Mises Wire

The European Green Deal Is Every Bit as Bad as Expected

The European Commission has unveiled its “European Green Deal,” after taking hints on denomination from its American counterpart, the “Green New Deal.”  While the legislation introduced in the US Congress remains fiction under a Republican executive and senate, the Brussels initiative will become law unless there is considerable opposition from EU member states.

Back in May, I had the pleasure to be a guest at an Austrian Economic Center event in Vienna, in which we discussed the policy outlook prior to the European elections. My prediction back then: more greens, more ecstatic green policies to come. The newly elected commission president Ursula von der Leyen has attempted to appease green forces in the European Parliament by dedicating herself to the environmentalist agenda, and as a result is now pursuing ambitious policy goals that she laid out in her candidature speech in Strasbourg.

The New Green Deal contains major implications for industry and consumers, including higher energy taxation, higher levies on shipping and aviation, higher road emissions duties, forcing companies to rethink recycling and repairing electronics, and making free trade deals more difficult to conclude. These measures all deserve op-eds of their own, but for the sake of this one, let’s narrow it down.

Three takeaways from the proposed package of executive and legislative measures are important:

  1. The Commission wants to introduce a carbon border tax.
  2. The Commission wants to update the emissions targets for 2030.
  3. The Commission wants to spend more money in an effort to “reinvest” (or to buy off member states).

The Carbon Border Tax

The main objective of this “border adjustment” is to prevent the relocation of carbon-intensive production to non-EU countries, a problem known as “carbon leakage.” When companies outsource production to avoid carbon costs, they shift their emissions abroad. That, claims the EU, reduces the effectiveness of EU climate policies. This is of exceptional concern to Brussels, as non-EU countries, such as those in the Balkans, as well as Moldova, Belarus, and Ukraine, could come to rival EU producers as a result. The logic is very European: first we curb our own business efficiency through regulation, then we call other countries unfair competitors.

This is hardly the first time that European leaders have restricted trade due to environmental concerns. It was the most notable reason why the Obama-era free trade agreement, the Transatlantic Trade and Investment Partnership (TTIP), was laid on ice, and why the bloc still does not have a free trade relationship with China. French president Emmanuel Macron is even threatening to block a trade arrangement with South American countries (called Mercosur) in the case that Brazil leaves the 2015 Paris Climate Accord.

Worse than politicizing its trade deals, von der Leyen will now extend its climate policy to non-EU members, effectively bullying the entire continent into zealous emissions targets. Especially for eastern European countries such as Ukraine, this is a true nightmare.

As expected, Europe’s journalists are sticking with the Commission’s rhetoric by calling it a carbon border tax. For my part, I call it politicized European protectionism.

Target Update

Brussels is reportedly looking at a climate law that would set a target date of 2050 to achieve net-zero emissions, and a plan to boost the bloc’s 2030 target for emissions cuts from a reduction of at least 40 percent to between 50 and 55 percent compared to 1990 levels. The Commission plans to present it by March 2020. The target update is only an argument for legitimizing harsher legislative measures. Once passed, you’ll the European Parliament say that new and costly emissions restrictions are “in line with EU climate targets.”

The good news for the Commission is that its climate law will not require unanimity voting in the European Council but only a qualified majority. That said, Poland, Hungary, and the Czech Republic are currently withholding their consent.

Increasing ambitions to a 55 percent emissions cut will likely find a majority in the Parliament, and in the Council eight countries have said they support that target. The question is whether opponents can rally a workable opposition.

That leads us to the crux of the issue.

The Climate Cash Grab

Commission president von der Leyen has already proposed a financial package called the Just Transition Fund, which will support regions in their transition away from fossil fuels. However, the current climate targets already necessitate
€260 billion in additional annual investment, meaning that the updated targets will need even more funding. At the moment, the Just Transition Fund is rumored to be included in the EU budget for 2021–27 and is expected to raise €100 billion in investments. It remains a mystery who exactly will privately invest (at their own risk) in inefficient windmills and solar panels.

One thing is certain: a cash grab of this size can certainly attract the interests of central European nations that are currently hesitant to join in. That said, Germany and the Netherlands are favoring limited budgetary ambitions.

It is the ultimate mix of climate ideology and spending extravaganza. Since Brussels has a tendency to get the answer wrong every time, I am confident that we’ll get the worst of both.

Originally published by the Austrian Economics Center.

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