- Current political and economic issues succinctly explained.
Last week the European Commission seized global leadership on climate change, unveiling a sweeping scheme to reduce the EU’s carbon emissions by 55 percent from 1990 levels by 2030 and achieve “net zero” by 2050. Brussels envisions a total overhaul of the bloc’s economy, including eliminating the sale of new gas- and diesel-powered automobiles by 2035 and introducing border taxes to penalize imports from jurisdictions less committed to decarbonization.
The bloc’s bold move ramps up diplomatic pressure on the United States, China and other major emitters to respond in kind in the run-up to the Glasgow climate change conference. The ultimate fate of the commission’s proposal will depend on whether its carbon border adjustment scheme proves WTO-compatible; whether the heterogeneous, 27-member European Union maintains solidarity as it hammers out the plan’s details; and whether others in fact follow the bloc’s lead.
The EU is often described as an economic giant but a political pygmy. When it comes to climate change diplomacy, however, it is the world’s heavy hitter. In December 2019, the commission announced the European Green Deal, pledging to make Europe the first climate-neutral continent by 2050. That goal has since been codified in the European Climate Law, which enters into force this month.
Brussels’ new 12-point plan ramps up the scale of European ambition even further, with detailed proposals on how to meet those ambitious objectives. The plan would tighten the bloc’s existing Emissions Trading System—which caps and taxes companies’ carbon emissions, currently priced at roughly $60 per ton—while also extending it to the building and transportation sectors, including aviation and shipping. It would set binding new targets on energy efficiency for EU member states; increase the proportion of renewables in the bloc’s energy mix to 40 percent by 2030; and expand the continent’s natural carbon sinks by at least 15 percent through new regulations on agriculture, forestry and land use, as well as the planting of 3 billion new trees. The commission’s most eye-popping proposal is that “all new cars registered as of 2035 will be zero-emission,” thanks to a continent-wide network of electric and hydrogen-fuel charging stations.
The risk in adopting high emissions standards, of course, is that they would simply push carbon-intensive production to other countries, as well as expose EU producers to unfair foreign competition. To reduce “carbon leakage,” as the former phenomenon is known, and ensure a level playing field in global trade, the commission proposes a new Carbon Border Adjustment Mechanism, or CBAM, to increase the cost of carbon-intensive imports—including cement, steel, aluminum and fertilizers—from countries with more lenient regulatory standards. The EU has long considered but shied away from such a move, for fear of exacerbating trade frictions.
The CBAM is a huge stride toward greening the global trading system, but it faces some practical and legal hurdles. The new scheme will require the EU to assess and verify the carbon intensity of imported products, and to update penalties to reflect the evolving regulatory landscape in exporting countries. Even more dauntingly, the EU will need to ensure that the new regime does not run afoul of World Trade Organization rules. Already, Brazil, China, India and South Africa have “expressed grave concern” that the CBAM is “discriminatory,” particularly against developing countries that bear less historical responsibility for the climate crisis. To protect itself from adverse decisions by the WTO’s dispute settlement mechanism, the EU would need to make a persuasive case that the CBAM falls under the rubric of “general exceptions” permitted on health and environmental grounds, and is not a “disguised restriction on international trade.”
The biggest threat to the commission’s climate ambitions is less external than internal: the possibility of a political revolt among member states, who, along with the European Parliament, must negotiate the finer points of the agreement—as well as its overall price tag—over the next two to three years. Many governments are wary of arousing populist passions among constituents more preoccupied with pocketbook issues than the fate of the planet.
The proposal to extend the carbon market to heating and fuel is a particular sticking point. As EU leaders well recall, French President Emmanuel Macron’s effort to raise fuel taxes in 2017 as part of France’s national climate agenda sparked the massive Yellow Vest protests among citizens less concerned with “the end of the world” than with “the end of the month”—i.e., making rent. If EU citizens come to view the European Green Deal as a burdensome, elite-driven project, it could meet the same fate.
To preempt that possibility, the commission proposes to allocate some 72.2 billion euros, or roughly $85.2 billion, from the EU budget between 2025-2035 to a new Social Climate Fund. The fund will help vulnerable EU citizens and small businesses absorb the costs of decarbonization, particularly expenses related to “investments in energy efficiency, new heating and cooling systems, and cleaner mobility.” Member states would mobilize an identical amount, in effect doubling the funds dedicated to ensuring “a socially fair transition.”
More generally, the commission has framed the European Green Deal as a route to long-term prosperity and sustainability. “The benefits of acting now to protect people and the planet are clear: cleaner air, cooler and greener towns and cities, healthier citizens, lower energy use and bills, European jobs, technologies and industrial opportunities, more space for nature, and a healthier planet to hand over to future generations.”
Frans Timmermans, the commission’s vice president who shepherds the European Green Deal, aptly describes the 2020s as a “make or break decade in the fight against the climate and biodiversity crises.” The EU cannot do it alone, of course. The bloc generates only 15 percent of humanity’s greenhouse gasses—about half of Chinese emissions and about the same as the U.S. share. The planet’s fate will thus depend heavily on China’s willingness to accelerate its 2060 target for carbon neutrality, as well as the Biden administration’s ability to deliver on its own bold pledges in a highly partisan domestic political environment. It will also require major new commitments from India, Japan, Russia and other significant emitters.
The window of opportunity for effective climate action is closing fast. Others must match Europe’s bold initiative before it slams shut.