EACC

Relations with the UK: EU Commission proposes targeted contingency measures to prepare for possible “no-deal” scenario

While the Commission will continue to do its utmost to reach a mutually beneficial agreement with the UK, there is now significant uncertainty whether a deal will be in place on 1 January 2021.
The European Commission has today put forward a set of targeted contingency measures ensuring basic reciprocal air and road connectivity between the EU and the UK, as well as allowing for the possibility of reciprocal fishing access by EU and UK vessels to each other’s waters.
The aim of these contingency measures is to cater for the period during which there is no agreement in place. If no agreement enters into application, they will end after a fixed period.
President von der Leyen said: “Negotiations are still ongoing. However, given that the end of the transition is very near, there is no guarantee that if and when an agreement is found, it can enter into force on time. Our responsibility is to be prepared for all eventualities, including not having a deal in place with the UK on 1 January 2021. That is why we are coming forward with these measures today”.
The Commission has consistently called on all stakeholders in all sectors to prepare for all possible scenarios on 1 January 2021. While a “no-deal” scenario will cause disruptions in many areas, some sectors would be disproportionately affected due to a lack of appropriate fall-back solutions and because in some sectors, stakeholders cannot themselves take mitigating measures. The Commission is therefore putting forward today four contingency measures to mitigate some of the significant disruptions that will occur on 1 January in case a deal with the UK is not yet in place:

Basic air connectivity: A proposal for a Regulation to ensure the provision of certain air services between the UK and the EU for 6 months, provided the UK ensures the same.

Aviation safety: A proposal for a Regulation ensuring that various safety certificates for products can continue to be used in EU aircraft without disruption, thereby avoiding the grounding of EU aircraft.

Basic road connectivity: A proposal for a Regulation covering basic connectivity with regard to both road freight, and road passenger transport for 6 months, provided the UK assures the same to EU hauliers.

Fisheries: A proposal for a Regulation to create the appropriate legal framework until 31 December 2021, or until a fisheries agreement with the UK has been concluded – whichever date is earlier – for continued reciprocal access by EU and UK vessels to each other’s waters after 31 December 2020. In order to guarantee the sustainability of fisheries and in light of the importance of fisheries for the economic livelihood of many communities, it is necessary to facilitate the procedures of authorisation of fishing vessels.

The Commission will work closely with the European Parliament and Council with a view to facilitate entry into application on 1 January 2021 of all four proposed Regulations.
Readiness and preparedness for 1 January 2021 is now more important than ever. Disruption will happen with or without an agreement between the EU and the UK on their future relationship. This is the natural consequence of the United Kingdom’s decision to leave the Union and to no longer participate in the EU Single Market and Customs Union. The Commission has always been very clear about this.
Background
The United Kingdom left the European Union on 31 January 2020. At the time, both sides agreed on a transition period until 31 December 2020, during which EU law continues to apply to the UK. The EU and the UK are using this period to negotiate the terms of their future partnership. The outcome of these negotiations is uncertain.
The Withdrawal Agreement remains in force. It guarantees the rights of EU citizens in the UK, as well as our financial interests, and protects peace and stability on the island of Ireland, amongst many other things.
Public administrations, businesses, citizens and stakeholders on both sides need to prepare for the end of the transition period. The Commission has worked closely with EU Member States to inform citizens and businesses about the consequences of Brexit. It published almost 100 sectoral guidance notices – in all official EU languages – with detailed information on what administrations, businesses and citizens have to do to prepare for the changes at the end of the year.
Since July, the Commission has been carrying out a virtual “tour des capitales” to discuss Member States’ readiness plans.
The Commission has also launched a number of awareness-raising campaigns and intensified its stakeholder outreach over recent months. It provided training and guidance to Member State administrations, and will continue to organise sectoral seminars with all Member States at technical level, to help fine-tune the implementation of readiness measures, in particular in the areas of border checks for persons and goods.
Compliments of the European Commission.
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EACC

Green Deal: Sustainable batteries for a circular and climate neutral economy

Today, the European Commission proposes to modernise EU legislation on batteries, delivering its first initiative among the actions announced in the new Circular Economy Action Plan. Batteries that are more sustainable throughout their life cycle are key for the goals of the European Green Deal and contribute to the zero pollution ambition set in it. They promote competitive sustainability and are necessary for green transport, clean energy and to achieve climate neutrality by 2050. The proposal addresses the social, economic and environmental issues related to all types of batteries.
Batteries placed on the EU market should become sustainable, high-performing and safe all along their entire life cycle. This means batteries that are produced with the lowest possible environmental impact, using materials obtained in full respect of human rights as well as social and ecological standards. Batteries have to be long-lasting and safe, and at the end of their life, they should be repurposed, remanufactured or recycled, feeding valuable materials back into the economy.
Promoting competitive sustainability in Europe
The Commission proposes mandatory requirements for all batteries (i.e. industrial, automotive, electric vehicle and portable) placed on the EU market. Requirements such as use of responsibly sourced materials with restricted use of hazardous substances, minimum content of recycled materials, carbon footprint, performance and durability and labelling, as well as meeting collection and recycling targets, are essential for the development of more sustainable and competitive battery industry across Europe and around the world.
Providing legal certainty will additionally help unlock large-scale investments and boost the production capacity for innovative and sustainable batteries in Europe and beyond to respond to the fast-growing market.
Minimising environmental impact of batteries
The measures that the Commission proposes will facilitate achieving climate neutrality by 2050. Better and more performant batteries will make a key contribution to the electrification of road transport, which will significantly reduce its emissions, increase the uptake of electric vehicles and facilitate a higher share of renewable sources in the EU energy mix.
With this proposal, the Commission also aims to boost the circular economy of the battery value chains and promote more efficient use of resources with the aim of minimising the environmental impact of batteries. From 1 July 2024, only rechargeable industrial and electric vehicles batteries for which a carbon footprint declaration has been established, can be placed on the market.
To close the loop and maintain valuable materials used in batteries for as long as possible in the European economy, the Commission proposes to establish new requirements and targets on the content of recycled materials and collection, treatment and recycling of batteries at the end-of-life part. This would make sure that industrial, automotive or electric vehicle batteries are not lost to the economy after their useful service life.
To significantly improve the collection and recycling of portable batteries, the current figure of 45% collection rate should rise to 65 % in 2025 and 70% in 2030 so that the materials of batteries we use at home are not lost for the economy. Other batteries – industrial, automotive or electric vehicle ones – have to be collected in full. All collected batteries have to be recycled and high levels of recovery have to be achieved, in particular of valuable materials such as cobalt, lithium, nickel and lead.
The proposed regulation defines a framework that will facilitate the repurposing of batteries from electric vehicles so that they can have a second life, for example as stationary energy storage systems, or integration into electricity grids as energy resources.
The use of new IT technologies, notably the Battery Passport and interlinked data space will be key for safe data sharing, increasing transparency of the battery market and the traceability of large batteries throughout their life cycle. It will enable manufacturers to develop innovative products and services as part of the twin green and digital transition.
With its new battery sustainability standards, the Commission will also promote globally the green transition and establish a blueprint for further initiatives under its sustainable product policy.
Members of the College said:
Executive Vice-President for the European Green Deal Frans Timmermans said: “Clean energy is the key to European Green Deal, but our increasing reliance on batteries in, for example, transport should not harm the environment. The new batteries regulation will help reduce the environmental and social impact of all batteries throughout their life cycle. Today’s proposal allows the EU to scale up the use and production of batteries in a safe, circular and healthy way”. 
Vice-President for Interinstitutional Relations Maroš Šefčovič said: “The Commission puts forward a new future-proof regulatory framework on batteries to ensure that only the greenest, best performing and safest batteries make it onto the EU market. This ambitious framework on transparent and ethical sourcing of raw materials, carbon-footprint of batteries, and recycling is an essential element to achieve open strategic autonomy in this critical sector and accelerate our work under the European Battery Alliance.”
Commissioner for Environment, Oceans and Fisheries Virginijus Sinkevičius said:”With this innovative EU proposal on sustainable batteries we are giving the first big push to the circular economy under our new Circular Economy Action Plan. Batteries are essential for crucial sectors of our economy and society such as mobility, energy and communications. This future-oriented legislative toolbox will upgrade the sustainability of batteries in each phase of their lifecycle. Batteries are full of valuable materials and we want to ensure that no battery is lost to waste. The sustainability of batteries has to grow hand in hand with their increasing numbers on the EU market.”
Commission for Internal Market Thierry Breton said: “Europe needs to increase its strategic capacity in new and enabling technologies, such as batteries, that are essential for our industrial competitiveness and to fulfil our green ambitions. With investment and the right policy incentives – including today’s proposal for a new regulatory framework – we are helping establish the full batteries value chain in the EU: from raw materials and chemicals via electric mobility all the way to recycling.”   
Background
Since 2006, batteries and waste batteries have been regulated at EU level under the Batteries Directive (2006/66/EC). A modernisation of the framework is necessary because of changed socioeconomic conditions, technological developments, markets, and battery uses.
Demand for batteries is increasing rapidly and is set to increase 14 fold by 2030. This is mostly driven by electric transport making this market an increasingly strategic one at the global level. Such global exponential growth in demand for batteries will lead to an equivalent increase in demand for raw materials, hence the need to minimise their environmental impact.
Compliments of the European Commissoin.
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EACC

IMF | Navigating Capital Flows—An Integrated Approach

In a continuous effort to help countries manage volatile cross-border capital flows, the IMF has taken a major step toward a new analytical macroeconomic framework that can guide appropriate policy responses. The work reflects evolving thinking on macroeconomic policy and will feed into the upcoming review of the IMF’s Institutional View on the Liberalization and Management of Capital Flows, which currently guides the Fund’s advice and assessments of members’ policies.

Our analysis suggests that there is no “one-size-fits-all” response to capital flow volatility, nor is it a case of “anything goes” or that all policies are equally effective.

International capital flows provide significant benefits for economic development but can also generate or amplify shocks. This dilemma has long posed challenges for policymakers in many open economies
While flexible exchange rates can act as a useful shock absorber in the face of capital flow volatility, this mechanism does not always offer sufficient insulation, in particular when access to global capital markets is interrupted or market depth is limited. 
Image courtesy of the IMF.
Diverse approaches
Many policymakers reach for a mix of policy tools to complement interest rate policy when dealing with capital flows. These tools include macroprudential measures, foreign exchange intervention, and capital flow management measures.
Such diverse approaches were also used during the COVID-19 crisis, with significant differences in responses between countries.
Despite the widespread use of the various tools, to date, there has been no clear conceptual framework to guide the integrated usage of these tools.
Multiple tools for stability
A new paper, “Toward an Integrated Policy Framework (IPF),” starts filling the gap. It brings together insights from new models, as well as empirical work and case studies and lays out a coherent framework for the use of multiple tools to achieve macroeconomic and financial stability.
Our analysis suggests that there is no “one-size-fits-all” response to capital flow volatility, nor is it a case of “anything goes” or that all policies are equally effective. Optimal policies depend on the nature of shocks and country characteristics. For instance, the appropriate policy response in a country with less developed financial markets and large foreign currency debts may differ from that of a country that does not have foreign currency mismatches on their balance sheets, or those that can rely on more sophisticated (deep and liquid) markets.
Generally, in countries with flexible exchange rates, deep markets, and continuous market access, full exchange rate adjustment to shocks remains appropriate. However, when a country has certain vulnerabilities, such as shallow markets, dollarization, or poorly anchored inflation expectations, while flexible exchange rates continue to provide significant benefits, other tools can play a useful role as well. In particular, macroprudential measures, foreign exchange intervention, and capital flow management measures can enhance monetary policy autonomy so monetary policy can adequately focus on containing inflation and promoting stable economic growth. The same tools—including precautionary capital flow management measures on capital inflows, applied before shocks hit—can also help lower financial stability risks.
Our findings do not rationalize indiscriminate use of tools. In particular, IPF tools should not be used to maintain an over- or undervalued exchange rate. Also, while IPF tools help cope with shocks, most of the time they cannot fully offset underlying vulnerabilities. Thus, they are no substitute for deep markets, healthy balance sheets, and strong institutions. Efforts to promote the development of markets and institutions remain important to complement sound macroeconomic policies.
Additional steps needed
The new framework represents a significant advance in thinking about when various tools should and should not be used and how these tools can work together to achieve better outcomes. IMF staff is focusing on several areas to complete the analysis:
Long-term impacts. The benefits of IPF tools need to be balanced against possible costs such as slower market development and increased risk-taking. Protracted reliance on some of the tools might perpetuate the very vulnerabilities that rationalize their use. For example, persistent interventions might feed a (false) sense of security about future exchange rate developments that leads firms or households to take on more foreign currency debt, thus increasing balance sheet vulnerabilities.
Fiscal aspects. The fiscal stance and public debt levels matter for countries’ vulnerability to shocks, even as fiscal policy itself tends to be less suitable than IPF tools for managing capital flows. The models will be further extended to examine more closely the interaction between different fiscal policies and IPF tools.
Multilateral considerations. A country’s optimal policy mix also depends on the actions of other countries and global institutions. Use of IPF tools may have positive spillovers, especially if they improve macroeconomic and financial stability, and facilitate trade. But there may also be negative spillovers. For instance, capital flow management measures may deflect capital flows to other countries, where such flows may contribute to currency overvaluation and overheating.
Safeguards and metrics. In the IPF framework, the tools are aimed at well-defined macroeconomic and financial stability objectives. In practice, however, tools might be misused and support under/overvalued exchange rates, substitute for warranted macroeconomic adjustment, or impede price discovery and competition. Differentiating between appropriate and inappropriate deployment of IPF tools will require developing suitable metrics for assessing their use.
Work in each of these areas will advance in the period ahead and should result in improved policy guidance for countries facing volatile capital flows.
Compliments of the IMF.
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EACC

A fundamental transport transformation: EU Commission presents its plan for green, smart and affordable mobility

The European Commission presented today its ‘Sustainable and Smart Mobility Strategy‘ together with an Action Plan of 82 initiatives that will guide our work for the next four years. This strategy lays the foundation for how the EU transport system can achieve its green and digital transformation and become more resilient to future crises. As outlined in the European Green Deal, the result will be a 90% cut in emissions by 2050, delivered by a smart, competitive, safe, accessible and affordable transport system.
Frans Timmermans, Executive Vice-President for the European Green Deal, said: “To reach our climate targets, emissions from the transport sector must get on a clear downward trend. Today’s strategy will shift the way people and goods move across Europe and make it easy to combine different modes of transport in a single journey. We’ve set ambitious targets for the entire transport system to ensure a sustainable, smart, and resilient return from the COVID-19 crisis.”
Commissioner for Transport Adina Vălean said: “As the backbone that connects European citizens and business, transport matters to us all. Digital technologies have the potential to revolutionise the way we move, making our mobility smarter, more efficient, and also greener. We need to provide businesses a stable framework for the green investments they will need to make over the coming decades. Through the implementation of this strategy, we will create a more efficient and resilient transport system, which is on a firm pathway to reduce emissions in line with our European Green Deal goals.”
Milestones for a smart and sustainable future
All transport modes need to become more sustainable, with green alternatives widely available and the right incentives put in place to drive the transition. Concrete milestones will keep the European transport system’s journey towards a smart and sustainable future on track:
By 2030:

at least 30 million zero-emission cars will be in operation on European roads
100 European cities will be climate neutral.
high-speed rail traffic will double across Europe
scheduled collective travel for journeys under 500 km should be carbon neutral
automated mobility will be deployed at large scale
zero-emission marine vessels will be market-ready

By 2035:

zero-emission large aircraft will be market-ready

By 2050:

nearly all cars, vans, buses as well as new heavy-duty vehicles will be zero-emission.
rail freight traffic will double.
a fully operational, multimodal Trans-European Transport Network (TEN-T) for sustainable and smart transport with high speed connectivity.

10 key areas for action to make the vision a reality
To make our goals a reality, the strategy identifies a total of 82 initiatives in 10 key areas for action (“flagships”), each with concrete measures.
Sustainable
For transport to become sustainable, in practice this means:

Boosting the uptake of zero-emission vehicles, vessels and aeroplanes, renewable & low-carbon fuels and related infrastructure – for instance by installing 3 million public charging points by 2030.
Creating zero-emission airports and ports – for instance through new initiatives to promote sustainable aviation and maritime fuels.
Making interurban and urban mobility healthy and sustainable – for instance by doubling high-speed rail traffic and developing extra cycling infrastructure over the next 10 years.

Greening freight transport – for instance by doubling rail freight traffic by 2050.

Pricing carbon and providing better incentives for users – for instance by pursuing a comprehensive set of measures to deliver fair and efficient pricing across all transport.

Smart
Innovation and digitalisation will shape how passengers and freight move around in the future if the right conditions are put in place. The strategy foresees:

Making connected and automated multimodal mobility a reality – for instance by making it possible for passengers to buy tickets for multimodal journeys and freight to seamlessly switch between transport modes.
Boosting innovation and the use of data and artificial intelligence (AI) for smarter mobility – for instance by fully supporting the deployment of drones and unmanned aircraft and further actions to build a European Common Mobility Data Space.

Resilient
Transport has been one of the sectors hit hardest by the COVID-19 pandemic, and many businesses in the sector are seeing immense operational and financial difficulties. The Commission therefore commits to:

Reinforce the Single Market – for instance through reinforcing efforts and investments to complete the Trans-European Transport Network (TEN-T) by 2030 and support the sector to build back better through increased investments, both public and private, in the modernisation of fleets in all modes.
Make mobility fair and just for all – for instance by making the new mobility affordable and accessible in all regions and for all passengers including those with reduced mobility and making the sector more attractive for workers.
Step up transport safety and security across all modes – including by bringing the death toll close to zero by 2050.

Background
With transport contributing around 5% to EU GDP and employing more than 10 million people in Europe, the transport system is critical to European businesses and global supply chains. At the same time, transport is not without costs to our society: greenhouse gas and pollutant emissions, noise, road crashes and congestion. Today, transport emissions represent around one quarter of the EU’s total GHG emissions.
This push to transform transport comes at a time when the entire sector is still reeling from the impacts of the coronavirus. With increased public and private investment in the modernisation and greening of our fleets and infrastructure, and by reinforcing the single market, we now have a historic opportunity to make European transport not only more sustainable but more competitive globally and more resistant to any future shocks.
However, this evolution should leave nobody behind: it is crucial that mobility is available and affordable for all, that rural and remote regions remain connected, and that the sector offers good social conditions and provides attractive jobs.
Compliments of the European Commission.
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EACC

Joint statement by the co-chairs of the EU-UK Joint Committee re the Brexit Negotiations

The co-chairs of the EU-UK Joint Committee – European Commission Vice-President Maroš Šefčovič and the UK Chancellor of the Duchy of Lancaster, the Rt Hon Michael Gove – yesterday held a political meeting to address the outstanding issues related to the implementation of the Withdrawal Agreement. Ensuring that the Withdrawal Agreement, in particular the Protocol on Ireland and Northern Ireland, is fully operational at the end of the transition period, i.e. as of 1 January 2021, is essential. The Protocol protects the Good Friday (Belfast) Agreement in all its dimensions, maintaining peace, stability and prosperity on the island of Ireland.
Following intensive and constructive work over the past weeks by the EU and the UK, the two co-chairs can now announce their agreement in principle on all issues, in particular with regard to the Protocol on Ireland and Northern Ireland.
An agreement in principle has been found in the following areas, amongst others: Border Control Posts/Entry Points specifically for checks on animals, plants and derived products, export declarations, the supply of medicines, the supply of chilled meats, and other food products to supermarkets, and a clarification on the application of State aid under the terms of the Protocol.
The parties have also reached an agreement in principle with respect to the decisions the Joint Committee has to take before 1 January 2021. In particular, this concerns the practical arrangements regarding the EU’s presence in Northern Ireland when UK authorities implement checks and controls under the Protocol, determining criteria for goods to be considered “not at risk” of entering the EU when moving from Great Britain to Northern Ireland, the exemption of agricultural and fish subsidies from State aid rules, the finalisation of the list of chairpersons of the arbitration panel for the dispute settlement mechanism so that the arbitration panel can start operating as of next year, as well as the correction of errors and omissions in Annex 2 of the Protocol.
In view of these mutually agreed solutions, the UK will withdraw clauses 44, 45 and 47 of the UK Internal Market Bill, and not introduce any similar provisions in the Taxation Bill.
Next steps
This agreement in principle and the resulting draft texts will now be subject to respective internal procedures in the EU and in the UK. Once this is done, a fifth regular meeting of the EU-UK Joint Committee will be convened to formally adopt them. This will take place in the coming days and before the end of the year.

In this context:
Be sure to attend the EACC’s upcoming event with the EU’s Brexit Negotiator Stefaan De Rynck, details and RSVP here. Not to be missed!
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EACC

OECD | Heads of tax administration agree global actions to meet the current economic and administrative challenges

Tax administrations are playing a critical role as governments deal with the economic recovery from COVID-19 following an unprecedented global crisis. Today, senior officials from the 53 members of the OECD Forum on Tax Administration, which includes all OECD and G20 members, agreed an ambitious agenda for the next year, focused on enhancing resilience and tax certainty as well as the digital transformation of tax administrations.
The Forum on Tax Administration (FTA) held its virtual plenary meeting on 7-8 December 2020 bringing together tax commissioners from across the globe and representatives from international organisations and regional tax administration bodies. They met to discuss a variety of tax administration issues including responses to the global pandemic, emerging risks, digital transformation and tax certainty.
FTA members agreed:

To improve the resilience and agility of tax administrations globally to respond to crises, including through collaboration on new ways of working, the development and use of new IT tools, and different working arrangements.

To develop a roadmap in early 2021 for the digital service transformation of tax administrations building on the vision for Tax Administration 3.0 published at the Plenary. This roadmap will aim to identify priority work on core elements of this vision, such as digital identity, e-invoicing and secure mechanisms for the real-time sharing of information across borders.

To ramp up work on tax certainty, including through moving the International Compliance Assurance Programme (ICAP) from a pilot phase to an established programme for the co-ordinated assessment of multinational enterprise groups’ transfer pricing risks.
To bring together senior FTA leaders in the spring of 2021 to consider collective FTA support for capacity building in developing countries, in particular around the digitalisation and the further development of the joint OECD/UNDP Tax Inspectors Without Borders initiative.

“I am very proud of how tax authorities responded to the emerging COVID-19 crisis, working individually and co-operatively, and at great pace, to improve our individual and collective responses. The programme of work that we have agreed today, which builds on our achievements over this difficult year, will help us emerge from the crisis stronger, more resilient and more agile”, said Bob Hamilton, Chair of the FTA and Commissioner of the Canada Revenue Agency. “Our collective work and sharing of best practices will take us to the next level, which is essential to meet the needs and expectations of citizens, businesses and governments around the world.”
“Learning the lessons from the crisis, where tax administrations played a pivotal role, will be critical during the recovery period and in building future resilience”, said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “The pandemic has also accelerated thinking about the use of digital technology and tools, including how digitalisation might lead to fundamental changes in the administration of tax as set out in the FTA’s paper on Tax Administration 3.0. Our collective work on the steps to realise this vision may be an important legacy of this crisis.”
Contacts:

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration | pascal.saint-amans[at]oecd.org

Bob Hamilton, Chair of the FTA | FTA-Chair[at]cra-arc.gc.ca

Achim Pross, Head of the International Co-operation and Tax Administration Division | Achim.Pross[at]oecd.org

Compliments of the OECD.
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IMF | A Greener Future Begins with a Shift to Coal Alternatives

As the world economy emerges from the COVID-19 crisis, the consumption of coal is expected to recover from its sharp decline during the pandemic.
Demand for coal remains strong and helps to fuel economic development in emerging markets. Yet many countries, seeking a more sustainable future, have been taking steps to reduce their dependence on fossil fuels, especially coal. Obstacles to their efforts have proven difficult to overcome, not least because people who work in the coal industry depend on it for their livelihoods—but the right policy levers can help.

Tough questions will need to be asked and answered when considering the policy alternatives supporting a shift away from coal.

Green investment and technological progress can help to check the rebound in coal use and accelerate a transition to cleaner energy sources as economic activity normalizes. And well-designed policies can help ease the transition for coal miners and others whose livelihoods depend on coal.
A glance at history
Coal is a major contributor to local pollution and climate change, accounting for 44 percent of global CO2 emissions. When burned to generate heat or electricity, coal is 2.2 times as carbon intense as natural gas—that is, burning coal emits more than twice as much carbon dioxide as natural gas to generate the same amount of energy. Coal-fired thermal power plants release sulfur dioxide, nitrogen oxide, particulate matter, and mercury into the air and rivers, streams, and lakes. These emissions not only degrade the environment but there is long-established evidence they are hazardous to human health—British government medical reports estimated that 4,000 people died as a direct result of the Great Smog of London in 1952 that was caused by coal combustion and diesel exhaust.
There is a strong relationship between the level of development and coal consumption, with middle-income countries typically being most dependent on coal. During the second industrial revolution in the late nineteenth and early twentieth centuries, advanced economies rapidly increased their dependence on coal. As incomes continued to rise, however, coal was slowly replaced with more efficient, convenient, and less polluting fuels such as oil, nuclear energy, natural gas, and, more recently, renewable energy.
This decline in coal use was interrupted in the 1970s and then partially reversed by three factors: (1) energy security concerns, (2) growing electrification, and (3) fast economic growth in emerging markets. Increased power needs contributed to a rebound in demand for coal for electricity generation in many advanced economies, which at the same time were turning back to coal to reduce dependence on imported oil. By the turn of this century, coal use was again declining in advanced economies, but this was more than offset by surging demand in emerging markets.
Today, emerging markets account for 76.8 percent of global coal consumption, with China contributing about half. Power generation accounts for 72.8 percent of coal usage, and industrial uses, such as coking coal for steel production, represent another 21.6 percent.
Image courtesy of the IMF.
Obstacles to coal phaseout
Phaseouts from coal often take decades. It took the United Kingdom 46 years to reduce coal consumption by 90 percent from its peak in the 1970s. Across a range of countries, coal use declined just 2.3 percent annually during the period 1971–2017. At that rate, it would take 43 years to fully phase out coal, starting from the peak consumption year.
Several factors make it difficult to steer away from coal.
First, the industrial use of coal, concentrated in emerging markets, is hard to replace with other energy sources. Hydrogen-based technologies offer a pathway to green the production of steel, but incentives are currently weak because of insufficient carbon pricing.
Second, coal power plants are long-lived assets with a minimum design lifespan of 30 to 40 years. Once built, coal plants are here to stay unless there are dramatic changes in the costs of renewables or policy makers intervene.
Third, moving away from coal typically means losses for the domestic mining industry and its workers. In major coal-consumer countries such as China and India, strong domestic mining interests may complicate and delay the phase-out of coal. In the United States, the rapid transition from coal to natural gas led to a decline in coal mine employment, a record number of bankruptcies among coal mining firms, and a sharp decline in coal mining stocks. A similar transition in some coal-producing countries could imperil financial stability, as banks take losses on investments in obsolete mines and power plants—so-called “stranded assets.’’ And the human element often sees a long, proud tradition of miners and others working in the industry, which makes abandoning this way of life difficult.
Feasibility of phaseouts
Certain market conditions and policy levers can help overcome obstacles to a coal phaseout. Stricter environmental policies, carbon taxes, and affordable energy substitutes are crucial. For example, a carbon pricing scheme helped the United Kingdom reduce its dependence on coal by 12.4 percentage points from 2013 to 2018. In Spain, government subsidies favoring renewable electricity generation helped reduce coal dependence between 2005 and 2010—even though that reduction was in part driven by temporary factors. In the United States, a more modest decline was driven by market forces as the shale gas revolution pushed down natural gas prices.
Image courtesy of the IMF.
Tough questions will need to be asked and answered when considering the policy alternatives supporting a shift away from coal. Coal miners and others who depend on the coal industry for their livelihoods need, and deserve, realistic solutions to the potential disruption they face. Other supportive policies will be needed to ease job transitions, and possibly encourage the development of alternative industries to avoid hollowing out communities and upending families. In the case of emerging markets and low-income countries, the international community can provide financial and technical assistance (e.g., the know-how needed to build grids that work with intermittent power sources, such as wind and solar) and limit financing of new coal plants, at least where alternatives exist. Cleaner alternatives like natural gas can also help bridge the energy transition towards a greener future. Carbon capture and storage technology may be a viable solution to ease the transition away from coal, but it is currently less cost-competitive than other low-carbon energy sources such as solar and wind.
Compliments of the IMF.
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IMF | Cyber Risk is the New Threat to Financial Stability

Many of us take for granted the ability to withdraw money from our bank account, wire it to family in another country, and pay bills online.Amid the global pandemic, we’ve seen how much digital connection matters to our everyday life. But what if a cyberattack takes the bank down and a remittance doesn’t go through?

As we become more reliant on digital banking and payments, the number of cyberattacks has tripled over the last decade, and financial services is the most targeted industry.

As we become increasingly reliant on digital financial services, the number of cyberattacks has tripled over the last decade, and financial services continue to be the most targeted industry. Cybersecurity has clearly become a threat to financial stability.
Given strong financial and technological interconnections, a successful attack on a major financial institution, or on a core system or service used by many, could quickly spread through the entire financial system causing widespread disruption and loss of confidence. Transactions could fail as liquidity is trapped, household and companies could lose access to deposits and payments. Under extreme scenarios, investors and depositors may demand their funds or try to cancel their accounts or other services and products they regularly use.
Image courtesy of the IMF.
Hacking tools are now cheaper, simpler and more powerful, allowing lower-skilled hackers to do more damage at a fraction of the previous cost. The expansion of mobile-based services (the only technological platform available for many people), increases the opportunities for hackers. Attackers target large and small institutions, rich and poor countries, and operate without borders. Fighting cybercrime and reducing risk must therefore be a shared undertaking across and inside countries.

Image courtesy of the IMF.
While the daily foundational risk management work — maintaining networks, updating software and enforcing strong ‘cyber hygiene’ — remains with financial institutions, there is also a need to address common challenges and recognize the spillovers and interconnections across the financial system. Individual firm incentives to invest in protection are not enough; regulation and public policy intervention is needed to guard against underinvestment and protect the broader financial system from the consequences of an attack.
In our view, many national financial systems are not yet ready to manage attacks, while international coordination is still weak. In new IMF staff research, we suggest six major strategies that would considerably strengthen cybersecurity and improve financial stability worldwide.
Cyber mapping and risk quantification
The global financial system’s interdependencies can be better understood by mapping key operational and technological interconnections and critical infrastructure. Better incorporating cyber risk into financial stability analysis will improve the ability to understand and mitigate system-wide risk. Quantifying the potential impact will help focus the response and promote stronger commitment to the issue. Work in this area is nascent—in part due to data shortcomings on the impact of cyber events and modelling challenges—but must be accelerated to reflect its growing importance.
Converging regulation
More internationally consistent regulation and supervision will reduce compliance costs and build a platform for stronger cross-border cooperation. International bodies such as the Financial Stability Board, Committee on Payments and Market Infrastructure, and Basel Committee, have begun to strengthen coordination and foster convergence. National authorities need to work together on implementation.
Capacity to respond
As cyberattacks become increasingly common, the financial system has to be able to resume operations quickly even in the face of a successful attack, safeguarding stability. So-called response and recovery strategies are still incipient, particularly in low-income countries, which need support in developing them. International arrangements are necessary to support response and recovery in cross-border institutions and services.
Willingness to share
More information-sharing on threats, attacks, and responses across the private and the public sectors will enhance the ability to deter and respond effectively. Yet, serious barriers remain, often stemming from national security concerns and data protection laws. Supervisors and central banks need to develop information sharing protocols and practices that work effectively within these constraints. A globally agreed template for information sharing, increased use of common information platforms, and expansion of trusted networks could all reduce barriers.
Stronger deterrence
Cyberattacks should become more expensive and riskier through effective measures to confiscate crime proceeds and prosecute criminals. Stepping up international efforts to prevent, disrupt and deter attackers would reduce the threat at its source. This requires strong co-operation between law enforcement agencies and national authorities responsible for critical infrastructure or security, across countries and agencies. Since hackers know no borders, global crime requires global enforcement.
Capacity development
Helping developing and emerging economies build cybersecurity capacity will strengthen financial stability and support financial inclusion. Low-income countries are particularly vulnerable to cyber risk. The COVID-19 crisis has highlighted the decisive role that connectivity plays in the developing world. Harnessing technology safely and securely will continue to be central to development and with it a need to ensure that cyber risk is addressed. As with any virus, the proliferation of cyber threats in any given country makes the rest of the world less safe.
Addressing all these gaps will require a collaborative effort from standard-setting bodies, national regulators, supervisors, industry associations, private sector, law enforcement, international organizations, and other capacity development providers and donors. The IMF is focusing its efforts on low-income countries, by providing capacity development to financial supervisors, and by bringing the issues and perspectives of these countries to the international bodies and policy discussions in which they are not adequately represented.
Authors:

Jennifer Elliott is Division Chief of Technical Assistance Strategy in the Monetary and Capital Markets Department, IMF.

Nigel Jenkinson is Division Chief of Financial Regulation and Supervision in the Monetary and Capital Markets Department, IMF.

Compliments of the IMF.
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EU Council greenlights temporary VAT relief on COVID-19 vaccines and test kits

The EU is taking steps to ensure affordable access to COVID-19 vaccines and testing kits.
The Council today adopted amendments to the directive on the common system of value added tax (VAT) to allow member states to temporarily exempt COVID-19 vaccines and testing kits, as well as closely related services, from VAT.
Member states may also apply a reduced VAT rate to testing kits and closely related services, if they choose to do so. This possibility is already available for vaccines.
The measures decided today only concern COVID-19 vaccines authorised by the Commission or by the member states and COVID-19 test kits that comply with the applicable EU legislation.
They will apply until 31 December 2022.

Amendments to directive 2006/112/EC as regards VAT applicable to COVID-19 vaccines and in vitro diagnostic medical devices

Compliments of the Council of the European Union.
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EU Council conclusions on European Union – United States relations

The Council reaffirms the strategic importance of the European Union’s partnership with the United States of America as the world’s foremost and closest relationship, rooted in shared values and common interests, cultural and historic ties, as well as geopolitical reality. A strong transatlantic partnership is vital to ensure and to contribute to our common security, stability and prosperity. We also believe that transatlantic relations are the bedrock of the rules-based international order, reinforcing international peace and security, freedom, prosperity, human rights, gender equality, multilateralism, rule of law and democracy, not just for those living on our shores but also for the rest of the world.
The Council believes in a strong mutually beneficial long-term strategic partnership with the United States, in a strengthened multilateral order, which will promote a shared vision of the world and can achieve tangible results. A renewed transatlantic agenda is necessary to find joint answers to global challenges, in order to safeguard the health and wellbeing of our people and our planet, to protect democracy and make it deliver for our citizens. By pursuing its strategic course of action and increasing its capacity to act autonomously, a stronger European Union will actively contribute to strengthening the transatlantic partnership and its ability to deliver.
Given the devastating effects of Covid-19, there is an even more pressing need to fight the pandemic together, to fully implement the United Nations 2030 Agenda for Sustainable Development, to ensure a green economic recovery and to expedite green energy and digital transitions as well as to strengthen our shared values. In this context, the Council welcomes president-elect Biden’s intention for the United States to re-join the Paris Agreement on climate change as soon as possible. The Council stands ready to engage in a transatlantic climate dialogue in the run-up to COP26, building upon the Commission communication on the European Green Deal, and to jointly implement concrete measures to fight climate change and achieve climate neutrality. In order to boost economic recovery, we should work together towards deepening our economic relations, including settling trade differences. The EU and the US should aim to achieve a more effective and coordinated use of restrictive measures, as well as to address the issue of measures with extraterritorial effect.
It is time to deliver on our support for multilateralism, including through much-needed reforms in international organisations, in a way that preserves founding principles – enshrined in the Charter of the United Nations – and human rights. In this context, the Council welcomes the incoming Administration’s commitment to multilateral diplomacy and international alliances. The European Union looks forward to working closely with the United States to strengthen the United Nations’ ability to address global challenges. It is time to renew joint EU-US efforts aimed at strengthening as well as reforming international organisations such as the World Health Organisation and the World Trade Organisation, and to work together to reinforce the global non-proliferation, disarmament and arms-control architecture. We need to work together to preserve the Joint Comprehensive Plan of Action as endorsed by United Nations Security Council Resolution 2231 (2015), a key pillar of the global non-proliferation architecture, and to further its achievements and to address future challenges. The Council remains committed to reinforcing cooperation in international fora and protecting human rights, democracy and the rule of law.
The Council recalls that the democratic societies and market economies of the transatlantic partners face common threats and challenges presented by the growing international assertiveness of various actors. Together with the United States, we need to strengthen our strategic resilience, energy security, counter hybrid threats including disinformation, withstand economic coercion and attacks on critical infrastructure, step up our efforts to combat unfair trading practices and ensure that we maintain our technological edge. Wherever possible our cooperation should be broadened to include like-minded democracies around the world. The EU stands ready to continue working with the US in all areas, be it in the EU Eastern and Southern neighborhood, the Western Balkans, the Eastern Mediterranean, the Middle East, Africa, Latin America and the Caribbean, or the Indo-Pacific. Furthering our common agenda on sustainable connectivity will be equally essential.
The European Union and the United States should continue to maintain close cooperation and dialogue in the area of security and defence and further enhance their common efforts, including through enhanced, mutually-reinforcing and beneficial strategic EU-NATO partnership in areas of shared interest in the framework of the 2016 Warsaw and 2018 Brussels Joint Declarations. This will enable us to effectively address various traditional and emerging threats and challenges. In line with the Council conclusions of 17 June 2020, EU security and defence initiatives will enhance the European contribution to transatlantic security. This will also contribute to strengthening the rules-based international order with the United Nations at its core.
Ultimately and most importantly, we believe that our partnership is deeply rooted in relations between people. Promoting strong people-to-people connections can play a fundamental role in fostering a positive and ever closer EU-US relationship. Continued investment in people-to-people contacts, through cooperation in science, research and development, education, the Internet and information society, business and culture will be essential to building on our partnership. The Council also recognises the need to advance links between our young people and future leaders to promote mutual understanding for the benefit of EU-US cooperation, and the values and principles that we share. In order to enable all EU citizens to benefit seamlessly from people-to-people contacts, achieving full visa reciprocity with the United States for all its Member States remains a priority for the European Union.
The Council underlines its interest to engage in a regular, comprehensive and strategic political dialogue with the United States, including at the highest level, in order to reach the full potential of the transatlantic partnership. Cherishing the past while embracing the future, the Council stands ready to discuss the strategic direction of all policies of shared interest and looks forward to expanding cooperation with the United States.

Contact:

Maria Daniela Lenzu, Press officer | maria-daniela.lenzu[at]consilium.europa.eu

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