The European Union’s unilateral climate strategy will turn Europe into a trade fortress, encourage green protectionism around the world and give other regions the opportunity to develop using cheaper energy. And without China, India, and the US on board, few will want to emulate the EU’s role as a green guinea pig.
MUNICH – The European Union is one of the few signatories of the 2015 Paris climate agreement which initially committed to limiting its carbon dioxide emissions, having pledged to reduce them by 40% ( and now 55%) from 1990 levels by 2030. On July 14, the European Commission presented a comprehensive package of measures to massively reduce CO emissions from EU businesses and households2 in the short term in order to reach the target of 55% by 2030 and make the bloc carbon neutral by 2050.
Never before has the world seen a comparable effort to protect the environment. And rarely, except in times of war, have market economies been subjected to the kind of rigid central planning that the Commission is now proposing.
The program provides for three different CO2 emissions trading systems. The Commission plans to extend the existing regime, which already applies to the energy and chemical sectors and parts of basic industry, to maritime transport. The EU will also create a new separate trading system for buildings and road transport. In addition, emission certificates will no longer be allocated free of charge. Instead, the EU wants to sell them and use the proceeds to fund transfers to the poorest segments of the population, while sharply reducing the number of certificates each year.
In 2020, the EU introduced a so-called taxonomy to classify investments according to their degree of ‘green’, with the aim of prompting the European Central Bank to implement differentiated credit operations that offer businesses green verifiable lower interest rates. The Commission is now proposing a total ban on the direct use of fossil fuels in car engines after 2035; the cars must then be powered by electricity stored in batteries or in hydrogen tanks. And EU air traffic emissions will be frozen at 2020 levels.
Finally, the Commission plans to introduce a carbon border adjustment mechanism to put a carbon price on imports of basic industrial materials into the EU. This is intended to prevent so-called carbon leaks, or the relocation of CO2 emissions to other countries outside the bloc.
Whether these breathtaking bold steps will work is an open question. What is certain, however, is that by bringing European industry to its knees and depriving it of its competitiveness, they will have a massive negative effect on the region’s standard of living. The main force behind the Commission’s proposals is Frans Timmermans, its executive vice-president for the European Green Deal, which turns Europe into a protectionist economic system centrally controlled from Brussels – and makes many mistakes in the process.
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For example, separate emissions trading systems for different economic sectors and the control of the capital market through the regulation of investment taxonomy will violate the law of one price, the normative foundation of economics, which is essential for a cost minimization strategy to avoid CO2 emissions.
Timmermans also overlooks the fact that oil, gas and to some extent coal are traded commodities. The fuels that Europe no longer consumes will be sold on world markets to other countries happy to buy them at lower prices. The resulting carbon leakage will mean that, even if the EU formally fulfills its Paris agreement promise, its transport-related emission reductions will not benefit the global climate.
For a ban on the use of petroleum in cars to have positive effects on the climate, the EU should store unused fuel in well-protected tanks somewhere on its territory. But the leaders of the bloc are wisely keeping silent on this subject so as not to underline the obvious absurdity of their one-sided approach.
Moreover, contrary to the hopes of the Commission, the elimination of gasoline and diesel engines and the switch to electric vehicles (EVs) will do little to reduce global CO emissions.2 emissions. The EU currently still generates a significant share of its electricity from coal, and Germany, the EU’s largest and most industrialized economy, has pledged to dismantle its nuclear power plants in 2022. For in the coming years, in many EU countries, therefore, new electric vehicles will largely run on additional energy from existing European coal-fired power plants, which have free capacity, while existing wind and solar power plants produce at their maximum and cannot adapt.
Given that electric vehicles will accelerate coal mining in Europe in the short term, and combustion engines would have used internationally marketable and therefore carbon neutral fuels, the European ban on internal combustion engines could even cause more CO2 emissions in the years to come.
The main problem is that the EU does not coordinate its actions with other countries, not even through the Paris agreement. About 70% of the nearly 200 signatories have not committed to quantitative CO2 emission limits and quietly welcome the fact that a small minority of countries have pledged not to buy so much fuel under their noses.
The Commission’s belief that its proposed border adjustment system can prevent or contain carbon leakage is unfounded, if not naive. Even though the EU could tax CO2 content of all imports, it would have no way of preventing marketable fuels it no longer uses from being shipped to other parts of the world and burned there. The EU focuses on the insignificant part of carbon leakage linked to the carbon content of the goods traded and neglects the direct leakage through the sale of the fuels themselves.
As the sale of CO2 emission certificates, the border adjustment right will finally provide the EU with its own source of income. But those who have to pay the levies are unlikely to see this as a benefit.
The EU’s ambitious one-sided climate strategy will turn Europe into a stronghold of commerce, encourage green protectionism around the world and give other regions the opportunity to develop using cheaper energy. And without China, India and the United States on board, other countries will be careful not to follow the EU in its self-proclaimed role as the world’s green guinea pig. If Europe is not careful, it risks ending up in a one-man climate club.