Features

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

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."

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

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".

Advertisement
Advertisement - Article continues below

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".

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/504252/brace-yourself-the-global-economy-might-be-healthier-than-it-looks
Economy

Brace yourself – the global economy might be healthier than it looks

Investors have been worried about a global recession since the start of the year. But the latest indicators suggest things might not be so bad. John S…
2 Apr 2019
Visit/economy/global-economy/600821/have-we-reached-the-end-of-the-road-for-petrol-cars
Global Economy

Have we reached the end of the road for petrol cars?

The prime minister has said that all new sales of vehicles with internal combustion engines will be banned from 2035. Is that achievable?
15 Feb 2020
Visit/economy/global-economy/600839/the-charts-that-matter-markets-dont-know-which-way-to-turn
Global Economy

The charts that matter: markets don’t know which way to turn

With investors continuing to worry about the coronavirus and the threat of higher inflation in the US, John Stepek looks at what that's done to the ch…
15 Feb 2020

Most Popular

Visit/economy/uk-economy/600837/rishi-sunak-new-chancellor-spending-splurge
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020
Visit/economy/600814/money-minute-friday-14-february-the-latest-from-rbs-britains-state-owned-bank
Economy

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020
Visit/investments/property/600826/living-on-a-houseboat-the-pros-and-cons-of-a-floating-home
Property

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019