By Tony Hughes CEO of Platinum Energy Solutions
The European Commission has proposed a new rule to enshrine into law the European Union’s goal to become carbon neutral by 2050. The goal of the so-called European Climate Law would be to legally set 2050 as the target year to achieve this by, and in so doing, create a greater sense of predictability for public bodies, businesses and EU citizens regarding the direction of travel for all future EU policy on climate change.
Codifying the bloc’s effort to launch a 21st century sustainable green economy (symbolised by the launch in December 2019 of the European Commission’s European Green Deal) will also influence countries outside of the EU (and the businesses based in them) who are closely intertwined with the EU, such as Switzerland, Norway and (after Brexit) the United Kingdom.
The European Green Deal is divided into 10 distinct policy areas which range from increasing renewable energy sources to transforming transport with electric vehicles to greening the bloc’s Common Agricultural Policy, all with the aim of achieving a so-called ‘climate-neutral’ economy by the middle of the 21st century.
The deal also features a ‘Just Transition Fund’ to ensure that less developed and more carbon-dependent economies are not left behind by the shift in technology and economic model, as well as a ‘do no harm’ principal which will require EU-based firms (or companies wishing to do business there) to adopt stringent environment reporting and expanded producer responsibilities (for things such as supply chains).
The aim is to avoid the offshoring of carbon emissions to economies outside of European countries, and to encourage the global spread of the European model to countries outside of the EU. Ultimately Europe hopes to halve its carbon emissions by 2030 under the plan.
The commission’s announcement on March 4th, 2020 that it would be seeking a European Climate Law would give the policy proposals under the European Green Deal legal teeth, and make it harder for policymakers to fudge or postpone difficult targets later down the line. The law would set a legally binding target of net zero greenhouse gas emissions by 2050 and would include measures to track progress and make necessary adjustments according to the latest scientific climate data.
Given the size of the European market and the influence the EU already exerts on regulatory standards globally, the law could potentially act as a driver of change well beyond the boundaries of the EU. However, its greatest impact will probably be felt among the smaller economies along the bloc’s major boundaries, as economically these countries (such as the United Kingdom) conduct the greatest portion of their trade with the European Union, even if they remain outside it politically.
Given the choice between producing separate products for a home market and an EU one, or simply producing goods that meet EU requirements but can be sold domestically as well, most of these countries’ firms will simply opt to save costs by meeting European green standards across their entire range of production.
The alternative would be to pay the EU a carbon tax for producing goods in countries which are less strict about emissions (either in the production or the transport stage of exporting the goods to the EU). By putting a carbon price on imports of certain energy-intensive goods from outside the EU, the bloc aims to incentivise companies to transfer production of energy-intensive goods back to Europe and away from major polluters such as China. The tariff would incentivise EU consumers to pick less energy-intensive goods produced locally (where, at the very least, carbon emissions from transport would be lower), and the European Climate Law would provide a point of reference in which to outline such a system of carbon taxes to private sector stakeholders.
The basket of proposals the EU is putting forwards under the European Green Deal and the European Climate Law will undoubtedly prove controversial to today’s large and established businesses, who will face many new costs as they update their operations to comply with the new regulatory standards.
However, the shift will also allow innovative smaller companies (who have proven to be early adopters of new green products) their chance to create and grow a market for clean technologies in areas such as waste management or energy storage. With achieving zero-pollution, ecological preservation and biodiversity the new goals of policymakers beyond just economic growth, the pace of technological transformation promises to be the biggest in Europe since the industrial revolution replaced agricultural-based economies with ones based around manufacturing in the 19th century.