General

According to Huacheng Import and Export Data Observation, the European Parliament recently passed three major climate bills in Strasbourg, France, by a majority vote: the reform of the carbon emissions trading system (ETS), the carbon border adjustment mechanism (CBAM), and the social climate fund law (SCF) worth up to 86.7 billion euros. The European Council has voted to pass the CBAM, marking the completion of the entire legislative process for the bill. The above three bills aim to significantly reduce greenhouse gas emissions from the European Union, and are known as the "largest carbon market reform in European history".

Having an urgent desire but also facing tremendous pressure

From a content perspective, the package of climate bills passed by the European Parliament this time has made the EU's policies to address climate change more specific.

According to the ETS Act, by 2030, the EU's carbon emissions will be reduced by 62% compared to 2005, which is a significant increase from the previous 43% reduction target. At the same time, it is planned to gradually eliminate free carbon emission quotas for enterprises within the EU by 2034.

According to the CBAM Act, in the import and export process of goods trade, the European Union will impose corresponding fees or quotas on imported products with high carbon emissions levels, hence this bill is also known as the "carbon tariff". The bill currently covers areas such as cement, steel, aluminum, fertilizers, electricity, and hydrogen, and will take effect on October 1 of this year. However, a transitional period has been set up, and it will only gradually be implemented in 2026. Before the end of the transition period, the EU will also evaluate whether to expand the scope of taxation to other industries with a risk of "carbon leakage".

SCF plans to be established in 2026 to ensure a fair and socially inclusive climate transition, which will help small businesses and households cope with the higher fuel costs brought about by new measures, especially vulnerable households, microenterprises, and transportation users affected by energy and transportation resource shortages. Huacheng Import and Export Data Observation reports.

These bills have received positive evaluations from the European Union and some member states. The President of the European Commission von der Leyen pointed out that the adoption of the bill was a "milestone" and urged EU member states to ratify it and make it effective as soon as possible. This is a good day for climate protection in Europe, "said a spokesperson for the German Liberal Democratic Party's climate policy. The Czech Minister of Environment called this a "victory for European climate policy" as early as the bill was introduced, and the EU remains at the forefront of global climate change response.

The European Union has always been a global leader on the path of low-carbon transformation. This time, multiple important climate bills have been introduced to strengthen the pace of transformation in legal form, indicating that the EU has an urgent desire for low-carbon transformation and also faces enormous pressure. "Liu Mingli, Deputy Director of the European Institute of the China Institute of Modern International Relations, pointed out in an interview with our reporter that the first is the pressure of climate change. From a global perspective, the progress in addressing climate change in recent years has not been as expected, and the European Union also believes that its energy transformation progress is behind schedule. At the same time, with the increase of extreme weather such as high temperature and rainstorm in European countries in recent two years, the pressure on the EU to cope with climate change is increasing. The second is geopolitical pressure. After the comprehensive escalation of the crisis in Ukraine, the EU's main focus has been on security issues, and its attention to climate change has relatively decreased. In addition, the EU followed the United States in sanctioning Russia in the energy field, leading to the outbreak of the energy crisis. Some European countries increased the use of traditional fossil energy such as coal, which hindered the EU from achieving its emission reduction goals. This forces the EU to make adjustments and return to the track of low-carbon emissions reduction.

Climate issues are becoming increasingly politicized

Deutsche Presse-Agentur reported that these three climate bills are at the core of the EU's "Fit for 55" ("55% carbon reduction") package to tackle climate change. The plan was proposed by the European Commission in the summer of 2021, aiming to help the EU reduce its carbon dioxide emissions by 55% from 1990 by 2030 and achieve carbon neutrality by 2050.

A member of parliament representing the European Parliament in ETS negotiations stated that the success of the carbon market is the "key to success" for Europe to achieve its emission reduction goals.

The main purpose of the EU's launch of a series of climate bills is to achieve a 55% emission reduction target, "Liu Mingli pointed out, after the EU promised to reduce emissions by at least 40% by 2030 in the Paris Agreement. The current climate goals of the European Union have significantly increased their previous commitments.

The CBAM bill has received widespread attention. Analysis has pointed out that goods exported to the European Union must pay to hold a "carbon tariff" certificate, which is not only beneficial for addressing climate change, but also for protecting the market competitiveness of EU domestic products. Huacheng Import and Export Data Observation Report.

Currently, global competition in green industries is intensifying, and countries are increasingly vying for the voice of "carbon tariffs". In June 2022, US senators proposed the Clean Competition Act in Congress as the US version of the "carbon tariff" plan. On January 1, 2023, the US Inflation Reduction Act officially came into effect, and its "green subsidy" clause undoubtedly poses a huge threat to the international competitiveness of European industries, as reported by Huacheng Import and Export Data Observation.

External attention has been paid to the fact that in addition to the three climate bills passed by the European Parliament, the EU has recently intensively proposed multiple green and low-carbon bills. The 'Green Agreement Industry Plan' was approved at the special meeting of the European Council and Heads of State; The Key Raw Materials Act has been officially released on the EU official website; The Renewable Energy Directive authorization bill has been approved.

Yan Shaohua, associate researcher of the China EU Relations Research Center of Fudan University, analyzed to our reporter that the EU's relevant climate bill and the goal of achieving carbon neutrality by 2050 are of great significance to the EU's energy transformation, industrial competition and the improvement of its voice in global climate governance. First, energy transformation is the key to achieving carbon neutrality in the EU. Under the framework of the "Green Agreement Industrial Plan", the EU accelerates the pace of transformation to sustainable energy; Secondly, the EU intends to enhance the competitiveness of the EU's zero carbon industry through a series of measures; Thirdly, the path for the EU to participate in climate governance is "from the inside out". The climate bill and related standards implemented internally by the EU will greatly enhance the EU's voice in the field of global climate governance.

Addressing climate change has become an increasingly urgent global challenge; climate issues are becoming increasingly politicized, becoming a region of competition and gaming among major powers in Xinjiang. Green transformation is currently a key policy direction that the EU is focusing on, and will also be one of the key processes that will affect the future and destiny of the EU in the coming decades, "said Yan Shaohua.

Faced with challenges and uncertain prospects

EU Economic Commissioner Paul Gentiloni has always emphasized that "carbon tariffs" are "an environmental policy tool, not a tariff". However, the relevant legislation has still sparked some controversy within Europe and the international community.

According to a recent report by German newspaper Le Monde, CBAM is the beginning of environmentally friendly trade for some people, but others are concerned that these new measures may push up the prices of thousands of products. Cyril Munier, Chairman of the French Aluminum Union, said: "The 'carbon tariff' will raise the price of European metal consumption." He predicted that if aluminum prices rise, car prices may also rise. According to the Wall Street Journal, CBAM has raised concerns in some countries, with exporters worried that the plan means a complex export process. Standard&Poor's global analysis shows that under the carbon boundary adjustment mechanism, low - and middle-income countries exporting steel, such as South Africa, Brazil and Türkiye, face the highest cost increase.

Liu Mingli believes that as the first economy to impose a "carbon tariff", EU related policies may cause different interpretations from the outside world. As a developed economy, the EU has always been at the forefront in addressing climate change, and related technologies are also relatively mature. As the birthplace of the Industrial Revolution, Europe should also shoulder the historical responsibility of reducing emissions. However, using the same standards to demand other countries, especially developing countries with relatively backward levels of productivity development and technology, will cause controversy. At the same time, the EU is also struggling to shake off the suspicion of protectionism through tariff measures.

The path of green transformation in Europe also faces multiple challenges both domestically and internationally, and the prospects for implementing relevant climate laws remain questionable. Officials involved in relevant negotiations have revealed to European media that the overall industry of the EU is facing the impact of geopolitical factors. It is very challenging to solve the current energy dilemma while promoting the EU's green and low-carbon transformation goals. The European media "Politburo" pointed out in a recent report that for many years, the EU has been overly reliant on carbon pricing as its main tool for reducing carbon emissions, but has not invested more in the true energy transformation. Huacheng Import and Export Data Observation reports.

"From the perspective of the content of the bill, the EU's ambition is not small. At the same time, uncertainty cannot be ignored." Liu Mingli pointed out that from the internal perspective, on the one hand, the EU needs to increase the use of renewable energy and reduce the use of fossil energy to achieve energy transformation. However, under the disturbance of geopolitical conflicts, energy crisis and other factors, whether the EU can withstand the risk of energy shortage is still a question mark. On the other hand, there are different interpretations of the definition of clean energy within the EU, such as disputes among EU countries over whether nuclear and hydrogen energy are renewable energy. From an external perspective, the protectionist policies of the United States in green industries and the intensification of global competition will also pose challenges to the development of green industries in the European Union.

Yan Shaohua believes that the implementation of EU related climate laws still faces at least three challenges: first, the European energy crisis caused by the Ukrainian crisis has not been completely eliminated, and energy shortages may force the EU to make some compromises in terms of climate goals in the short term; Secondly, zero sum thinking may undermine global climate cooperation, especially as countries introduce green subsidies, and the green industry sector faces the risk of rising protectionism, which may exacerbate competition among countries and thus undermine the atmosphere of global climate cooperation; The third challenge is within the EU: some of the climate goals and policies proposed by the EU do not fully consider the potential uncertainty in the future, which may trigger an internal rebound.