It’s not easy being green. Europe has spent decades trying to lead the world on climate policy, but its businesses are struggling to pay the bills as they come due. That’s why European Union lawmakers on Thursday reached a provisional agreement to ease the burden of the bloc’s emissions-trading system. The deal would give energy-intensive industries more free permits to emit carbon through 2030, lowering their costs without raising the E.U.’s overall emissions cap.
Brussels says it’s trying to address the problem of “carbon leakage.” Make it too expensive to manufacture glass, paper or steel in Europe, and companies can make them somewhere else. If a chemical plant closes in Germany and reopens in China, Earth’s atmosphere has not necessarily been spared any carbon. But Germany has fewer jobs, less industrial capacity and a smaller tax base.
Thursday’s concession came a week after more than 100 businesses warned that proposed changes to the E.U.’s carbon market could accelerate factory closures and relocations. The governments of Italy, Poland, the Czech Republic, Slovakia and Hungary are pushing for a two-year delay in expanding emissions trading to heating and road transportation, which would amount to a new carbon tax. In September, French President Emmanuel Macron asked Brussels to postpone new methane-reporting requirements for oil and gas importers amid tight energy supplies. Last week, the E.U. Council backed a delay of some requirements, though the European Parliament still needs to agree.
These retreats are welcome. If Europeans want to jump-start economic growth, they need to pare back their ambitions as a regulatory superpower. The E.U.’s electric-vehicle mandate has already offered a lesson in what happens when politicians try to manufacture consumer demand by fiat.
There is nothing inherently anti-market about putting a price on carbon. Cap-and-trade was conceived as an alternative to command-and-control regulation. Government sets an emissions ceiling, companies trade allowances and businesses have an incentive to find the cheapest ways to cut pollution. The trouble starts when policymakers distrust that price signal and pile mandates, investment conditions, reporting requirements and subsidies on top of it. This warps the market.
Europe already suffers from an enormous energy disadvantage, compounded by the effects of Russia’s invasion of Ukraine. The European Commission reports that industrial gas and electricity prices remain two to four times higher than they are in the E.U.’s main trading partners. E.U. industrial retail electricity prices were 2.2 times U.S. prices and twice those in China during the second quarter of 2024.
It’s hard to compete, let alone reindustrialize, when energy costs so much. More nuclear power and a genuine all-of-the-above strategy would help. So would taking off some of the regulatory handcuffs that make it harder and more expensive to refine energy and manufacture goods.
Europe is proud that emissions have fallen substantially, but countries such as France and Spain are subsidizing energy to cushion businesses against high prices. Governments already struggling with debt cannot afford to do this indefinitely. The goal should be fewer emissions, not fewer factories.
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