How to address Europe’s green investment gap

Policy Brief

10/05/2022

This policy brief presents the combined findings of the three policy studies on climate investment in the European Union that have been published as part of the research project ‘A fiscally sustainable public investment initiative in Europe to prevent climate collapse‘.

Combining the results from the three policy studies, the brief discusses the European Union’s investment needs to limit global warming to 1.5°C above pre-industrial levels as well as two funding options to raise the revenues for the direct provision of green infrastructure. With regards to the investment needs, the analysis concludes that the European Commission’s modelling of required investment needs is overly optimistic as the EU faces an investment gap of €11,670 to €16,320 billion between 2020 and 2050.

To close this investment gap two funding options are explored. The first option is a European wealth tax. A progressive European wealth tax has the potential to raise revenues of between €164 billion and €357 billion annually, while not increasing inflationary and Covid-related pressures on low- and middle-income households. A wealth tax can also reduce extreme levels of wealth inequality and build administrative capacities to fight corruption and organised crime.

The second policy option consists of issuing government bonds. This option can raise revenues instantly and will generate a significant economic impulse. This policy brief estimates a long-run investment multiplier of 5 for a co-ordinated fiscal expansion at the EU level. The magnitude of the multiplier also means that public finances will improve in the long term.

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