to prevent this from affecting carbon prices, the EU introduced a stability reserve mechanism in 2019 to reduce the surplus of allowances and stabilize prices in the market.

Besides, to facilitate the energy transition away from coal, allowances would eventually need to be set at an absolute, mass-based level, which is applied uniformly to all types of power plants — as is done in the EU and other carbon markets.

The current carbon-intensity based allocation mechanism encourages improving efficiency in existing coal power plants and is intended to safeguard reliable energy supply, but it creates few incentives for power producers to divest away from coal.

The effectiveness of the ETS in creating appropriate price incentives would be further enhanced if combined with deeper structural reforms in power markets to allow competitive renewable energy to gain market share.

As the market develops, carbon pricing should become an economy-wide instrument. The power sector accounts for about 30 percent of carbon emissions, but to meet China’s climate goals, mitigation actions are needed in all sectors of the economy. Indeed, the authorities plan to expand the ETS to petro-chemicals, steel and other heavy industries over time.

In other carbon intensive sectors, such as transport, agriculture and construction, emissions trading will be technically challenging because monitoring and verification of emissions is difficult. Faced with similar challenges, several EU member states have introduced complementary carbon taxes applied to sectors not covered by an ETS. Such carbon excise taxes are a relatively simple and efficient instrument, charged in proportion to the carbon content of fuel and a set carbon price.

Finally, while free allowances are still given to some sectors in the EU and other more mature national carbon markets, the majority of initial annual emission rights are auctioned off. This not only ensures consistent market-based price signals, but generates public revenue that can be recycled back into the economy to subsidize abatement costs, offset negative social impacts or rebalance the tax mix by cutting taxes on labor, general consumption or profits.

So far, China’s carbon reduction efforts have relied largely on regulations and administrative targets. Friday’s launch of the national ETS has laid the foundation for a more market-based policy approach. If deployed effectively, China’s carbon market will create powerful incentives to stimulate investment and innovation, accelerate the retirement of less-efficient coal-fired plants, drive down the cost of emission reduction, while generating resources to finance the transition to a low-carbon economy.

(Martin Raiser is the World Bank country director for China, Sebastian Eckardt is the World Bank’s lead economist for China, and Giovanni Ruta is a lead environmental economist of the World Bank.)

(first published on China Daily via World Bank)

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The EU wants to cut emissions, Bulgaria and Eastern Europe will bear the price

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In the last few years, the European Union has been going above and beyond in dealing with climate change. Clearly, this is far from being a case of disinterested endeavour to safeguard the planet and the environment. On the contrary, the EU’s efforts aim at reinforcing its “normative power”.  In effect, the EU has gained some clout on the international stage, even vis-à-vis faraway countries like Vietnam and China. Yet, in doing so the Union embroiled in the apparent rush for more and more ambitious climate standards and targets. Therefore, Brussels needs to start acting and deliver on its promises to keep staying ahead of the pack. Even more so given US President Biden’s strengthened engagement with friends and foes alike on the climate and human rights.

Last week, the European Commission manifested its acknowledgment of this need by unveiling the Fit for 55 (FF55) growth strategy. Overall, this new, beefed-up Green Deal should reduce greenhouse gas emissions to 55% of their 1990 level by 2030. In some analysts’ view, the FF55 plan is a game changer in the long-term race towards climate neutrality alas. In fact, it could “both deepen and broaden the decarbonisation of Europe’s economy to achieve climate neutrality by 2050.” Moreover, they expect the FF55’s 13 measures to generate a number of positive ripple effects across EU economies.

True, wanting to reduce greenhouse gases significantly by 2030 and reaching net-zero-emission by 2050 goal is commendable under many regards. Still, the FF55 includes a number of measures that could impact ordinary people’s life massively across Europe. Nevertheless, the 27 Member States of the EU are responsible for as little as 8% of global emissions. As such, it is necessary to take a deeper look at how the FF55 will affect different countries and demographics.

The transition’s social cost

The realisation that reduction of capitalism’s dependence on fossil fuels will have serious socio-economic consequences is not at all new. Contrariwise, scholars and politicians have been outspoken about an indisputable “conflict between jobs and the environment”, since the early 1990s. Together, the pandemic-induced recession and the signing of the Paris Accord have brought the notion back on the centre stage.

Factually, pushing the energy transition entails facing mass lay-offs, generalised workforce retraining and taxes hikes on ordinary consumers. For instance, these hardships’ seriousness is evident in the progressive abandonment of coal mining for energy generation in the US. Moreover, the energy transition requires strong popular backing in order to be effective. Yet, measures pursued to achieve environmentally friendly growth tend to generate strong, grassroot opposition. Most recently, France’s gilets jaunes protests shows that environmental policies generate social discontent by disfavouring middle and lower classes disproportionately.

The poorest families and countries will bear the costs

One of the FF55’s main policy innovation regards the creation of a carbon trading market for previously exempt sectors. Namely, companies working int the transport and buildings sectors, be they public or private, will have to follow new rules. As it happened in the energy industry before, each company will have to respect a “carbon allowance”. Basically, it is an ‘authorisation to pollute’ which companies can buy from each other — but the total cannot increase. Despite all claims of just transition, this and other measures will have a gigantic, re-distributional effect within and between countries. And it will be of markedly regressive character, meaning that poorer families and countries will pay more.

Taxing transport emission is regressive

Historically, these sectors were trailing behind most others when it comes to decarbonisation for a variety of reasons. First of all, the previous emission trading system did not include them. Moreover, these are far from being well-functioning markets. As a result, even if the cost of emissions was to rise, enterprises and consumer will not react as expected.

Thus, even as they face higher costs, companies will keep utilising older, traditional vehicle and construction technologies. With taunting reverberations on those poorer consumers, who cannot afford to buy an electric car or stop using public transport. Hence, they “will face a higher carbon price while locked into fossil-fuel-based systems with limited alternatives.” Moreover, the EU could worsen these effects by trying to reduce the emission fees on truck-transported goods. Indeed, the commission is proposing a weight-based emission standard that would collaterally favour SUVs over smaller combustion-engine car and motorbikes. 

In a nutshell, higher taxes and fee will strike lower-class consumers, who spend more of their incomes for transportation. Even assuming these households would like to switch to low-emission cars and buildings, current market prices will make it impossible. In fact, all these technologies ten to have low usage costs, but very high costs of acquisition. For instance, the cheapest Tesla sells at over €95,000, whereas a Dacia Sandero “starts at just under €7,000.”

Eastern Europe may not be willing to pay

At this point, it is clear that the FF55 plan will deal a blow to ongoing efforts to reduce inequalities. In addition, one should not forget that EU Member States are as different amongst them as they are within themselves. Yet, the EU is not simply going to tax carbon in sectors that inevitably expose poorer consumers the most. But in doing so it would impose a single price on 27 very diverse societies and economies. Thus, the paradox of having the poorest countries in the EU (i.e., Central- and South-Eastern Europe) pay the FF55’s bill.

To substantiate this claim, one needs to look no further than at a few publicly available data. First, as Figure 2 shows, there is an inverse relation between a country’s wealth and consumers’ expenditures on transport services. Thus, not only do poorer people across the EU spend more on transport, poorer countries do as well. Hence, under the FF55, Bulgarians, Croatians, Romanians and Poles will pay most of the fees and taxes on carbon emission.

Additionally, one should consider that there is also a strict inverse relation between carbon emissions and the minimum national wage. In fact, looking at Figure 3 one sees that countries with lower minimum wages tend to emit more carbon dioxide. On average, countries with a minimum salary of €1 lower emit almost 4.5mln tonnes of carbon dioxide more. But differences in statutory national wages explain almost 32% of the cross-country variation in emissions. So, 1.5 of those extra tonnes are somehow related to lower minimum salaries and, therefore, lower living standards.

The EU’s quest for a just transition: Redistribution or trickle down?

Hence, the pursual of a ‘just’ transitionhas come to mean ensuring quality jobs emerge from these economic changes. However, many of the FF55’s 13 initiatives may worsen disparities both within countries and, more importantly, between them. Thus, the EU has been trying to pre-empt the social losses that would inevitably come about.

From the Just Transition Fund to the Climate Social Fund

In this regard, the European Union went a step forward most countries by creating the Just Transition Fund in May. That is, the EU decided to finance a mix of grants and public-sector loans which aims to provide support to territories facing serious socio-economic challenges arising from the transition towards climate neutrality [… and] facilitate the implementation of the European Green Deal, which aims to make the EU climate-neutral by 2050.

Along these lines, the FF55 introduces a Climate Social Fund (CSF) that will provide “funding […] to support vulnerable European citizens.” The fund will provide over €70bln to support energy investments, and provide direct income support for vulnerable households. The revenues from the selling of carbon allowances to the transport and building sectors should fund most of the CSF. If necessary, the Member States will provide the missing portion.

The EU Commission may give the impression of having design the CSF to favour poorer households and countries. However, it may actually be a false impression. In fact, it is clear that the entire carbon pricing initiative will impact poorer household and countries more strongly. However, only a fourth of the carbon pricing system’s revenues will go to fund the CSF. The remaining portion will finance other FF55 programmes, most of which have a negative impact on poorer communities. Thus, despite the CSF, the final effect of the entire FF55 will be a net redistribution upwards.

Stopping a redistribution to the top

Nevertheless, there is a way to fix the FF55 so that it can work for poorer households and lower-income countries. Given that the CSF is too small for the challenge it should overcome, its total amount should be increased. In fact, the purpose of higher carbon pricing is in any event not to raise revenue but to direct market behaviour towards low-carbon technologies—there is thus a strong argument for redistributing fully the additional revenues

Hence, the largest, politically sustainable share of carbon-pricing revenues from transportation and housing should ideally go to the CSF. In addition, the Commission should remove all the proposed provision that divert CSF money away from social compensation scheme. In fact, poorer families will not gain enough from subsidies to electric car, charging stations and the decarbonisation of housing. One contrary, “using the fund to support electric vehicles would disproportionally favour rich households.”

Finally, the allocation of CSF money to various member states should follow rather different criteria from the current ones. In fact, the Commission already intends to consider a number of important such as: total population and its non-urban share; per capita, gross, national income; share of vulnerable households; and emissions due to fuel combustion per household. But these efforts to look out for the weakest strata in each country could backfire. In fact, according to some calculations, a Member State with lower average wealth and lower “within-country inequality could end up benefiting less than a rich member state with high inequality.”

Conclusion

A number of well-known, respected economist have been arguing that environmental policies should account for social fallouts attentively. Goals such as emission reduction and net-zero economies require strong popular support in order for the transformation to succeed. Or at least, the acquiescence of a majority of the public. Otherwise, the plans of well-intentioned and opportunistic governments alike will derail. After all, this is the main lesson of the currently widespread protest against the mandating of ‘Covid passes’ and vaccines.

If the FF55 will deal poorer households a devastating blow, social unrest may worsen — fast. But as long as it will also hurt Eastern European countries as a whole, there is a chance. Hopefully, European parliamentarians from riotous Hungary or Poland will oppose the FF55 in its current shape. Perhaps, in a few years everyone will be thankful for these two countries strenuous resistance to EU bureaucracy. Or else, richer countries may force Central- and South-Eastern Europe to swallow a bitter medicine. Even though, whatever happens, Europe alone cannot and will not save the planet.

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Entrepreneurialism & Digitalization: Recovery of Midsize Business Economies

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Observe nations around the world, especially those with the largest numbers of IT professionals, rich and well-groomed government departments and their related agencies, with matured bureaucracies and unlimited numbers of computers but still no signs of thriving digital economies buzzing on global platforms. What is so mysterious about digitization of small medium businesses, smoothly leading to ‘virtualization of economies’ creating global bounce of trade? Well, it is surrendering to the realization that entrepreneurialism is the main driving engine of such challenges and not the herds of IT teams, deluxe bureaucracies and accountancy-mindsets.

What is a digital economy? It is definitely not when all businesses have websites and are all doing social media postings, at the outset understanding  digitalization of a single enterprise is already a fine art, and to make it fly on global trade platforms is a science. Unless economic development teams can articulate, what is and how ‘virtualization of economies’ work, uplift and upskill vertical trade sectors and create an entrepreneurial bounce of trades’, the entire exercise of digitization might as well leave to early video game players or early grader IT personnel. Observe how The Silicon Valley and e-Commerce revolutions of the world never created by large IT teams, but categorically by “techie-entrepreneurs” of the day that in turn occupied millions of IT professionals and created hundreds of millions IT experts driving e-commerce of today. Of course, IT teams needed but in very reverse order.

Why is the digital economy an entrepreneurial economy?  Digitization of the economy is simply not an IT exercise rather a strategic entrepreneurial maneuver of placing a midsize business economy on wheels using easily available digital platforms with abundance of software to choose from to make right entrepreneurial-based decisions to create creative bounce. The survival strategies for the post pandemic economies have less to do with accountancy-mindsets and bureaucratic attitudes, as it is all about entrepreneurial global age execution with superior digital performances.

Calling Entrepreneurial Business Mindsets:  The new horizons beyond pandemic call for “simultaneous synchronization” a need to merge ‘mental-blocks’ the lingering ‘productivity-silos’ ‘digital-divides’ ‘mental-divides’ all such negative forces balanced with positive forces of ‘innovative excellence’ and ‘superior-performance’ thrown all in an entrepreneurial-blender to make a great progressive multi-flavored shakes. To mix and match with our realty checks of today and the blended calamites; Economy + SME + MFG + AI + VR + AR + Officeless + Remote + Occupationalism + Globalization + Exports + Upskilling, all in one single sandbox need progressive advancements with entrepreneurial guts and clarity of vision for any serious stable economic balance. If such were a monopoly game, printing of currency would be the norm.  

National Mobilization of Entrepreneurialism: Needed are deep studies of the prolonged trajectory of entrepreneurial intellectualism spanning a millennia… the word ‘entrepreneurialism’ was only invented over a century ago… but our civilization was built on similar principles, driven and strong people. Declare an economic revolution as a critical cure to desolate periods and call the nation but will they listen? With credibility of institution and political promises tanked, audible to the populace now is the grind of mobilizations, thundering deployments of action packed strategies, but how do you fund them? National mobilization of entrepreneurialism is the hidden pulse of the nation, often not new funding dependent rather execution hungry and leadership starved, so what makes it spin? Entrepreneurial warriors

As if a silent revolution mobilized, the nouveau entrepreneurialism in post pandemic economy in action, where talents on wings of digitalization, flying on trading platforms, visible in smart data and shining amongst upskilled midsize economies. Lack of upskilling, lack of global-age expertise, and most importantly lack of entrepreneurialism is what keeps digitization of economies lost in the past. How naïve is it to believe post-pandemic economic issues some PR singsong election campaigns? Only deployment, execution, mobilization will be the message now acceptable by the billions displaced, replaced and misplaced workers, but what is stopping nations, their Ministries and trade groups to have all out discussions and table immediate action plans? Ouch, do not forget the entrepreneurial blood in the economic streams, exciting the bureaucracies and accountancy-mindsets.  The next 100 elections over the coming 500 days will be full of surprises, but serious transformation for survival is inevitable, with or without upskilled ministries of commerce. Which nations and regions are ready to engage in this tactical battlefield of global-age skills?  Study how Expothon Africa is in deployments with selected countries.

The deciding factors: Never ever before in the history of humankind,the economic behaviorism across the world suddenly surrendered to a single calamity, affecting the majority of the global populace suffering in prolonged continuity. The side effect of such complexity juxtaposed with technological access can bring sweeping changes to our assumed complacency. All traditional problem solving and conventional thinking styles now considered too dangerous to economic growth and social balances.  

Recommendation and Survival Strategies: Discover and establish authoritative command on digitization and virtualization of economies, study more on Google.Allow micro-small-medium enterprises a tax-free window on the first USD$5-10 million revenues in exports, this will create local jobs and bring foreign exchange. Allow micro-small-medium enterprises free access to all dormant Intellectual Property, Patents rolled up due to lack of commercialization. Allow Academic Experts on innovative technologies and related skills on free voucher programs to the SME base to uplift ideas and special expertise. Optimization of telecommunication and internet structures worth trillions of dollars with global access at times completely ignored and wasted by wrong mindsets deprived of entrepreneurial undertakings. Allow micro-small-medium enterprises free full time MBA as 12 months interns so MBA graduates can acquire some entrepreneurialism while enterprises can uplift their ideas in practice.

“Allow Million qualified foreign entrepreneurs to park within your nation for 5-10 years under a special full tax-free visa and stay program. Which nations have qualified dialogue on such affairs? Bring in, land million entrepreneurs in your nation, and create 10 million plus jobs and new wealth in following years. Let your own institutions and frontline management learn how such economic developments created.  Be bold, as the time to strategize passed now time to revolutionize has arrived”. “Excerpted from keynote lecture by Naseem Javed, Global Citizen Forum, Dubai, 2013.”

Allow National Mobilization of Entrepreneurialism Protocols mandated to engage trade and exports bodies. Allow National Scoring of entrepreneurialism to measure, identify and differentiate required talents. Digitize from top to bottom and sideways, futurism fully digitized and without real transformation, it is like a nation without any internet. Act wisely. Digitalization of economies without entrepreneurial minds is more like pre-pandemic archives of mostly failures. Needed are the economic revolutions, based on entrepreneurial meritocracy and national mobilization of midsize economy.
The rest is easy 

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