Last-Minute Green Deal Hiccups Expose EU Concerns Over Political Costs

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(Bloomberg) — Leaders and companies in Europe’s biggest markets are increasingly balking at the ambitious pace of the continent’s green push as they confront the massive costs associated with economic transformation.

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The European Union’s drive to make the continent climate-neutral has coincided with emergency rules to mitigate the effects of an energy crisis and increasing competition from the US and China. This has put great pressure on governments and companies, sparking calls from French President Emmanuel Macron and other leaders for a slower pace.

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Countries including France and Germany have started to chip away at parts of the EU’s so-called Green Deal that have the potential to negatively impact their voters. EU officials worry that Berlin and Paris have opened the door to those seeking to soften the climate package, potentially hobbling the overall proposal and putting the time line – no net emissions of greenhouse gases by 2050 – in jeopardy.

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Christian Egenhofer, a senior researcher at the CEPS think tank, said the EU’s plan is extremely ambitious and people are just now starting to realize the scope of the challenge.

“Climate policies are now affecting family sectors such as housing, mobility or food, making them more controversial and more prone to domestic political risks,” he said. “Politicians are waking up to the fact that they need to mobilize everything from money to skills to enact the shift.”

The EU is locked in a tussle with the US over President Joe Biden’s green subsidy law, which will offer some $369 billion in handouts and tax credits over the next decade for clean-energy programs in North America. At the same time, the EU is seeking to reduce its dependence on China for critical materials and technologies key to the green transition.

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Politically, the huge costs of the EU’s climate plans are starting to become a more immediate reality, with an estimated €470 billion ($504 billion) of additional investment needed. Officials and lawmakers are increasingly concerned about the issue in the run up to European Parliament elections due next year.

“This is very worrying on different levels,” said Chiara Martinelli, director of Climate Action Network Europe, a coalition of climate NGOs in Brussels. “It’s fueling the narrative that climate policies are a kind of burden on society, while in fact inaction will cost the EU more than implementing the Green Deal.”

Macron, whose popularity has cratered after pushing through an unpopular reform to the pension system, recently called for a pause to new EU climate regulations.

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Belgian Prime Minister Alexander De Croo praised the Green Deal but urged caution. “Reducing CO2 is the number one target and our industry is going to be an important part of that, but that means that we cannot ask them to do everything at the same time,” De Croo said in an interview.

But it was Germany that may have done the most damage to the spirit of the Green Deal. Earlier this year, it exercised a last-minute veto on the EU’s combustion-engine ban. The auto industry in Germany employs about 786,000 people.

While brands like Porsche and BMW defined the combustion-engine era, Germany’s electric cars have struggled. BYD Co. overtook VW to become the best-selling car brand in China last quarter. Key to its push was an electric model that costs around a third of VW’s ID3, but offers greater range and connectivity with third-party applications.

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Earlier this month, France helped block the passage of a critical renewable energy reform that’s seen as a key element of the Green Deal over a domestic political concern — how nuclear energy is treated in the EU’s climate strategy. 

EU diplomats see the French and German maneuvering as a harbinger of a broader debate about how to make the clean overhaul affordable, that will be discussed by leaders.

The campaign to soften the clean overhaul has already reached the European Parliament, where lawmakers this week recommended weakening a proposal on industrial emissions and threatened to reject rules on pesticides and re-wilding land and seas. Michael Bloss, a German MEP from the Greens group, said what he called “an attack on the Green Deal” risked stopping the necessary modernization of European industry.

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A push to slow the pace of reforms pits the lawmakers backing a softer approach against the European Commission’s climate chief Frans Timmermans. He has repeatedly said that implementing the shift and mobilizing both public and private finance will be “bloody hard and complicated,” but a failure to act will only lead to higher costs later.

“One cannot ignore that Timmermans is doing too much at the same time,” said Peter Liese, the lead lawmaker on environment for the European People’s Party. The EU’s plan for a green transition is important “and I will insist on the strict implementation, but you cannot do everything that green and NGOs support and you can definitely not do it in the next two years.”

In Poland, which is heading for parliamentary elections in October, ruling party leader Jaroslaw Kaczynski said last week the EU climate package was promoting “irrational solutions.” He vowed the government will fight for “a just transition” for the country.

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Pollution Rules

Poland recently joined a push by the Czech Republic, France, Italy and four other nations earlier this week against draft exhaust pollution rules, which would come on top of the carbon dioxide limits for cars. This new regulation, proposed by the commission in November and due to kick in from July 2025, could divert crucial investments needed for decarbonizing the auto industry, according to the governments.

For now, the most urgent task for Europe is to resolve the spat with France over the renewable energy law, a key element of the so-called Fit for 55 package. Sweden, which currently holds the rotating EU presidency, aims to win approval for the measures from national governments by June.

For investors, such hiccups risk hurting the very regulatory stability that the EU is betting on in the green shift and that Macron wants to protect. 

“If certain leaders start signaling last-minute hesitations about the direction of the green transition amid months of negotiations, it could undermine investments in clean technologies and ultimately the EU policy objective of fast-tracking decarbonization,“ said Laurent Donceel, acting managing director at the Airlines for Europe association.

—With assistance from John Ainger, Chiara Albanese, Andra Timu, Natalia Ojewska, Lyubov Pronina and Gina Turner.