For a sustainable and competitive Europe

POSITION | EUROPE | GREEN DEAL

For a sustainable and competitive Europe GEMEINSAME ERKLĂ„RUNG I THEMA Communication from the Commission: The European Green Deal (COM (2019) 640)

30 January 2020 Introduction 23. Oktober 2017

With the "European Green Deal", the new European Commission has placed the issues of climate protection, ecology and sustainability at the centre of its political programme. Among other things, climate neutrality is to be achieved by the middle of the century, an investment plan for a sustainable Europe is to be launched, "green" investments are to be promoted, recycling management is to be completed and a zero-pollution action plan is to be developed. The European Commission wants to take international leadership in climate protection and sustainability. The "Green Deal" aims at a fundamental transformation of the economy and society and should enable the EU to become climate neutral by 2050. However, there is currently no generally accepted understanding of how exactly climate neutrality is to be defined.

The "European Green Deal" includes numerous policy areas: from trade policy, the digital agenda, research and innovation, economic and investment policy to an industrial strategy for a "clean and green economy". The competitiveness of the European economy is to be strengthened, above all, through an international lead in green technologies.

German industry has long been committed to sustainability. Companies in Germany are constantly investing in a clean environment and in measures to protect the climate. German companies have long been world leaders in a large number of "green" technologies. When it comes to trade in environmental protection goods - developed in Germany and tested in practice - German industry leads the way with a world trade share of around 14%. For decades, German industry has made a significant contribution to the increasingly efficient use of natural resources with innovative technologies and products.

In the view of the BDI, it is right that climate and environmental protection as elements of sustainability have a high political priority in Europe. However, a one-sided approach must not be taken.

Europe's future viability does not depend solely on the ecological goals of the Green Deal. Such a comprehensive transformation will only succeed if it is based equally on all three pillars of sustainability: environmental, economic and social. The goals we are striving for in climate and environmental protection virtually presuppose a competitive industry. Because without it there can be no innovative technological solutions. A competitive and highly innovative European industry is therefore the key to truly

Dr. Heiko Willems | BDI/BDA – The German Business Representation | T: +32 2 7921002 | h.willems@bdi.eu | www.bdi.eu

For a sustainable and competitive Europe

sustainable development - and it is the only way to create the conditions necessary to be able to make the trillions of investments in climate and environmental protection.

The EU thus faces the major challenge of keeping a competitive and innovative industry in Europe and preventing relocation. European decision-makers must strengthen the economic efficiency of production in Europe and maintain the value-added chains of European companies. In particular, it is important to weigh up increases in the cost of economic goods and production processes caused by CO2 prices against the framework conditions of global competitiveness. For example, an increase in the cost of transport and supply chains will have an impact on the economy based on the division of labour in the European Union and economic growth in all parts of Europe.

In designing and implementing the Green Deal, the Commission must therefore take care to ensure that the competitiveness and sustainability of industry in Europe is an objective in itself. The announced industrial policy strategy will be essential to this, as will the EU's digital agenda.

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Table of Contents The economic foundation of transformation: a European industrial strategy………..………..…3 Climate and energy policy - from abstract targets to concrete measures …………..……..……. 4 Making mobility and logistics climate-friendly ………………………………………..…………..….. 6 A functioning circular economy……………………………………………………………………………8 Better implementation and application of a coherent environmental law …………………………9 Financing the transformation: A challenge for budgetary, investment and aid policy…………11 Exploiting opportunities through digitisation and innovation ……………………………..….……12 Achieving sustainability together with free trade agreements…………………………………..….12 Responsible corporate behaviour ...................................................................................................13 About BDI ............................................................................................................................................14 Imprint .................................................................................................................................................14 Contact ............................................................................................................................................... 14

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The economic foundation of transformation: a European industrial strategy The presentation of a long-term strategy for Europe's industrial future announced for March 2020 is overdue. The future of Europe is closely linked to the future of European industry. An integrated single market with a strong and innovative industry is a prerequisite for Europe to be able to shape the answers to global future issues such as climate change or digitisation with its own technologies and concepts on an equal footing with the US and China.

The development and successful implementation of a modern EU industrial strategy is also the basis for the core political projects and thus the success of the new EU Commission as a whole - for the "European Green Deal" as well as "a Europe for the digital age", "an economy at the service of the people" and "a stronger Europe in the world".

Europe urgently needs an industrial policy turnaround. Since the turn of the millennium, our continent has noticeably lost industrial strength. Between 2000 and 2016, the EU's share of global value added in the manufacturing sector fell by 5.5 percent - Germany lost 0.9 percent. China's industry grew by 23.4 percent in the same period. The EU should therefore set itself an ambitious industrial target for 2030. This target should be complemented by a set of indicators that will allow quantitative monitoring of industrial development in Europe in a global comparison. In particular, the European Commission's commitment to energy-intensive industries must be followed up urgently by measures to ensure a future of energy-intensive production in Europe.

A strategy for the future of industry in Europe must take a holistic approach that goes far beyond climate and environmental policy. It must support digital change and provide a coordinated response to the massive global distortions of competition. With a view to the goals of the Green Deal, the strategy should include the following core elements: ▪

Modernising state aid and competition law: To maintain Europe's industrial competitiveness, the European competition regime must be strengthened. It should aim to promote business cooperation, improve merger control procedures, take greater account of global competition in merger decisions and energy subsidies, and focus state aid rules on promoting investment and innovation. In particular, the commercialisation of climate-friendly breakthrough technologies requires tailor-made funding models to address the high capital and operational costs.

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Creating a business model for investments: In the planned re-evaluation of existing EU law for its Green Deal compatibility, the EU Commission should also examine the incentivising effect of the legal acts. In the planned reform of the EU Energy Tax Directive, technologyneutral incentives for GHG savings should be set in order to create business models. Reliable framework conditions are crucial here.

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Develop a European import strategy for renewable energy sources: Even a climate-neutral Europe will remain an energy importer. The demand for climate-friendly energy in the European raw materials industry as well as in the transport and heating sector cannot be met from within Europe alone. In addition, the sun- and wind-rich locations outside the EU offer significant cost advantages for electricity and hydrogen production. The establishment of such new import relations - which also make sense in terms of trade and development policy - should be accompanied by an EU strategy.

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Mobilise infrastructure investments: Europe needs modern infrastructures to remain fit for the future. This includes energy infrastructures, but also modern and efficient digital infrastructures and trans-European transport networks. The gradual conversion of gas networks into

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infrastructures for climate-friendly gases must be coordinated at European level in order to avoid separate national solutions and prevent additional barriers to the internal gas market.

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Think Europe digitally: Europe needs a digital transformation of its economy in order to become more (resource) efficient and thus more sustainable in every respect. This requires the establishment of a European data space, the promotion of industrial, digital business models and an industry-friendly implementation of Horizon Europe.

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Assuming global innovation leadership: Transformation is not possible without technological game changers. Europe must promote R&D and support the dissemination of new technologies at an early stage. The EU Commission's announced initiative to promote lead markets is a positive signal and should be jointly implemented.

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Creating an integrated EU internal market: As a prerequisite for a strong and sustainable Europe, the EU institutions should develop and implement an ambitious action plan to advance the single market in all areas.

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Strengthen EU external economic policy and open markets: The EU must do everything in its power to maintain the World Trade Organisation (WTO) as the central regulatory power and to promote an ambitious foreign trade policy, especially in its relations with the US and China.

Climate and energy policy - from abstract targets to concrete measures With the Green Deal, the EU Commission is aiming for a climate-neutral Europe by 2050. This requires a universally valid definition of climate neutrality. Several EU Member States and companies have committed themselves to climate neutrality and are realising this goal with a mixture of direct reductions of GHG and national and international offsetting measures. This flexibility is necessary and sensible in order to proceed cost-effectively and to address the global threat of global warming in an international and cooperative manner.

In its study "Climate Paths for Germany", BDI has pointed out that a 95% reduction of GHGs by 2050 will require cumulative investments of up to € 2.3 trillion in Germany alone - and this only if there is optimal political coordination and consistent international efforts. It is therefore important to have a broad-based financing strategy for GHG reductions in industry and transport. The BDI's climate path study has shown that although the necessary transformation measures make sense from an economic point of view, four-fifths (!) of them are not profitable for the individual investor. The European Green Deal Investment Plan (EGDIP), also known as the Sustainable Europe Investment Plan (SEIP), presented on 14 January 2020, attempts to outline how these enormous investments, including private investments, are to be stimulated.

Costs will also arise in particular for industry. If the EU takes a pioneering role, additional measures (including adapting the state aid framework, innovation policy, securing investments in breakthrough technologies) are necessary to ensure the global competitiveness of European industry.

Climate protection must be addressed internationally. From today's perspective, greenhouse gas neutrality by 2050 is only possible in Europe with an international (trade) mechanism for financing and crediting international projects - based on Art. 6 of the Paris Agreement. The development of the associated regulatory framework by the end of 2020 should be an EU priority. It can be assumed that the cost difference between reductions achieved in the EU and elsewhere will shrink if other states also

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step up their ambitions. Irrespective of this, a transformation like the one envisaged in the Green Deal can only be successfully managed in coordination with the main competitors.

A climate strategy (2050) with a long-term perspective, including elements of flexibility in terms of timespans and across sectors (e.g. rewarding synthetic fuels alongside electric mobility in CO2 fleet regulation), will make it more cost-efficient to meet the targets. In addition, checkpoints must be installed, and regular monitoring must be carried out in order to correct undesirable developments.

The BDI rejects any tightening of the targets for the 2030 legal framework that has just been adopted. Increasing targets for the current decade is detrimental to entrepreneurial planning security and long-term investments and challenges the limits of technical, economic and social feasibility. The negotiations on the 2030 package were complex and protracted. The challenge in the next few years will lie primarily in implementing the existing legal framework. A new discussion of the objectives is counterproductive at this stage, brings legal uncertainty and draws attention away from implementation processes. The Governance Regulation offers good instruments for cross-border coordination of national efforts in the Member States.

Existing flexibility options are not sufficiently used, especially in the area of effort sharing. The burden-sharing between EU Member States in the non-ETS sector is essentially based on the GDPs of the Member States in order to motivate economically stronger countries to invest in countries with greater GHG reduction potentials. This is not yet the case for Germany, for example. However, with rising abatement costs, the aspect of cost efficiency must necessarily become more important. The flexibility options within the so-called effort sharing (e.g. trading in emission allocations) must be used and expanded to a greater extent. Realistic impact assessments are imperative.

The ETS revision for post-2020 has just been completed. Constant changes in the rules of the game are unsettling investors. This is particularly true if - as has just happened - DG Competition is to cut the indispensable support for new investments, for example in the form of electricity price compensation, suddenly and contrary to economic necessity. Extending the EU ETS to new sectors must be considered very carefully; negotiations on this will certainly take years. As things stand today, extending it to transport and buildings would lead to extreme price jumps in the system. This is mainly due to the very different abatement costs and price elasticities in the different sectors.

Germany wants to or will start its national fuel emissions trading system on 1 January 2021. In the course of European negotiations, care must be taken to ensure that companies are not burdened at several levels (European and national). It is not yet possible to conclusively assess whether the German system can be connected to the EU ETS. When revising the EU Energy Tax Directive, CO2-neutral energy sources should be exempted from taxes and levies. CO2-neutral energy sources should be promoted sustainably in order to bring them to the market.

The availability of climate-friendly energy in the form of electricity, gases and fuels at competitive prices is essential for comprehensive GHG reductions in the economy. In addition to the renewable energies expansion and energy efficiency, the use of renewable gaseous and liquid energy sources will have to play a decisive role in achieving the goal of climate neutrality. Hydrogen can develop into a key energy carrier and has the potential to expand Europe's pioneering role in industrial policy in this field. Measures to improve the competitiveness of climate-neutral hydrogen and to create suitable energy infrastructures should therefore be addressed, inter alia, in the context of the "Smart Sector Integration Strategy" and in the planned revision of the legal framework for energy infrastructures.

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An important aspect here is the development of regulatory bases for the creation of dedicated hydrogen networks, which are of great importance above all for supplying industry.

In addition, domestic production of renewable energies will in all likelihood not be able to meet the future hydrogen respectively total energy demand. A European import strategy for renewable gaseous and liquid energy carriers or a Power-to-X import strategy of the EU is urgently needed. A central prerequisite for the success of such a strategy is the introduction of a uniform, CO2-based classification for climate-neutral gases and fuels first in the EU and in a next step at international level. Only on the basis of a uniform classification can effective guarantees of origin be implemented for trade within the EU and with third countries. These international aspects urgently belong on the EU agenda but were not addressed in the Commission's communication on the Green Deal.

A "European Climate Pact" makes sense. Above all, it can also serve to advance controversial projects (e.g. network expansion) and increase understanding of climate technologies (acceptance and cooperation instead of the "NIMBY mentality"). A transformation of this magnitude must be implemented in society as a whole. Without significantly increased acceptance for the associated measures, this transformation will fail.

The already decided significant decrease in the free allocation of GHG certificates and increasing CO2 costs in the 4th ETS trading period make an additional carbon leakage protection necessary. The CO2 border adjustment measures (CBA) envisaged by the Commission must therefore under no circumstances replace the free allocation of emission allowances and compensation for the increase in electricity costs (electricity price compensation). Instead, an assessment is required, at best as a supplementary protective measure. However, BDI has strong reservations about CO 2 import tariffs with regard to their WTO compatibility and practicability. They can quickly become a gateway to protectionism and trigger trade policy countermeasures. Nevertheless, BDI is prepared to constructively examine all options and detailed proposals that have been lacking so far. Before the EU takes such international risks, all European instruments to ensure effective carbon leakage protection should be examined. This includes an adjustment of European state aid law in order to be able to address international cost differences adequately. Among other things, the duration and intensity of aid should be based on the period and extent of the cost difference (no automatic time limit and degression).

The implementation of the climate package is also particularly concerned with mobilising the large greenhouse gas savings potential in the building sector quickly and comprehensively. It has been shown that greenhouse gas reductions in the building sector can be implemented more cost-effectively and more easily than in other sectors. The Commission's project to strengthen the enforcement of the energy performance of buildings legislation, starting with an assessment of Member States' long-term national renovation strategies in 2020, is therefore very important.

Making mobility and logistics climate-friendly German industry attaches fundamental importance to making mobility and logistics processes more climate-friendly and resource-efficient, while at the same time maintaining and strengthening the competitiveness of the European economy. However, in the transport sector ambitious CO2 reduction targets can only be achieved if all available technical levers for climate-neutral mobility are used. It is therefore urgently necessary to reduce CO2 emissions in a technology-neutral and market-oriented manner.

BDI welcomes the development of a strategy for smart and sustainable mobility by the EU Commission.

This strategy must focus at the use of intermodality in order to make use of the strengths of each

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transport mode. This requires massive investments, such as the expansion of capacity on rail and inland waterways, the upgrading of bridges and floodgates, intelligent traffic management systems and network coverage along the transport routes as well as the provision of refuelling and charging infrastructure. Part of the strategy must include a market introduction initiative for of alternative drive systems (such as electromobility for new vehicles) and renewable fuels in the existing fleet as well as for air and maritime transport.

The revision of the Alternative Fuel Infrastructure Directive must ensure adequate coverage of charging and refuelling infrastructure for battery and hydrogen-electric vehicles throughout Europe.

In addition, a Europe-wide Power-to-X roadmap in connection with a market introduction programme for synthetic fuels is needed. This is necessary to ensure that synthetic fuels can be used in larger quantities for the existing vehicle fleet and for air and sea transport in the long term. In the course of the planned revision of the EU Energy Taxation Directive, an incentive for the regenerative fuels should to be created.

Moreover, the principle that international solutions take precedence over individual national measures must continue to apply to air and sea transport. The EU's support for the introduction of the global climate protection instrument CORSIA in international air transport is a further milestone towards climate-neutral flying. Due to the international nature of air traffic, only globally coordinated measures are effective. For the compensation of growth-related CO2 emissions in air traffic, CORSIA should be the only global instrument to replace the EU ETS for air traffic in order to avoid competitive disadvantages for European airlines. Therefore, a double burden on European air transport due to the lack of adaptation of the two instruments should be avoided.

National or European unilateral levies and taxes or even bans lead to distortions of competition and circumvention effects, especially in international air transport, which lead to additional GHG emissions, for example through detours or excessively heavy loading/fuelling.

In the case of shipping, the BDI welcomes the EU's current approach to achieve reductions in CO2 and air pollutant emissions within the framework of the International Maritime Organisation (IMO).

The highly international character of shipping requires a global approach to at the same time reduce emissions and guarantee equal framework conditions in international competition. For this reason, BDI is opposed to the extension of EU ETS to shipping and the unilateral burden that this would involve.

In the road transport sector, the proposal to revise the CO2 Fleet Regulation in June 2021 in order to adjust the CO2 standards after 2025 must be strictly rejected. The recently adopted standards for new registrations are already very ambitious, with emissions reduced by 15% from 2025 and 37.5% from 2030 and represent an enormous challenge for the automotive industry. Crucial for achieving climate protection targets in the transport sector is a greater involvement of the demand side rather than another, exclusive focus on the supply side. In contrast, the only effective way to achieve CO2 reduction in road transport would be to create an incentive for synthetic fuels in the CO2 Fleet Regulation. This would require a change from tank-to-wheel to well-to-wheel approach or even life cycle analysis.

Further measures to reduce CO2 emissions in road transport like a new proposal for the Eurovignette Directive and the Combined Transport Directive could in principle bring opportunities. The Eurovignette Directive must focus on incentives for fleet renewal. Here, a technology-neutral approach remains key regarding the incentives for CO2 reductions. Simply increasing the costs for the European economy by means of higher tolls without realistic alternatives for freight transport is not appropriate and must be strictly rejected. Moreover, an additional CO2 component in the toll would also have to take account of CO2-neutral fuels.

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The Combined Transport Directive must provide incentives for the increased use of rail and waterways in freight transport. The original objective of the amendment of the Directive, namely, to achieve a more uniform interpretation of the European requirements in the Member States, should be given a stronger focus again.

A functioning circular economy In recent years, the European Commission has placed circular economy at the centre of its environmental policy agenda, and it will rightly remain of central importance under the new Commission.

German industry is pursuing the approach of maintaining raw materials in circuits in order to use them efficiently. But this also includes a sustainable supply of raw materials to the economy. This must be achieved through secure access to domestic raw materials (extraction of raw materials from domestic deposits), the increasing extraction of secondary raw materials from recycling and recovery, and the secure and long-term supply of raw materials from abroad.

The innovative capacity of German industry is particularly evident in the environmental service branch.

It is successfully investing in new sorting and recycling technologies that further develop the existing high-performance recycling infrastructure.

A new circular economy action plan is welcomed in principle. It must give priority to finding an answer to the question of how functioning markets for secondary raw materials can be established in Europe. The basis for this must be solid market mechanisms. New business models and increased cooperation along the value-added chains, for example in the form of company platforms, are a key prerequisite for this. The Commission should strongly support this development. In addition, there must be a fundamental openness to new ideas and technologies.

In recent years, the European Commission has placed circular economy at the centre of its environmental policy agenda, and it will rightly remain of central importance under the new Commission.

German industry is pursuing the approach of maintaining raw materials in circuits in order to use them efficiently. But this also includes a sustainable supply of raw materials to the economy. This must be achieved through secure access to domestic raw materials (extraction of raw materials from domestic deposits), the increasing extraction of secondary raw materials from recycling and recovery, and the secure and long-term supply of raw materials from abroad.

The innovative capacity of German industry is particularly evident in the environmental service branch.

It is successfully investing in new sorting and recycling technologies that further develop the existing high-performance recycling infrastructure.

A new circular economy action plan is welcomed in principle. It must give priority to finding an answer to the question of how functioning markets for secondary raw materials can be established in Europe. The basis for this must be solid market mechanisms. New business models and increased cooperation along the value-added chains, for example in the form of company platforms, are a key prerequisite for this. The Commission should strongly support this development. In addition, there must be a fundamental openness to new ideas and technologies.

The Commission's objective of promoting the development of lead markets for circular products is also to be welcomed. However, a strategy for 'sustainable products' must not lead to double and multiple regulation. The introduction of a right for consumers to have electronic products repaired is only useful if repair makes economic sense. From a technical point of view, most electronic devices can be repaired. There is no evidence of planned obsolescence by manufacturers.

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Better implementation and application of a coherent environmental law The BDI welcomes the fact that the Commission wants to tackle the elimination of inconsistencies in EU environmental legislation to a greater extent. On a positive note, it should be emphasised that stakeholders should be given an active role in identifying inefficient legislation. German industry will play a constructive role in this process. To avoid inconsistency in the future, it is essential that the Commission improves cooperation between its services and ensures that the principles and instruments of better regulation are applied systematically and across services. The SecretariatGeneral of the Commission has a central supervisory and control function in this respect.

It must also be ensured that Member States implement and enforce European law in a uniform manner and do not create additional burdens that undermine the functioning of the EU single market and the Green Deal. In its evaluation of the 7th Environment Action Programme, the Commission rightly pointed out the lack of implementation and application of existing environmental legislation in the Member States. Europe would already be much further along in climate and environmental protection if the binding targets we have set ourselves were actually put into practice. This is the only way to avoid disappointment and a loss of confidence in the future. The BDI therefore welcomes the Commission's announcement to modernise its system for reviewing the implementation and enforcement of EU environmental policy (Environmental Implementation Review (EIR)). In addition, better implementation and application of existing environmental legislation must play a central role in the future 8th Environmental Action Programme.

A comprehensive zero-pollution action plan is not necessary, however. The existing specific legislation on water, air, chemicals, etc. fulfils its purpose and provides a high level of environmental and health protection. It is important that the Commission draws the right conclusions from the review of these laws and makes their effective implementation and application in European countries the benchmark. This applies in particular to the ongoing reviews of the Water Framework Directive, the Industrial Emissions Directive and the completed review of the REACH Regulation.

The BDI advocates a revision of the Water Framework Directive. The provisions of the Water Framework Directive are relevant in the context of industrial permitting procedures for plant construction or the modification of existing plants. The directive has proved its worth as a water protection instrument and has made a substantial contribution to sustainable water policy. However, due to the broad scope for interpretation of the requirement for improvement and the no deterioration principle enshrined in the Directive, there is increased legal uncertainty regarding the probability of success of permitting procedures. The Water Framework Directive lacks exemptions that allow for a stronger consideration of public and economic interests in the necessary balancing of environmental concerns. Moreover, it is already foreseeable that the objective of good status of European waters will not be achieved by 2027. Authorities in the Member States are very uncertain as to which requirements the forthcoming management plan 2021 - 2027 must contain, as the mandatory objectives for good water status stipulated in the Water Framework Directive cannot be achieved. Only a revision of the directive can create legal and planning certainty for future investments and existing industrial plants.

A revision of the Industrial Emissions Directive, on the other hand, is not necessary, as the objectives of the directive, namely the improvement of environmental quality and the guarantee of a level playing field, will be achieved. In addition, the BAT procedure laid down in the Directive ensures that best available techniques for industrial installations are subject to constant review and continuous development. On the other hand, the design of the procedure for determining BAT as such needs to be significantly improved. No revision of the Seveso III Directive is necessary to prevent industrial accidents. European law creates the regulatory conditions; application in the Member States is crucial.

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Nor is a revision of the European air quality directives necessary. In its recently published report on the review of these directives, the Commission concludes that current legislation provides the necessary tools to meet existing challenges. The directives have effectively contributed to improving air quality and achieving air quality standards. To the extent that they have not yet been fully achieved, this is mainly due to a lack of transposition or application of European law in the Member States, but not to weaknesses in European standards.

In the 2018 review of the REACH Regulation, the Commission itself concluded in 2018 that the Regulation is fully operational some 10 years after its entry into force and that the rules effectively protect both the environment and human health from dangerous chemicals. A revision is therefore not necessary. Only in a stable regulatory environment, in which the central REACH processes are implemented step by step, will it be possible for companies to exploit potential for improvement and drive new necessary innovations. In order to guarantee the competitiveness of European companies and planning security, a pragmatic implementation of the legal requirements is also necessary. To this end, the EU Commission should, among other things, tackle the following points more intensively: â–Ş

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The "Risk management option analysis (RMOA)" method should be introduced in all Member States on a binding basis. To this end, guidelines for a uniform approach in the Member States should be drawn up.

Material risks that only affect the occupational use of chemicals should only be addressed by means of occupational health and safety regulations.

The authorisation procedure should be simplified. This applies to the authorisation procedure as a whole, but especially to small quantities.

The continuation of the existing EU Biodiversity Strategy 2020 to 2030 is natural and welcome. However, the BDI rejects the idea of making the voluntary targets anchored in the current strategy binding at European level. Rather than creating new standards or guidelines for biodiversity in trade, industrial, agricultural and economic policy, the Natura 2000 Directives should be adapted to the current situation. German industry also rejects a stronger focus on biodiversity and the introduction of levies on ecosystem services, which has already been discussed by the Commission, as this is the responsibility of national legislators.

The BDI rejects a revision of the Aarhus Regulation to further implement the international treaty of the Aarhus Convention. This is the basis of the Aarhus Regulation and other EU regulations on access to justice in environmental matters. A further extension of the rights of action and objects of action provided for by the Aarhus Convention would severely restrict the legal and planning security of companies and lead to a deterioration in the conditions for investment decisions in Europe. Instead, the European Commission should advocate a renegotiation of the relevant provisions in the Aarhus Convention at the level of international law. In order to shorten the increasingly lengthy approval and court proceedings, an exclusion provision should be included in the Aarhus Convention and corresponding EU law, so that objections that are submitted late no longer have to be taken into account in further proceedings.

Financing the transformation: A challenge for budgetary, investment and aid policy Financing private and public investment in climate and environmental protection requires very large additional investments of EUR 250-300 billion per year in the EU-27 in a wide range of sectors.

This represents an increase of more than 10% in investment activity in the EU. In order to trigger such investments, the public sector will require significant shifts in national budgets - in favour of

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necessary infrastructure investments, tax incentives and (competition law approved) support measures for private investments in already available technologies, which, however, cannot yet be offered in a marketable and cost-effective manner. In some fields, moreover, research and development is needed in the first place, some of which can be co-financed by public programmes.

At the EU level, too, many instruments must be used to promote the corresponding investments.

In this respect, the planned orientation of the multi-year financial framework and InvestEU towards the ambitious climate targets is appropriate. This also applies to the lending activities of the European Investment Bank, although here a different decision should have been taken on how to deal with energy sources and technologies, such as gas, which are necessary for the transition. A substantial increase in the funds to be used for this purpose in the EU's agricultural, structural, research, infrastructure and investment promotion policies is in any case advisable.

The systematic analysis and policy-making of the demanding financing tasks that will arise in the coming decades has been overdue, but is now being addressed by the recently presented European Sustainable Investment Plan (SEIP). The SEIP plans to mobilise investments of one trillion euros over a time horizon of ten years, which are to be triggered primarily by contributions from the EU budget but also by national and private investments. When it comes to incentives for private capital, greater importance will be attached to the Taxonomy Regulation and the definition of "environmentally sustainable" investments contained therein.

The state aid framework must be adapted to the new challenges. The political expectation that industry will undergo a long-term transformation towards greenhouse gas neutrality must be actively facilitated by policymakers. A transition to CO2-free basic materials production will only succeed if international competitiveness is maintained at all times during the transition phase; only then can closed value chains be maintained as the basis for a sustainable European industry. The path to CO2-neutral production processes involves major investments and higher operating costs. Public funding is essential in many areas for research and development, but also for implementation on an industrial scale. Mechanisms need to be examined with which CO2-neutral production processes can be operated competitively compared to countries without comparable efforts, despite higher costs. This includes the provision of the necessary infrastructure and supply of CO2-free electricity and hydrogen at competitive prices with the aim of creating a level playing field for industrial production in Europe. This is necessary in terms of industrial and climate policy - on the one hand, to keep electricity intensive basic material production competitive, and on the other hand, because the desired CO2 neutrality in energy-intensive industrial sectors will foreseeably be accompanied by increasing electrification of processes. This requires an adjustment of the framework conditions under state aid law.

EU state aid policy should focus on the special promotion of innovative, efficient and environmentally friendly key technologies. Support for so-called IPCEIs, joint projects in key technologies such as microelectronics, battery cell production or the "low carbon industry", must be given a broader focus and receive faster approvals.

Exploiting opportunities through digitisation and innovation Digitization and sustainability are the two megatrends of this century. Although there are many interactions between the two developments, they have so far largely been considered and discussed separately. For German industry, both issues – digitalisation and sustainability - are crucial to the future. In an environment characterized by massive global competitive pressure, it is essential to quickly develop new digital opportunities for value creation (networked production, IIoT, smart services, platforms, AI, etc.). At the same time, social expectations and legal requirements for responsible

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handling of data and new technologies as well as environmental resources by companies are increasing, especially in Germany and the European Union.

Digitalisation of the economy and sustainability goals are not mutually exclusive but can and should complement each other positively. Digitalisation and innovation offer enormous opportunities to promote sustainability in the EU and to make a strong EU contribution to achieving the Sustainable Development Goals (SDGs). A prerequisite for this is that a high degree of innovation-friendliness is ensured politically while at the same time increased public and private investment in research and development is made possible. German industry needs adequate national, European and global framework conditions so that it can develop innovative, competitive and, above all, sustainable digital technologies that bring about ecological and social progress worldwide. These include for instance the completion of the internal market - especially for services, energy and digital - and significantly more investment in key technologies such as artificial intelligence, networked driving or biotechnology, the digital infrastructure and trans-European transport and energy networks.

Achieving sustainability together with free trade agreements Without ambitious sustainability chapters, EU free trade agreements are no longer politically capable of winning a majority. For this reason alone, the BDI is in principle in favour of binding chapters of this kind. However, they should continue to follow the cooperative approach, be moderate and not overload the negotiations. Otherwise the free trade agreements are in danger of failing. In such a case, Europe would lose influence on the sustainability of the partner country it receives in the negotiation phase and through the implementation of an agreement.

The Commission intends to propose that compliance with the Paris climate protection agreement should be made an essential element of any future comprehensive trade agreement. This requirement makes not only ratification, but also compliance with the climate agreement, which is rather difficult to verify, a decisive criterion. It could make it considerably more difficult or even impossible to open negotiations, conclude negotiations and implement comprehensive trade agreements with certain partners, some of whom are also of extreme strategic importance (e.g. the USA). The BDI supports binding sustainability chapters in trade agreements, which may also include provisions referring to the Paris Climate Protection Agreement. However, since even free trade agreements without this component can make a substantial contribution to environmental protection and sustainability, the BDI rejects giving compliance with the Paris Convention such a dominant weight in free trade agreements. If it is in the interest of the EU to conclude trade agreements, this must not be prevented by rigid red lines, even if these concern the climate protection agreement.

Responsible corporate behaviour For German industry, creating transparency about the social commitment of companies in the sustainability sector is a central concern. Many companies have actively contributed to the development of sustainable reporting formats and have long complied with the requirement to publish non-financial information by compiling detailed sustainability reports. Since the legally required non-financial reporting has only been part of financial reporting since 2018, the experience with the CSR Directive and thus the results of a comprehensive evaluation must be questioned at this point in time. This applies in particular to climate-related reporting, as the relevant guidelines were only published last summer and the process of implementing the requirements has not yet been completed. In principle, the implementation process can be regarded as dynamic, depending on the demand of the capital market. The CSR Directive is a good basis to meet this demand. In the BDI's view, the forthcoming review of the CSR Directive next year should therefore not jump to hasty conclusions and new,

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additional reporting obligations should not be adopted prematurely. The Commission should first wait for a comprehensive impact assessment based on several years of reporting experience on the part of companies (not only two years).

The BDI supports sustainable corporate governance, but only a step-by-step approach is the right way forward, as companies must be given the necessary freedom in their daily business conduct and in the elaboration of their sustainability strategies. For companies, reputation and transparency are very valuable components of their competitiveness and consequently a voluntary commitment is appropriate. Future steps in this area should therefore only aim at recommendations rather than binding instruments. A new set of rules should not be designed to penalise companies that are already very committed in this field.

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About BDI The Federation of German Industries (BDI) communicates German industries’ interests to the political authorities concerned. She offers strong support for companies in global competition. The BDI has access to a wide-spread network both within Germany and Europe, to all the important markets and to international organizations. The BDI accompanies the capturing of international markets politically.

Also, she offers information and politico-economic guidance on all issues relevant to industries. The BDI is the leading organization of German industries and related service providers. She represents 36 inter-trade organizations and more than 100.000 companies with their approximately 8 million employees. Membership is optional. 15 federal representations are advocating industries’ interests on a regional level.

Imprint The Federation of German Industries (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T.: +49302028-0

Contact Dr. Heiko Willems Director BDI/BDA The German Business Representation T.: + 3227921002 h.willems@bdi.eu RA Dr. Alexander Kessler Senior Manager Environment, Technology and Sustainability T.: + 3227921007 a.kessler@bdi.eu Jürgen Hasler Head of Department Mobility and Logistics T.: +493020281436 j.hasler@bdi.eu Dr. Stormy-Annika Mildner Head of Department External Economic Policy T.: +493020281532 s.milnder@bdi.eu Dr. Klaus Deutsch Head of Department Research, Industrial and Economic Policy T.: +493020281591 k.deutsch@bdi.eu

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Niels Lau Head of Department Law, Competition and Consumer Policy T.: +493020281401 n.lau@bdi.eu Dr. Thomas Koenen Head of Department Digitalisation and Innovation T.: +493020281415 t.koenen@bdi.eu Carsten Rolle Head of Department Energy and Climate Policy T.: +493020281595 c.rolle@bdi.eu Dr. Thomas Holtmann Head of Department Environment, Technology and Sustainability T.: +493020281550 t.holtmann@bdi.eu

Document number D 1126

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