(Bloomberg) — Leaders and companies in Europe’s biggest markets are increasingly resisting the ambitious pace of the continent’s green push as they grapple with the massive costs associated with economic transformation.
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The European Union’s push to make the continent climate neutral has coincided with emergency rules to mitigate the effects of an energy crisis and increased competition from the US and China. This has put huge pressure on governments and businesses, prompting French President Emmanuel Macron and other leaders to call for a slower pace.
Countries such as France and Germany have begun to dismantle parts of the EU’s so-called Green Deal that have the potential to negatively affect their voters. EU officials worry that Berlin and Paris have opened the door to those seeking to soften the climate package, potentially stymieing the overall proposal and jeopardizing the timeline: net zero greenhouse gas emissions by 2050.
Christian Egenhofer, a senior researcher at the CEPS think tank, said the EU’s plan is extremely ambitious and people are now beginning to realize the scale of the challenge.
“Climate policies are now affecting household 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 bring about change.”
The EU is locked in a fight with the United States over President Joe Biden’s green subsidy law, which will provide about $369 billion in aid and tax credits over the next decade for clean energy programs in North America. At the same time, the EU is trying 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 ahead of next year’s European Parliament elections.
“This is very worrying on different levels,” said Chiara Martinelli, director of Climate Action Network Europe, a coalition of climate NGOs in Brussels. “It is feeding the narrative that climate policies are some kind of burden on society, when in fact inaction will cost the EU more than implementing the Green Deal.”
Macron, whose popularity has soared after pushing through an unpopular reform of the pension system, recently called for a pause on new EU climate regulations.
Belgian Prime Minister Alexander De Croo has praised the Green Deal, but urged caution. “CO2 reduction is the number one goal and our industry will be a big part of that, but that means we can’t ask them to do everything at once,” 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, he exercised a last-minute veto on a ban on combustion engines in the EU. The automotive industry in Germany employs around 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 about a third of VW’s ID3 but offers greater range and connectivity with third-party apps.
Earlier this month, France helped block the passage of a critical renewable energy reform seen as a key element of the Green Deal over a domestic political concern: how nuclear power is treated in the strategy climate of the EU.
EU diplomats see the French and German maneuvers as a harbinger of a wider debate on how to make the clean overhaul affordable, which leaders will discuss.
The campaign to soften the net review 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 reclaim land and seas. Michael Bloss, a German MEP from the Greens group, said what he called “an attack on the Green Deal” risks halting the necessary modernization of European industry.
A push to slow the pace of reforms pits lawmakers against a softer approach against European Commission climate chief Frans Timmermans. He has repeatedly said that implementing change and mobilizing both public and private funding will be “difficult and complicated,” but failure to act will only lead to higher costs later.
“It cannot be ignored that Timmermans is doing too much at the same time,” said Peter Liese, the European People’s Party’s top environmental lawmaker. The EU’s plan for a green transition is important “and I will insist on strict implementation, but you cannot do everything that the Greens and NGOs support and you definitely cannot 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 that the EU’s climate package promotes “irrational solutions”. He promised that the government will fight for “a just transition” for the country.
Pollution rules
Poland recently joined the push by the Czech Republic, France, Italy and four other countries earlier this week against draft exhaust pollution rules, which would exceed carbon dioxide limits by in the cars According to governments, this new regulation, proposed by the commission in November and which will start from July 2025, could divert crucial investments needed to decarbonize the car industry.
At the moment, the most pressing task for Europe is to resolve the dispute with France over the renewable energy law, a key element of the so-called Fit for 55 package. Sweden, which currently holds the EU’s rotating presidency, has to aim to get the national governments’ measures approved before June.
For investors, these hiccups risk undermining the very regulatory stability that the EU is betting on in the green change and that Macron wants to protect.
“If certain leaders begin to express last-minute doubts about the direction of the green transition amid months of negotiations, it could undermine investments in clean technologies and, ultimately, the EU’s policy objective of accelerating decarbonisation,” said Laurent Donceel, acting CEO of the Airlines for Europe association.
–With assistance from John Ainger, Chiara Albanese, Andra Timu, Natalia Ojewska, Lyubov Pronina and Gina Turner.
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