EU throws green spanner in the works of global trade

Europe has big plans for the environment – but making them work without damaging world trade will be a challenge.

European Commission President Ursula von der Leyen © KENZO TRIBOUILLARD/AFP via Getty Images

Ursula von der Leyen is plotting a big shake-up
(Image credit: European Commission President Ursula von der Leyen © KENZO TRIBOUILLARD/AFP via Getty Images)

Europe is about to "stake its economic future on an environmental clean-up that will overhaul the way the world's biggest single market polices businesses and manages trade relations", say Ewa Krukowska and Jonathan Stearns on Bloomberg. Under the "European Green Deal" announced by the new European Commission president, Ursula von der Leyen, the EU transition to climate neutrality would start next year. It is set to include stricter emission limits, updated energy taxes, new rules on subsidies, greener farming and a possible environmental import tax. The EU also hopes to catalyse global action and uphold the Paris Agreement. The US has "turned its back on the accord" and some of the world's biggest carbon dioxide emitters including China, India and Japan have "so far failed" to translate their pledges into action.

Grand ambition, limited tools

Although an overwhelming majority of EU citizens support climate action (93%) and it was the Green Deal which helped to clinch von der Leyen's appointment, with the European Parliament's "fragmented" political groups largely uniting behind her programme, it paves the way for "months of lobbying and political fighting". The rules require the support of EU governments and the bloc's assembly. "Expect every word and comma to be analysed by national governments, parliamentarians, companies, industry lobbies and environmental activists."

Nor will opposition be limited to the EU, says Alan Beattie in the Financial Times. For growing numbers of developing countries, "translating these European ideals into trade policy evokes darker traditions of protectionism and oppression". Brazil's president, Jair Bolsonaro, and Malaysia's prime minister, Mahathir Mohamad, whose countries stand to lose access to the EU market because of poor environmental stewardship, have even used the word "colonialism". If the likes of Brazil and Malaysia divert trade to economies with less stringent criteria, the EU's actions could prove counterproductive.

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The truth is, von der Leyen's team have "limited tools" to combat climate change without causing problems to international trade. Some measures, such as standardising low-energy designs for electrical goods, may be relatively simple, but "heavier-duty policies" such as extending the EU's emissions trading scheme to shipping and aviation are much harder as they become international issues. The idea of a carbon border tax (an import tariff equal to the difference between the EU carbon price and that of the exporting country) would, in practice, be "fiendishly difficult" to implement because of the complexity of international supply chains. The EU would need to assess the carbon footprint of each imported component. The EU's ambition has the potential to "cause diplomatic conflicts across the world".

There are other obstacles, says Jillian Ambrose in The Guardian. Take the Energy Charter Treaty, an "obscure" cold-war-era policy designed to protect Western energy firms, which is increasingly being used to challenge climate policies. Unless it undergoes a "fundamental overhaul" it will continue to put a spanner in the works. More generally, we also have to face some harsh facts, says The Economist. To "stand a good chance of scraping under the 2% target" (the maximum temperature rise over pre-industrial levels as decreed by the Paris climate agreement) would "require cuts far more stringent than the large emitting nations are currently offering". As a result, the accord also envisages significant carbon capture and storage. On this front, there is an "encouraging buzz, but not yet much more".

Emily Hohler

Emily has extensive experience in the world of journalism. She has worked on MoneyWeek for more than 20 years as a former assistant editor and writer. Emily has previously worked on titles including The Times as a Deputy Features Editor, Commissioning Editor at The Independent Sunday Review, The Daily Telegraph, and she spent three years at women's lifestyle magazine Marie Claire as a features writer for three years, early on in her career. 

On MoneyWeek, Emily’s coverage includes Brexit and global markets such as Russia and China. Aside from her writing, Emily is a Nutritional Therapist and she runs her own business called Root Branch Nutrition in Oxfordshire, where she offers consultations and workshops on nutrition and health.