Climate chapter of the French recovery plan: Off to a good start but let’s see where it lands
The French government has just officially unveiled the content of its €100 billion recovery plan, part of which is dedicated to the fight against climate change. While we will have to wait for the details to assess the plan’s ability to put France on the road to carbon neutrality, Louise Kessler and Quentin Perrier of I4CE believe that it is a good start: the amounts allocated to the energy renovation of buildings, mobility and energy production are broadly in line with the needs for additional public funding which had been identified by I4CE before the summer. This is a good start, but only a start: first, the proposed spending should enable a real change of scale by ramping up tomorrow’s low-carbon sectors, especially energy renovation; then, these levels of spending should be maintained, and even increased after 2022; finally, the government should supplement its stimulus plan with measures to safeguard the investment capacities of the low-carbon transition actors.
The amounts announced match the identified financing needs
If we focus on the three main sectors analyzed by I4CE before the summer, i.e. building renovation, mobility and energy production, the amounts announced in the government’s stimulus plan seem, at first glance, to be in line with the levels of additional public funding which are needed for France to catch up on the National Low Carbon Strategy (SNBC). This is valid only if, as announced by the government, these amounts (i) are truly additional to what already exists, (ii) support investment and (iii) are accompanied by complementary measures. We have identified a few items of expenditure that could have been higher (such as the renovation of the private tertiary sector, with only €200 million over two years and only for Very Small, Small and Medium Enterprises (VSEs/SMEs)), but on the basis of the amounts announced today, the recovery plan seems to be in line with the identified short-term public financing needs based on the government’s National Low Carbon Strategy. The amounts are even quite ambitious for the renovation of public buildings (€4 billion), railways (€4.7 billion) and hydrogen (€2 billion).
The proposed plan is therefore aligned with the SNBC, the current national decarbonation strategy; but it may not be enough. The French High Council for the Climate (HCC) has indicated that the SNBC’s short-term emission reduction targets are too modest, thus deferring a large part of the mitigation effort beyond 2030. At the European level, a new emissions reduction target is currently being discussed (which would aim for -55% by 2030 instead of -40%), which would require more investments in the coming years. As part of this revision, France could be led to revise its ambition upwards, and the amounts of the climate stimulus plan would have to be re-assessed. This reallocation of effort over time would increase the need for short-term investments but would reduce long-term efforts and lower the total cost of climate action, according to a recent analysis by the French Ministry of Ecological Transition.
This money should support the structuring of low-carbon sectors in France
Although the amounts allocated in the recovery plan roughly match the needs identified for the period 2021-2022, the injection of public money will not be enough to achieve the low-carbon transition. This public expenditure must be used to trigger the in-depth transformation of the French economy, notably through the structuring of the energy renovation sector, the transformation of the automotive industry towards low-carbon vehicles and the exploration of economically profitable uses for decarbonated hydrogen.
In the energy renovation sector, a crucial factor will be the government’s ability to build an industry that is up to the task, and that is able to carry comprehensive, high-performance renovations with guaranteed quality of work on a large scale. The revised terms and conditions of the “MaPrimeRénov” scheme have not yet been published, but these public subsidies should be designed to increase the number of global renovations and target major sources of energy savings, and should be accompanied by a training plan for craftsmen. This scheme should make full use of the territorial platforms, which have pioneered the field of comprehensive retrofits in the private housing sector. If in two years’ time a performing industry has been set up, if comprehensive renovations represent around 10% of renovations (compared to less than 1% today), and if the work carried out is of high quality, then the energy renovation component of the recovery plan will have been a success and France will be ready to roll out these types of operations.
This fiscal effort must be sustained to accelerate the transformation of the economy
This €30 billion green component of the recovery plan only covers the next two years, as its primary aim is to sustain the economy in the short term. However, as early as 2022, we will need to ensure that energy retrofits take place on a large scale, that low-carbon mobility is generalized and that decarbonization efforts in the industry and agriculture are accelerated. Even if the cost of technology declines, this massification of operations is expected to lead to a significant increase in the need for public funding, especially to support low-income households. The I4CE study on climate investments revealed that public funding needs (calculated on the basis of the SNBC target) should double between the short term (2019-2023) and the medium term (2024-2028) to reach around €22 billion per year. The effort which is currently presented as a one-time effort, will therefore need to be maintained over the long term.
This stimulus spending must remain agile
The full magnitude of this economic crisis is still uncertain. We are gradually discovering the extent of the crisis for the SNCF, RATP and more generally public transport operators who have seen their revenues melt away. Other players such as the AFITF, Société du Grand Paris, local authorities, social landlords and managers of tertiary offices will also be hit hard; and without adequate cash positions, these players will not be able to make the investments laid out in the recovery plan. The government should therefore be able to react quickly in order to preserve the investment capacity of project sponsors, through the deferral or cancellation of charges, debt spreading mechanisms or special loans. These interventions are not covered by the recovery plan, but will be crucial for its implementation.
Given the potential bottlenecks, particularly at the sector level, the success of this plan will require some level of agility in order to redirect public funds if certain measures do not produce results quickly. The very large amounts which are at stake call for a precise monitoring of these expenditures as well as indicators of their effectiveness in terms of economic transformation, energy efficiency and emissions reductions, which will also be helpful to improve the design and targeting of investments in the next periods. The tools that can be mobilized for this purpose include energy efficiency certifications for new buildings and retrofits in the private housing and tertiary sectors, energy labels for vehicles, calls for tenders for renewable energy sources, efficiency targets for the heat fund, the European taxonomy for investments and the value of climate action.
Some vigilance points in the mobility area
The analysis above is based on the major expenditure items that have just been announced. The details of the schemes will be announced in the coming weeks and a few points of vigilance are emerging, especially with regard to the automotive conversion bonus. I4CE had already expressed its reservations about the exceptional conversion premium introduced this summer, which favored cars with poor climate performance. Indeed, according to the Ministry of Ecological and Solidarity Transition, 90% of the cars purchased since the automotive recovery plan was announced are thermal, and the average CO2 emissions of new cars are similar to those observed at the beginning of the year. The argument of supporting the automotive industry by allowing it to sell its inventory had been put forward at the time of the announcement, but it no longer seems justified. The gradual strengthening of the criteria for the conversion premium as well as the tightening of the penalty system on new cars will be required in the short term to penalize the most polluting vehicles and support the transformation of the industry.