So much attention has been paid to US climate legislation, the Cut Inflation Act, that the EU’s own larger climate package has gone largely unnoticed.
Climate policy gets the most attention when linked to the policy areas that analysts find most interesting and understandable. In recent months, attention has turned to how discriminatory tax credits for electric cars made in North America are affecting international relations. And that they only constitute a small part of the hundreds of billions dollars of climate and energy spending from the US Inflation Reduction Act (IRA).
Do Washington’s “Buy American” weather provisions spell the end of free trade as we know it? Will China maintain its edge over the West when it comes to processing critical raw materials? How should European leaders respond to the fact that the United States currently contributes disproportionately, in terms of military aid, to stop a Russian invasion at the gates of the EU? And will the EU now change its own policies, which have divided Member States such as France and Germany for decades, for example by easing the rules on national state aid either borrowing jointly, to pay ecological subsidies?
Important questions, no doubt. But these climate measures are important above all because they make humanity generate less greenhouse gases. It is worth delving into the main agreements that the EU has reached in the few months since the US approved the IRA in August 2022.
CO2 emissions by the US and the EU. (In millions of tons). Source: Climate Action Tracker
Increase the price of pollution
The main news is the tightening of the EU carbon market, the Emissions Trading Scheme (ETS). The EU sets a limit to the amount of greenhouse gases that European power plants and industrial facilities, such as oil refineries, or chemical and steel plants, can emit. These facilities have to buy a permit to cover every ton of carbon dioxide emitted – the permits cost about 85 euros per ton in December 2022 – or pay a penalty of 100 euros per ton more. Emissions from the covered sectors have fallen by 41% since the EU introduced its carbon market in 2005; on December 18 the European Council and the Parliament reached an agreement to reduce these emissions by 62% compared to 2005 levels by 2030. Brussels is not limited to increasing the target – the targets are the New Year’s resolutions for climate policy – but is reducing the number of permits on the market . The price of pollution will increase and emissions will decrease.
In addition, the EU extends its current emissions trading scheme to maritime transport (from 2024) and establishes a new system for buildings and road transport fuels (from 2027). To protect low-income households from these new carbon prices, a new Social Climate Fund will allocate 86.7 billion euros from 2026 to 2032. Intra-community agreements on buildings were also reached in the last months of 2022 (all new buildings must be zero emissions by 2030), automobiles (no new fossil fuel cars will be built after 2035) Y methane emissions.
“To protect low-income households from these new EU carbon prices, a new Social Climate Fund will allocate €86.7 billion from 2026 to 2032”
The EU weather story that received the most coverage was the December 18 deal on the Carbon Border Adjustment Mechanism (CBAM), which will tax imported goods such as steel, cement and fertilizers. depending on its carbon content. Again, this was partly because the deal lends itself to a win-lose analysis along national borders – Russia and China export the larger amounts of these goods – since the CBAM is linking to trade tensions around the American IRA. However, there is a crucial distinction between the two approaches. The US is openly favoring domestic producers, while the EU is phasing out free carbon allowances it grants to its own industry and refuses to offer export discounts, illegal in the WTO, to help EU industry break into foreign markets. Therefore, the EU CBAM simply applies the EU’s national carbon price to all products purchased by Europeans, regardless of where they were produced, and does not violate WTO rules against trade discrimination.
Drama vs. bureaucracy
It is true that there are other reasons why US climate policy fits better on the front pages of the international press. The EU’s convoluted multi-level political process can leave the reader with their heads spinning: the European Commission first presented these carbon market reforms as part of its Fit for 55 climate package in July 2021, and the agreement of 18 December 2022 between the European Council and Parliament is technically still provisional and requires another formal endorsement. The announcement of a provisional agreement on part of a climate package following a 30 hour trading in Brussels the week before Christmas cannot be compared to the drama of a senator who change position at the last moment and agrees to support a mammoth climate spending package that Biden would sign into law a few days later. Who is Hollywood more likely to make a film about, West Virginia Senator Joe Manchin or the Dutch CBAM rapporteur in the European Parliament, Mohamed Chahim?
The US preference for subsidies over regulations also gives newspapers a huge number to make headlines: the US IRA could allocate up to 800,000 million dollars of federal spending on climate and energy projects over the next decade. Although the budget relatively meager of the EU does not allow such large subsidies, the permits traded in its carbon market amounted to 683,000 million euros only in 2021and the Union and its Member States are spending more than those income to climate action.
It is easier to track progress in climate policy than in most other fields, and it is clear that the European approach has been more successful than the American one. According to Climate Action Tracker, EU greenhouse gas emissions decreased 28% between 1990 and 2021. US emissions only decreased 2% in the same period. Figures with dollar or euro signs in front of them are a means to an end, an end that is even more important than upholding 20th century trade rules or ensuring the good atmosphere at the French president’s state dinner in Washington DC.
Article originally published in English on the Web of International Political Quarterly.