Europe Rolls Out Plan to Shift From Fossil Fuels, an Effort That Could Impact Trade

Source: By Steven Erlanger and Somini Sengupta, New York Times • Posted: Thursday, July 15, 2021

The proposal would impose tariffs on some imports from countries with less strict rules on protecting the environment. It would also mean the end of sales in the European Union of new gas- and diesel-powered cars in just 14 years.

A photovoltaic energy farm near the town of Bogatynia, Poland.
Maciek Nabrdalik for The New York Times

BRUSSELS — In what may be a seminal moment in the global effort to fight climate change, Europe on Wednesday challenged the rest of the world by laying out an ambitious blueprint to pivot away from fossil fuels over the next nine years, a plan that has the potential to set off global trade disputes.

The most radical, and possibly contentious, proposal would impose tariffs on certain imports from countries with less stringent climate-protection rules. The proposals also include eliminating the sales of new gas- and diesel-powered cars in just 14 years, and raising the price of using fossil fuels.

“Our current fossil fuel economy has reached its limit,” the president of the European Commission, Ursula von der Leyen, said at a news conference in Brussels.

The political importance of the effort, pushed by the European Commission, the E.U.’s bureaucracy, is without doubt. It puts Brussels in the forefront of the world’s efforts to reach the goal of a carbon-neutral economy by 2050. To force the issue, Brussels has committed to reducing its emissions of greenhouse gases 55 percent by 2030 compared with 1990 levels.

On one level, the detailed proposals only mark the start of what promises to be a difficult and bruising two-year negotiation among industry, 27 countries and the European Parliament on how to reach the 55 percent reduction.

But coming before international climate talks in Glasgow in November, the proposals represent an effort by Brussels to assert global leadership in what must be a multilateral effort to get to a carbon-neutral economy. The proposals include a range of new standards, taxes and tariffs on key carbon-emitting industries like steel, automobiles, fuel, airlines, shipping, road transit and construction.

The trade disputes are likely to center on the so-called carbon border-adjustment tax, which the European Union sees as a way to protect its own industries from unfair competition from countries with less stringent and less costly environmental standards; others call the proposed tax protectionist. The plan, at least so far, would include imports on items like steel, cement, fertilizer and aluminum and could impact goods from such countries as China, Russia and the United States.

The result could be fundamentally altered patterns of global trade.

The proposals, if passed, would see the last gasoline or diesel cars sold in the European Union by 2035, would require that 38.5 percent of all energy be from renewables by 2030, would increase the price charged for carbon emitted to make the use of fossil fuels more and more expensive and would use some of the money for a fund to assist those most affected by rising prices and to help them purchase more energy-efficient heating systems and transport.

The carbon border tax could not only shake up global trade and invite a dispute over protectionism in the World Trade Organization, it could also create new diplomatic fault lines ahead of the Glasgow climate talks.

The gathering in Glasgow is an important moment for big polluting nations to show what they will do to address the emissions of greenhouse gases that have set the world on a path to dangerous warming. Scientists have said the world as a whole needs to halve emissions by 2030, which would require history’s biggest polluters, namely the United States and Europe, to make the sharpest, swiftest cuts. All eyes are on targets set by the United States and China, which currently produce the largest share of greenhouse gases.

Although the European Union produces only about 8 percent of current global carbon emissions, its cumulative emissions since the start of the industrial age are among the world’s highest. But as a huge market, it also sees itself as an important regulatory power for the world and hopes to set an example, invent new technologies that it can sell and provide new global standards that can lead to a carbon-neutral economy.

The United States has promised to reduce emissions 40 to 43 percent over the same period. Britain, which will host COP-26, the international climate talks, in November, has pledged a 68 percent reduction. China, the world’s largest emitter of carbon, has said only that it aims for emissions to peak by 2030.

“Europe was the first continent to declare to be climate neutral in 2050, and now we are the very first ones to put a concrete road map on the table,” Ms. von der Leyen, said on Wednesday.

The Commission’s executive vice president, Frans Timmermans, who is in charge of the environment and Europe’s “Green Deal,” admits the difficulty of the challenge. “We’re going to ask a lot of our citizens,” he said. “We’re also going to ask a lot of our industries, but we do it for good cause. We do it to give humanity a fighting chance.”

Mr. Timmermans considers these proposals fundamentally important in creating a new economy. “In terms of the direction Europe is taking, it could actually be of the same nature as the internal market or the euro,” he has said.

The E.U. goal of 55 percent, increased by law in June from 40 percent, has prompted significant pushback from industry, lobbying groups and some member countries, especially in poorer Central Europe, that have been more traditionally reliant on fossil fuels. So the Commission has tried to build in gradual markers for industry, including free carbon credits for a decade and many millions of euros in financial aid.

Brussels has also made environmentally friendly investments a key part of its conditions for countries using its coronavirus recovery fund. To be sure, while environmentalists have praised Brussels for its efforts, others say that it does not go far enough and relies too much on the development of new technologies to reduce carbon emissions.

One of the key proposals announced on Wednesday is a revision of Europe’s carbon market, known as the Emissions Trading Scheme, under which major carbon producers like steel, cement and power pay directly for their carbon emissions.

Another central but contentious proposal is a carbon border-adjustment tax that will target goods produced outside the bloc, so that European companies bearing the cost of decarbonization are not disadvantaged by cheaper imports from companies that do not.

That proposal, which would be gradually introduced from 2023, has not been welcomed by many countries that trade with Europe, including the United States. If passed, it could be challenged in the World Trade Organization.

The hundreds of pages of proposed laws — which the Commission has called “Fit for 55,” a slogan that some have joked would better suit a yoga studio — will be sharply debated and inevitably amended before becoming binding on the 27-member bloc.

There are concerns that the poor will pay an inequitable share of the cost of decarbonization and that it will be seen as an elite project, prompting more political backlash from populist parties and groups, like the 2018 “yellow vest” protests over a climate-related increase in French gasoline prices.

That was a warning echoed by Pascal Canfin, the French head of the Parliament’s environment committee, who cautioned that extending the carbon market to heating and fuel could set off protests. “We experienced it in France,” he said. “It gave us the yellow vests.”

But the proposals also include a Social Climate Fund, raised from these new taxes, that could provide up to 70 billion euros (about $83 billion) to help governments help the people who are most affected.

Without the new legislation, said Simone Tagliapietra of Bruegel, a Brussels-based economic think tank, Europe would have reduced its emissions only 60 percent by 2050, rather than reaching carbon neutrality.

The 12 legislative proposals presented on Wednesday are designed to reduce reliance on fossil fuels including coal, oil and natural gas; to expand the use of renewable-energy sources including solar, wind and hydro power to at least 38.5 percent of all energy by 2030; to force the faster development of electric cars with much tighter CO2 limits and hope to end the sale of all internal-combustion cars by 2035 (a target that some countries, like France, believe is too strict); and to support clean-energy options for aviation and shipping, which are prime polluters. For the first time, a carbon market will be established for road transportation and buildings.

Transportation and the heating and cooling of buildings respectively account for 22 percent and 35 percent of all E.U. carbon emissions, Mr.Tagliapietra said. But creating a separate market for them will be politically difficult, because it will increase fuel costs for families and small and medium businesses, he said.

The European Union is “the first large economy in the world to start translating climate neutrality ambition into real-world policy action,” he said. “But if there is one principle that should be guiding the negotiations over the next two years, this certainly is the principle of climate justice.”

Trying to ensure that the impact of the transition is socially fair, both domestically and internationally, he said, “becomes the most important element to make it successful in the long-run.”

Mr. Timmermans said that “the onus is on the Commission to prove that this leads to solidarity and to fairness in this transition.”

He added: “If we can prove that, I think the resistance will be less. If we fail to prove that, I think the resistance will be massive.”

It will also be important to stimulate technological development in a Europe that has often fallen behind the United States and China in bringing new ideas to market.

Eric Rondolat, the chief executive of the lighting company Signify NV, whose headquarters is in the Netherlands, said that “climate action and economic prosperity go hand-in-hand.”

This is why the new legislative package “is so important,” he said. “It will accelerate the deployment of innovative technologies that reduce carbon emissions and create jobs.”

Monika Pronczuk contributed reporting from Brussels, and Jack Ewing from Frankfurt.