Welcome back. Mid-sized European businesses worried about red tape caught a break yesterday with news that most of them are set to be exempted from the EU’s new carbon border tax. EU tax commissioner Wopke Hoekstra told the FT he wanted to restrict the levy to the biggest 20 per cent of importers, who account for “more than 95 per cent of the emissions in the products”.

It’s a perfect example of the tightrope that Brussels is trying to walk at the moment: forging ahead with the continent’s green transition, while minimising regulatory burdens as part of a major new drive on economic competitiveness. And while there may be some areas of tension between these two priorities, the EU’s push for economic dynamism could end up giving an important boost to its green industries, as I argue below.

GREEN TRANSITION

Fears of a green retreat in Brussels miss a larger opportunity

“Let me be absolutely clear: there will be no backtracking on the green transition,” Dan Jørgensen, the EU’s commissioner for energy and housing, told the FT’s International Energy Policy Forum in Brussels this week.

Despite such reassurances from European Commission officials, speculation about just such a retreat is running rampant in Brussels at the moment. During Ursula von der Leyen’s first five-year presidency, her European Green Deal plan took centre stage. At the outset of her second, which began in December soon after a rightward shift in last year’s European parliament election, an intense focus on economic competitiveness is the order of the day.

The shift in messaging has sparked alarm in some quarters that enthusiasm for decarbonisation is on the wane in Brussels. But if the EU is to play a leading role in the world’s green transition, its newfound focus on competitiveness may yet prove very useful.

Europe’s growth has been underwhelming so far this century, with real per capita disposable income growing nearly twice as quickly in the US as in the EU. That was one of the startling data points cited by former Italian prime minister and European Central Bank head Mario Draghi in an unsparing report last September that diagnosed the many causes of the region’s sluggishness.

Among the most important factors, Draghi said, were a lack of EU-wide co-ordination on economic strategy, a failure to match the targeted industrial support seen in the US and China, and a fragmented financial system that has inhibited the flows of capital within the bloc.

These problems have hurt green investment, as they have every other sort. As we highlighted in a recent edition, investment in the energy transition fell last year in Europe, even as it rose globally (and in the US and China).

Draghi stressed in his report the need for decarbonisation and economic competitiveness to be pursued in a single coherent strategy. “Decarbonisation could be an opportunity for Europe, both to take the lead in new clean technologies and circularity solutions, and to shift power generation towards secure, low-cost clean energy sources in which the EU has generous natural endowments,” he wrote.

Von der Leyen responded last week with an early outline of her second-term agenda, unveiling what she called the “Competitiveness Compass”. The document embraced several of Draghi’s key recommendations aimed at promoting green growth. Notably, it promised to accelerate permitting processes for low-carbon industrial projects, deepen the single market by aligning regulatory standards, and use public funds more effectively to catalyse private-sector green investment.

Further details are due on February 26, when the commission has promised to unveil its new overarching Clean Industrial Deal strategy, and an “omnibus” legislation that will simplify the EU sustainability disclosure regulations.

While Draghi identified excessive regulatory burdens as a major problem for EU businesses, he didn’t put much emphasis on these disclosure rules in particular. But they have faced concerted opposition from lobby groups such as BusinessEurope, which argue that they have driven unacceptable costs for companies.

Some European parliament members I met in Brussels this week worry that the commission could be poised, without proper consultation, to dismantle legislation that took years to design. “What you see now getting on the table [from lobbyists] has nothing to do with kind of a sincere attempt to simplify things,” said Bas Eickhout, a Dutch MEP who has played a prominent role in EU green legislation. “It is becoming a pure deregulation agenda.”

On Tuesday, a group of institutional investors controlling €6.6tn ($6.9tn) in assets voiced similar concern, saying that defanging the rules would make it harder for them to align their investments with the EU’s green goals.

Amid fears that the commission is moving too hastily on deregulation, there’s contrasting concern that it is moving too slowly on investment. Von der Leyen’s document last week promised a new “competitiveness fund” to support investment in strategic technologies. But that would come only under the EU’s next budget framework, which is due in 2028 — an “absurd” delay, according to Marcin Korolec, a former Polish environment minister and president of Warsaw’s Green Economy Institute.

Von der Leyen and her team will have an opportunity to address these concerns with the more detailed publications scheduled for later this month. And while the concerns triggered by its shift in emphasis are understandable, the commission is at least asking the right questions. Lofty green pledges and targets will count for little without the dynamic economic activity to make them real.

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