The News
The European Union is drastically curbing its climate ambitions, with a wide-ranging policy reset that aims to halt the region’s upward spiral of energy prices without scrapping its long-term decarbonization goals entirely.
The Clean Industrial Deal announced Wednesday is a plan to channel €100 billion ($105 billion) into European clean tech manufacturing, combined with measures to underwrite demand for low-carbon industrial products like steel and cement, and provide more support for consumers to reduce their electricity bills. At the same time, officials have sharply scaled back two of Europe’s signature climate policies — on carbon tariffs and corporate carbon footprint reporting — in an effort to alleviate the regulatory burden on smaller businesses.
Europe has always been ahead of the curve on climate regulation compared to the US and other regions. But that legacy is increasingly unpopular with European business leaders and the public, who blame strict emissions controls and the rapid push into renewables for surging energy costs that have left automakers, the steel industry, and other key sectors unable to compete with China and the US. Europe’s commitment to the energy transition is made even more important by Washington’s retreat from climate action under President Donald Trump. But officials believe the only way for that commitment to survive the region’s ongoing political shift to the right — enshrined in a spate of national elections, as well as European parliamentary polls last year — is to make it less economically painful.
“There’s a new urgency to make sure that our decarbonization agenda is also unleashing industrial competitiveness,” said Simone Tagliapietra, a senior fellow at the Brussels-based think tank Bruegel. “Otherwise, politically, this will simply not work.”
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Tim’s view
The Clean Industrial Deal is in some ways a long-overdue answer to the US Inflation Reduction Act. The key policy innovation of the IRA was to incentivize low-carbon investment, rather than regulate emissions — carrots, not sticks.
For Europe, which suffers from divisions between member states and a supranational authority and has more bureaucracy, that approach was always more challenging. But competition is mounting with the US and China for companies producing renewable-energy hardware and EVs, as well as lower-carbon approaches to steel, cement, and other heavy industries. And if the US, under Trump, pulls back on public support for the energy transition, there could be an opening for Europe to reposition itself as an attractive investment destination.
Rather than scrapping the push to renewables, the Clean Industrial Deal “identifies that Europe’s main energy problem is its fossil fuel import dependency,” Tagliapietra said. With little headroom to increase domestic oil and gas production, and the reduction of cheap Russian pipeline gas deliveries since Moscow’s 2022 invasion of Ukraine, Europe has become increasingly reliant on higher-cost liquefied natural gas imports from the US.
“Europe needs to reduce its import needs as quickly as possible, and divert its energy system to domestically-manufactured renewables, which would make the energy system not only greener, but also safer and more competitive,” Tagliapietra said.
The new plan focuses on measures to speed up the permitting process for new renewables, and on pushing EU member countries to cut electricity taxes. That approach could save energy consumers €2.5 trillion over the next 15 years, EU Commissioner for Energy and Housing Dan Jørgensen said this week.
The high-level goal to “mobilize” €100 billion in clean tech investments is mostly “smoke and mirrors,” economist Nils Redeker wrote on BlueSky, because it lacks a clear basis in the EU budget. But other new steps could be more impactful, including requirements for government agencies to buy more domestically-produced low-carbon tech, and a streamlined process for ramping up protective tariffs against heavily-subsidized imports from China. The European Investment Bank will also offer new financing deals to support corporate renewable energy contracts.
The new plan also says that officials will further relax restrictions on how much individual countries are allowed to subsidize “strategic” low-carbon technologies. Since 2019, European countries have provided about €353 billion in subsidies to various corners of their economies, but only 12% of that funding has gone toward strategic sectors like battery manufacturing, clean hydrogen, and semiconductors, Redeker found in a recent study.
Room for Disagreement
To the frustration of environmental groups, the EU pushed off a plan to enshrine in law a proposed target to cut economy-wide emissions 90% by 2040. Reducing the scope of the carbon tariff and corporate reporting rules is also a “devastating blow” to the region’s climate goals, said Mariana Ferreira, sustainable finance policy officer at the World Wildlife Fund’s European policy office. And ultimately, Politico reports, Europe still needs to make some painful choices about whether it needs to give up on supporting some industrial sectors that simply can’t compete with China.
Notable
- In the UK, meanwhile, officials think more of the emissions reduction burden needs to fall on consumers: One-third of necessary emissions cuts should come from measures like improved home heating and less air travel, a government watchdog report concluded.