EU climate law faces uphill struggle to stay on track

EU clean-energy investors shouldn’t hold their breath for a deal on planned bloc-wide rules to make climate neutrality by 2050 legally binding.

The European Commission had initially hoped to see the EU’s first climate law approved by the end of the year. The law was expected to serve as the legal basis for a set of policies outlined in its Green Deal program, as well as a signal to other jurisdictions about the bloc’s lofty intentions in emissions regulation.

That’s unlikely to happen now, given the unstable political and economic scenarios created by the Covid-19 pandemic. There's also the potentially divisive effect of bringing in an emissions-cutting pathway that will leave no economic sector unscathed.

EU companies — especially those placing bets on clean energy or eyeing investments into breakthrough technologies to curb pollution — may have to wait until next year to see the long-debated aspirations turned into actual legislation.

Clarity

Although the bloc’s direction in terms of the ecological transition seems certain, having the climate-neutrality target enshrined into EU law would constitute a better guarantee for "green" investors.

Turning the goals into actual EU regulation may well expose the policymakers themselves to a higher degree of scrutiny from environmentalist groups, as well as from investors focused on sustainability and environmental protection. Once a bloc-wide law is approved, EU regulators may face legal challenges — including at the bloc's courts in Luxembourg — if the future norms aren't seen to be in line with climate-neutrality commitments.

Other than that, EU companies are eager to get more clarity on how regulators intend to keep the economy on track for the net-zero goal in coming decades.

For this, policymakers have yet to hammer out provisions indicating how and when EU sectoral rules — such as emissions standards for vehicles or energy-saving norms — will be periodically revised and adjusted in response to progress made by EU countries toward the bloc’s climate neutrality.

In the ongoing separate negotiations among national governments and EU lawmakers, that “trajectory” has emerged as a sore point. That suggests this could become a critical issue in future talks with the EU’s executive as well.

Likewise, intermediate emissions-reduction targets for the decades ahead, yet to be introduced, are still up for debate.

While the existing target for 2030 is expected to be revised upwards in the coming weeks, consensus around the introduction of a further halfway mark for 2040 is also building. By contrast, the commission’s initial plans for a review of post-2030 five-year targets via delegated legislation look unlikely to fly, given the opposition of both co-legislators, including their legal services.

Uphill struggle

EU policymakers are bracing for a return of these pressing questions as Brussels' summer break draws to an end.

Lawmakers sitting on the environment committee are expected to push the discussions forward in early September. On Sept. 10, they’re scheduled to vote on their final position on the law, which will then be debated and approved in plenary format, possibly in October.

National governments should return to the matter in the coming weeks, at least at the technical level. Germany, which is chairing talks among governments until December, aims to propose a compromise text to build momentum around a common position.

But a potential stalemate over the EU’s climate law is looming. It's related to the 2030 target revamp, which sets an updated emissions level that will have to be included in the norm.

The commission will set the stage for that debate by putting forward a proposal next month. Then, on top of the raised percentage target for 2030, it will present the results of an economy-wide study looking into the implications of tightening its emissions-reduction regime.

Berlin is hoping to seal a deal by the end of its six-month shift, German environment minister Svenja Schulze said recently. But divergent views along the typical battle lines of EU climate policy — with North-Western countries opposed to the less ambitious East nations — have already complicated its efforts.

In addition, it is understood that several countries are refusing to engage in concrete discussions before they have looked into the commission’s costs and benefits assessment, which should take into account the economic impact of the Covid-19 pandemic, among other issues.

This means the chances of an early agreement between EU ministers at the Environment Council in October — a deal that in turn would allow them to enter talks with the European Parliament and the commission — look low, given the tight timeline.

Another open question remains the level of political engagement that raising the target will require. Several countries are understood to be pressing for the issue to reach the table of EU leaders, rather than ministers only.

The next quarterly summit will take place in October, but the need to strike a deal on the next long-term EU budget — especially in light of the economic situation caused by the pandemic — could leave no space for a politically fraught and divisive conversation on climate commitments.

December would then be the next viable option for a leaders’ decision, which would effectively push the file into 2021. That’s because once national governments and EU lawmakers manage to craft their own position, trilateral-format talks with the commission follow.

But in a year where even global climate talks have been postponed due to the lockdown measures introduced in the wake of the pandemic, it wouldn’t be unthinkable for the EU to experience a first setback on its ambitious green plans.