Australian Outlook

European Climate Shocks

16 Jul 2021
By Colin Chapman FAIIA
A Tesla Model S charging at the Supercharger station in Flachau, Salzburger, Austria. Source: Jakob Härter

In Europe, industries and consumers grapple with wide-ranging, costly, and radical new laws that speed up action on climate change. These latest proposals from Brussels will inevitably deliver a blow to Australian and Asia-Pacific economies, trading prospects, and ways of life.

Until now, political leaders – from America’s Joe Biden to Russia’s Vladimir Putin, from Australia’s Scott Morrison to Britain’s Boris Johnson – have avoided telling their citizens precisely what it will mean to meet the modest targets of the United Nations Paris Accord in terms of cost to the public purse and private pockets, changes in lifestyle, transport, and trading patterns.

By coincidence, the 12 bold new strategies announced by the European Commission were eclipsed in most news reports by the story that the highest ever temperature on earth had just been recorded and wildfires raged in California.  At the same time, scientists in the Amazon were reporting that the world’s largest tropical rain forest is  now emitting more CO2 than it is absorbing, and Chancellor Angela Merkel described this week’s floods in Germany as the worst in living memory and a catastrophe.

In its announcement, the Brussels Commission said bringing forward targets was the only way Europe could be sure it would meet its Paris Accord commitment of net zero carbon emissions by 2050. Frans Timmermans, vice president in charge of the EU’s Green Deal, said:

This is the make-or-break decade in the fight against the climate and biodiversity crises. Yes it is difficult, yes it is hard. But it is also an obligation, because if we were to renounce our obligation to help humanity live within planetary boundaries we would fail not just ourselves but we would fail our children and our grandchildren, who in my view, if we don’t fix this, will be fighting wars over water and food.

The core of the new policy is to expand and tighten up the EU’s existing Emissions Trading Scheme whereby companies pay tax based on their carbon emissions. The tax can be offset by buying credits that will fund carbon reduction projects elsewhere. The intention is that Europe’s huge automotive industry and company-owned buildings will be brought under the scheme. Offsets will be allowed for a limited period, with much of the proceeds going to help Europe’s needy citizens to meet rising energy and other bills.

Airlines that serve the EU will have to pay taxes on their fuel, which will directly impact the cost of both business and leisure flying. Controversially, fuel taxes will be applied to the shipping industry, which will not only deliver a blow to the global cruise business, already hard hit by the coronavirus pandemic, but also to the destination ports in the Mediterranean.

If and when the fuel tax is implemented, it will be an even bigger hit to the bottom line of shipping operators serving European ports, particularly those from China, the Indo-Pacific, and Latin America. Shipping interests – and world trade – will be further handicapped by a further EU plan to protect its own industries. The aim is to ensure that any lack of competitiveness caused by having to pay carbon taxes that are not similarly imposed in countries exporting to the EU would be compensated by a new border adjustment mechanism. This will force importers of steel, cement, aluminium, and fertiliser to pay for the soaring carbon costs of European industry by way of a tariff imposed at the border port. Thus, an Australian aluminium manufacturer not paying a carbon tax to Canberra may end up facing a higher tariff in Rotterdam. This move is likely to cause consternation in Russia, and serious concern in China, South Korea, Japan, and the US.

The EU insists Europe will lead the way on fighting climate change. It is hard to imagine any other continent finding a way to match Europe’s latest targets, but Brussels insists action in the immediate future is the only hope of saving the planet. Overall, it means a 55 percent cut in carbon emissions from 1990 levels by 2030. More specifically it includes:

  • A Renewable Energy Directive that directs that 40 percent of the EU’s energy will come from renewables by 2030, not least because three quarters of emissions come from energy production and use.
  • An Energy Efficiency Directive, which will set a more ambitious energy reduction target, binding on all 27 states, with the public sector required to renovate three percent of its buildings each year.
  • Stronger emission targets for vehicles – down by 55 percent by 2030 and by 100 percent by 2035. The Alternative Fuels Infrastructure Regulation will require all states in the EU to install charging and fuelling points every 60 kilometres for electric charging and every 150 kilometres for hydrogen-fuelled vehicles.
  • There will be a maximum limit on the greenhouse gas content of energy used by ships calling at EU ports. Heavy taxes on fossil fuels will be used to encourage operators to use sustainable alternatives.

So far, the EU plans have predictably evoked a roar of anger from many sectors of European business and industry, while climate change activists say they do not go far enough. The phones of senior executives at powerful lobby groups were running hot as corporations sought to dissuade the European Parliament, the Council of Ministers, and the 27 individual EU member states from passing the proposals into law.

Willie Walsh, secretary-general of IATA, and until recently, boss of Europe’s biggest carrier, the International Airline Group, described taxing fossil-fuel for planes as an “own goal.”  Lufthansa said it would “hobble” European aviation. Guy Platten, head of the International Chamber of Shipping was harsher, calling it a “money grab.” Most saw it as adding to inflation. However BP’s boss, Bernard Looney, accepted it would stimulate low carbon energy production and create new jobs.

Outside the EU, Britain, host of the COP26 global summit in Glasgow in November, has yet to show its hand. A government policy statement, due to appear last week, was not forthcoming, although Prime Minister Boris Johnson declared himself opposed to aviation fuel taxes, saying that there would be a a technical solution with aircraft powered by electricity or hydrogen. This sounded like the “technical solution”  to the climate change problem invoked by Scott Morrison during his recent participation in the G7 summit in Cornwall. The technical solution concept, which has its followers, was roundly condemned at a recent high-level seminar discussing the rapid move to carbon net zero.

The European Commission’s proposals will be hotly debated in the months prior to COP26. Some may fail, even in Europe, especially as the true cost of taking responsibility for the future of the planet sinks in. Pressure on Australia, currently regarded as a laggard, will mount as the government starts to realise that putting off hard decisions is more likely to weaken than protect its economy.

Colin Chapman is a writer, broadcaster, and public speaker, who specialises in geopolitics, international economics, and global media issues. He is a former president of AIIA NSW and was appointed a fellow of the AIIA in 2017.

This article is published under a Creative Commons License and may be republished with attribution.