The Climate Policy of the EU

By Davis Weidemann and Michael Palocz-Andresen

Political decisions and strategies are at the core of combatting the climate crisis. While there has been some progress in the reduction of CO₂ emissions in the EU during recent decades, the emissions are still far too high. In this paper, we discuss the climate policies the EU has committed to and point to additional issues and strategies. To get a better understanding of emission reduction, we analyse the main CO₂-emitting sectors in the EU.

KEY TAKEAWAYS

Introduction

During the last three decades, the European Union has managed to reduce its CO₂ emissions significantly. Nonetheless, the current path of the international community as a whole is still far from reaching its self-proclaimed goal of keeping global warming well below 2°C compared to pre-industrial levels, as agreed upon in the Paris Agreement. The global COVID-19 pandemic has had a notable effect on CO₂ emissions worldwide. In 2020, global fossil CO₂ emissions were 5.1 per cent lower than in 2019. This paper analyses which sectors are mainly responsible for emissions in the EU. Further, we discuss the climate policies the EU has either committed to or already implemented to reduce emissions from these sectors. Moreover, we point to further social issues linked to climate change that have suffered from lack of attention and provide additional strategies.

International comparison

The EU is the third-largest emitter of fossil CO₂ emissions in the world, after China and the United States. In 2020, the EU-27 was responsible for approximately 7 per cent of global emissions. The EU economy had managed to reduce its emissions by nearly 23 per cent, compared to 1990. By relative standards, this constitutes a rather large decrease, which was only topped by Russia (-26 per cent). The large developing economies of China and India have had massive increases in their fossil CO₂ emissions, with increases of approximately 374 per cent and 328 per cent, respectively. The United States managed to reduce its share of global fossil CO₂ emissions from 30 per cent in 1990 to 13 per cent in 2020. However, this was mainly due to the large increases in emissions by China and India. The total amount of US emissions is virtually unchanged, as it decreased only slightly, by 0.6 per cent. Japan has reduced its emissions by 2 per cent ¹.

The impact of the COVID-19 pandemic on global emissions

The COVID-19 pandemic had a notable impact on global fossil CO₂ emissions resulting from human activity. In 2020, the global anthropogenic fossil CO2 emissions were 5.1 per cent lower than in 2019. This sudden reduction in emissions was largely caused by the effects of the pandemic, including shutdowns of many sectors of the global economy, as well as a massive decrease in tourism and thus transportation altogether. The COVID-19 pandemic interrupted the trend observed between 2015 and 2019, when global emissions grew annually by 1.1 per cent on average. China was the only country among the major CO₂-emitting economies that did not manage to reduce its emissions as a result of the pandemic. The fossil CO₂ emissions of China increased by 1.5 per cent in 2020, in comparison to 2019. The other major economies, the EU-27 (-10.6 per cent), the US (-9.9 per cent), Japan (-6.8 per cent), Russia (-5.8 per cent), and India (-5.9 per cent), all reduced their emissions in 2020 compared to 2019 ¹.

Recent international actions

In November 2021, the Glasgow Climate Pact was signed at the United Nations climate change conference (COP26). The pact was negotiated through the consensus of the representatives of the 197 attending parties. With regard to coal and fossil fuels, the agreement asks countries to “accelerate efforts towards” phasing down “unabated coal power”, referring to power plants that do not use technology to capture their CO₂ emissions. While the wording has been subject to much criticism, this is the first time the subject of coal and fossil fuels has been included in a final United Nations COP decision. The agreement calls for an end to “inefficient” fossil fuel subsidies. However, no timeline is specified. Vulnerable nations are to be supported with technical assistance to help avoid and address the consequences of climate change ³.

The EU climate policies

The first legal basis of environmental policy in the EU was introduced in the Single European Act of 1987, which aimed to preserve the quality of the environment, protect human health, and ensure the rational use of natural resources. Several treaties with the aim of strengthening environmental protection and combatting climate change have followed since. For example, with the Treaty of Maastricht (1993), the environment became an official EU policy area. With the Treaty of Amsterdam (1999), the duty to integrate environmental protection into all EU sectoral policies with a focus on promoting sustainable development was established. With the Treaty of Lisbon (2009), “combatting climate change” became a specific goal. Moreover, sustainable development in relations with third countries was also included in the treaty, which enabled the EU legally to conclude international agreements with such focus ⁴. The EU has since signed several international agreements.

In 1997, the EU signed the Kyoto Protocol. The agreement, which entered into force in 2005, contained for the first time legally binding limitations and reduction commitments for industrialised countries. In 2015, the Paris Agreement was adopted by the international community, including the EU. The long-term goal of the agreement was for the member states to commit to efforts that will ensure that global warming is well below 2°C, preferably 1.5°C, compared to pre-industrial levels. However, the agreement does not impose penalties for parties that violate its terms, such as fines or embargoes, and there is no international court or governing body ready to enforce compliance. Therefore, the agreement is not binding in any meaningful legal sense but rather appealed to the self-responsibility of the member states. The most recent international agreement signed by the EU is the aforementioned Glasgow pact of November 2021. The pact focuses on coal and fossil fuels, loss and damage, climate finance, adaptation, carbon markets, and mitigation ³.

To implement the transformation towards a climate-friendly economy, the EU is enforcing the Green Deal, a set of policy initiatives by the European Commission to make the EU climate-neutral by 2050. The EU Parliament voted to support the EU Green Deal in January 2020. According to article 191 of the Treaty on the Functioning of the European Union, combatting climate change is an explicit objective of EU environmental policy. More specifically, under the 2030 climate and energy framework, the EU has committed itself to reaching the following goals by 2030 ⁵:

• Reducing greenhouse gas emissions to at least 40 per cent below 1990 levels
• Improving energy efficiency by 32.5 per cent
• Increasing the share of renewable energy sources to 32 per cent of final consumption.

Moreover, to achieve the target of climate neutrality by 2050, the EU Commission proposed a 2030 target to reduce greenhouse gas emissions by 55 per cent. This 2030 target is proposed to be reflected in a European law which will also enshrine the 2050 climate-neutrality objective in legislation. The European Climate Law requires that all EU policies contribute to achieving the EU Green Deal objective. Therefore, the EU Commission is reviewing every EU law to ensure its alignment with the emission reduction targets ⁵. This is a lengthy process, which has already started to revise many key areas of legislation. One of the policy frameworks that is set in place to reduce emissions is the emission trading system (ETS), the first and largest international carbon market. The principle of the ETS is to combine regulation and incentives. The ETS is based on the “cap and trade” principle, where a cap is set on the total amount of GHG emissions that can be generated by factories, power stations, and similar installations. The installations buy or receive “emission allowances” that are auctioned by the member states. These credits correspond to one tonne of CO₂ each and can be traded with other installations if they are not used.

Solutions

The following section discusses the policy solutions implemented by the EU, as well as additional strategies. First and foremost, it is essential to understand how emissions are distributed among the various sectors in the EU economy. This allows us to focus on the sectors where solutions are most important, as these sectors make up the largest shares of emissions.

The largest-emitting sectors

Figure 2 shows the contribution each sector makes to the carbon dioxide emissions of the EU. Together, the three sectors of transportation, energy, and industry make up nearly 82 per cent of all carbon dioxide emissions in the EU. Below, we analyse how the three main sectors contribute to the total EU emissions. Further, we review some of the policy guidelines proposed by the EU and discuss additional policies that could be implemented.

Transportation

Transportation makes up the largest share of carbon dioxide emissions in the EU. Nearly a third of all emissions are generated through transportation. Cars, in particular, contribute heavily, as they make up more than 40 per cent of the emissions generated by the transportation sector. Heavy trucks and buses make up nearly 20 per cent ⁶. Emissions from the road transport sector – similarly to waste, agriculture, and buildings – are not covered by the ETS trading system. These sectors are subject to binding annual GHG emission reduction targets set for each member state ⁵. However, while greenhouse gas emissions from the transportation sector in the EU were on a declining trend from 2007 to 2013, they increased again from 2013 to 2019 ⁷.

For a sustainable decrease in emissions from this sector, there needs to be a permanent reduction in travel by car. Regulatory measures, such as restrictions on driving in the inner city during certain time frames, may be helpful to incentivise people to use public transportation to get to work. For this shift to function properly, public transportation must be as attractive as possible. This can be achieved by reducing the ticket prices for public transportation. Further, an increase in the frequencies of trains would make individual trains less crowded. This is particularly important for people driving to work or going home. While the alternative of taking a car to work often means getting stuck in traffic during the same time frame, a crowded road does not impinge their personal space as much as a crowded train. Particularly in times of a global pandemic, this can result in making public transportation less attractive. However, many cities, such as Hamburg, Germany, have already implemented high frequencies for certain trains during rush hours. Most of the trains in Hamburg run on sustainable energy as well. In June 2022, the German government introduced a 9€ ticket for regional trains and buses across Germany. Such measures can help make public transportation more attractive in the short term. However, for a long-term transition to work, such proposals will have to be in combination with a permanent reduction in ticket prices. Therefore, large and sustainable investments in the transportation systems of EU cities will be necessary.

Nonetheless, public transportation should not be the only alternative to cars. A sustainable transportation system will have to rely on other forms of transportation, such as bicycles as well as e-scooters. One major problem here is the quality and quantity of cycle lanes throughout European cities. Most city streets were designed to provide infrastructure solely for cars. Except for the Scandinavian countries, the Netherlands, and a few other places, most European cities do not integrate bicycles well into their traffic systems. Although some major European cities are already trying to reverse this trend by building new bike lanes, this infrastructure must be given priority, so bicycles can be used as a more frequent alternative transportation.

Moreover, although the sustainable cities envisioned in the future will rely less on car traffic, cars will still play a major role. Therefore, a great expansion of electric vehicles is needed. Not only cars but also other vehicles such as buses need to shift towards running on electricity in the upcoming decades. The expansion of electric cars is already supported by many EU states through government subsidies. Other forms of transportation such as shipping must also transform towards sustainability. The technology already exists in many areas. For example, in late 2021, the world’s first electric autonomous cargo ship launched in Norway, shipping up to 120 containers.

Energy

The energy industry makes up another third of carbon dioxide emissions in the EU ⁸. This sector is responsible for the second-largest share of emissions in the EU. While the energy industry still contributes significantly to EU emissions, the climate policy of recent decades has played a notable part in reducing emissions. Emissions from the energy sector have been falling for more than a decade ⁸. The energy sector is currently shifting towards sustainability as part of the policy initiatives taken by the Green New Deal. The EU’s target is to reach net-zero greenhouse gas emissions by 2050. Most of the energy produced now comes from renewables and biofuels (ca. 30 per cent) ⁹. Approximately 22 per cent of final energy consumption comes from renewable sources ¹⁰. Sweden is leading in the share of renewables in consumption. Nearly 55 per cent of its gross final energy consumption comes from renewables. All in all, Scandinavian countries are consuming the cleanest energy, with Finland and Denmark in second and fourth place, respectively ¹¹. While the EU has reached its 2020 targets of at least 20 per cent of energy consumption coming from renewables on average, almost one-third of EU members have not.

According to the European Commission, the strategy is to develop a power sector based largely on renewable sources and an integrated, interconnected, and digitalised EU energy market ⁶. However, nuclear energy still makes up almost a third of energy production in the EU. This share is likely to remain at such high levels, as the European Commission has recently decided to give nuclear energy and natural gas a green label under their taxonomy. The taxonomy serves as a rulebook of green investment, intending to direct the EU towards climate neutrality by 2050. According to the European Commission, the taxonomy is “a classification system, establishing a list of environmentally sustainable economic activities” in the context of the Green New Deal ¹².

Furthermore, while the emission trading system (ETS) can help to reduce emissions in principle, its practical application has many problems. Among the main problems is financial speculation. According to a recent analysis, the EU carbon price market is more and more subject to speculation ^13. Since a cap is set on the total amount of GHG emissions, some financial actors purchase emission allowances with the sole purpose of selling them for a profit, hoping that the price will increase in the future. Such speculations can lead to price volatility or bubbles. Furthermore, large financial actors may stockpile allowances to shorten supply and therefore increase prices.

Industry

Industry is the third-largest sector contributing to emissions in the EU, making up more than 20 per cent of all emissions ⁷. If the EU economy is to shift towards sustainability, there needs to be a significant change in the way goods are produced and consumed. One particular area of change will be the life cycle of goods. In our current economy, the production of consumer goods works as follows. First, resources are extracted from the earth. They are then used for energy and material production to manufacture goods which are afterwards distributed to consumers. Finally, after consumption, the goods are often disposed of. This is a linear system, with little to no reintegration from the final stage of the process, the disposal, to other stages. Many consumer goods leave behind non-recyclable waste. Further, resource extraction, energy and material production, manufacturing, and the distribution of goods generate a high volume of emissions. However, there need to be two concrete changes to our current system of production.

First, we need to move away from a linear economy towards a circular economy. Figure 4 demonstrates this strategy. The initial steps up to the consumption of consumer goods are similar in a circular economy. The main difference is that the vast majority of materials manufactured for consumer goods are reintegrated into the production process of new products ¹⁴. If the final product cannot be fully recycled or reused after consumption, it should be produced in such a way that it leaves no waste behind. One current problem with moving towards such a production process is that only approximately 41 per cent of plastic is actually recycled in the EU, with high variances across countries ¹⁵. That is because many products use multiple types of plastic for one product package, making it difficult for recycling machines to recognise whether the package should be recycled. Many of those products often end up being burned instead of recycled. Therefore, one way of leaving behind less waste would be to change the regulatory framework for the use of plastic in production. Stricter regulations concerning the mix of different types of plastics for packages could be a way forward.

Second, in a sustainable economy, the life cycle of the majority of consumer goods ought to be sustainable. Sustainable products are products that are environmentally friendly throughout their lifespan. Thus, there ought to be no permanent damage to the environment from the moment the raw materials are extracted to the moment the final product is disposed of. Therefore, each process of our production and consumption needs to change. The extraction and usage of raw materials should leave no permanent damage to the environment. The energy used in the production process should be clean and environmentally friendly.

This also applies to other inputs used in the production process, such as the buildings or factories where the products are produced.

There are many individual areas of our consumption that will need to change drastically if our industry is to be sustainable. One area is meat consumption. The livestock sector is responsible for 81-86 per cent of total agricultural GHG emissions, if emissions related to the production, transport, and processing of feed are included ¹⁶. Therefore, it is almost inevitable that meat consumption in the EU will have to be reduced in the upcoming decades.

Results of the EU climate policies

The EU policies have already had a notable effect on emissions. Figure 5 demonstrates this development. Between 1990 and 2019, the CO₂ emissions of the EU-28 have been reduced by nearly a third ¹⁷. Within the EU, the largest emitter during this time frame was Germany, making up nearly 20 per cent of total EU-28 emissions. Germany is followed by the UK (13 per cent) and France (11 per cent).

However, although the climate policies have managed to reduce CO₂ emissions by a significant amount during the last three decades, the current pathway is still far from what is needed. Given the history of Europe’s early industrialisation, the continent has a particular responsibility regarding the change of the climate. Moreover, taking another look at table 1 in the international comparison section, the EU is responsible for approximately the same amount of CO₂ emissions as India, yet India’s population is nearly triple that of the EU. There is little doubt that a continuation of the pace of emission reduction would be very harmful to the world climate. Although the goals and commitments that are set in place, such as the net-zero target by 2050, go in the right direction, it is essential that these goals should actually be achieved.

Green investments

In terms of practical applications of climate policy solutions, the question of how to finance specific proposals is always among the main topics of discussion. Large-scale financial investments are needed within the EU to actively support innovative approaches to solving technological problems and incentivising sustainable consumption. The European Commission states that the offshore renewable energy strategy aims to encourage investment of almost 800€ billion by 2050 in offshore energy infrastructure and research ¹⁷. Such investment is desperately needed. New investments have been on a downward trend in Europe since 2008 ¹⁸. Given that the current level of investment will not be sufficient to shift the European economies towards sustainability, European governments must increase their spending on green technology. Further, policy and regulatory frameworks should also incentivise private investment, even more than is currently the case.

While green solutions are often criticised for their costs, it is important to acknowledge that it is highly misleading to think solely in terms of the costs that a shift towards a sustainable, climate-neutral economy will produce. That is because simply counting the pile of money it will take to finance environmentally friendly energy and industry leaves out what the alternative of not doing so would cost – namely, making the planet unliveable for humans. The cost that would result from not being able to reduce global CO₂ emissions far below 2°C and reaching certain tipping points would far exceed any costs of a shift towards a net-zero economy. According to a widely influential report about the economics of climate change, the management of global warming would cost 1 per cent of global gross domestic product (GDP) annually, as opposed to inaction, which could cost between 5 per cent and 20 per cent of global GDP ¹⁹. Further, it is essential that the financing of climate-friendly solutions should be social. If low- and middle-income families are burdened over-proportionally, this will likely lead to higher opposition to sustainability among the general population. Therefore, higher-income households and corporations must pay their fair share to finance the transformation.

Moreover, investments in developing countries will be just as important to finance sustainable technological solutions. The 2021 Glasgow Climate Pact ³ acknowledges with “deep regret” that developed countries, including EU countries, have missed their 2020 target of providing $100bn a year to help developing countries. The pact commits them to raising at least that amount by 2025, annually. In terms of adaptation, the Glasgow Climate Pact urges developed countries to “at least double” their support for adaptation measures, in contrast to 2019 levels, to assist developing countries in their preparation for climate change by 2025 ³. This implies that adaptation funding could be around $40 billion annually, given that it was around $20 billion in 2019. Without the developing countries, there will be no sustainable solution.

The COVID-19 pandemic: A window of opportunity for the climate crisis?

As a result of the pandemic, fossil CO₂ emissions in the EU-27 decreased by 10.6 per cent. Although this decrease in emissions, temporarily caused by large decreases in production and consumption, will not have a lasting effect in itself, it could be a window of opportunity. The pandemic has forced people and corporations worldwide to make behavioural adaptations to the crisis. The same will be necessary for the climate crisis. While this process has already begun in many ways, it must be accelerated significantly to deal with the climate issue. Further, the pandemic has also shown how quickly governments can act and how fast financial sources can be found in a crisis.

Social challenges: How climate migration could destabilise the EU

Climate change is expected to threaten food security across the globe, due to ecosystem degradation. This will disproportionately affect the poorer parts of the world and will likely intensify ongoing conflicts or help to create new wars over scarce resources, such as water. While water scarcity rises, crop productivity is expected to decrease. Further, the destruction of homes caused by extreme weather events will significantly increase as well, and the continuation of the rise in sea levels will make many places unliveable across the globe. These phenomena force millions of people to leave their homes. In 2014, more than 20 million people were forced to change their place of permanent residence due to factors related to climatic change ²⁰. This figure is expected to rise substantially in the coming decades. According to estimates by the World Bank, there will be more than 143 million climate migrants by 2050 if no action is taken ²¹. In sub-Saharan Africa alone, there are expected to be 86 million climate migrants, while South Asia and Latin America are forecast to be home to 40 and 17 million climate migrants in 2050, respectively. Our current situation opens up two paths to deal with the climate-change migration situation.

Scenario 1: We continue with the current pace of reduction in CO₂ emissions and do not make extensive efforts to include climate migration in development planning. Further, in this scenario, we also find no legal framework for climate refugees. The likely outcome of this scenario will be large-scale migration to the EU and other places by people seeking refuge from the disastrous effects of climate change. In particular, the potential outbreaks or intensifications of conflicts due to environmental factors will make predictions regarding the timing and number of migrants rather difficult. This could mean a sudden large flow of migrants or refugees. In this scenario, with no clear legal framework on how to deal with climate migrants / refugees and limited efforts to deal with climate change altogether, this could cause large-scale political instability within the EU. The sudden and large-scale migration in 2015 following the events of the Syrian war demonstrates how such a situation could destabilise the EU by increasing support for populist parties. This could then lead to even less action against climate change. Figure 5 visualises this pathway. However, there is an alternative way of dealing with climate migration.

Scenario 2: In this scenario, the climate migration problem is taken seriously and governments around the world act accordingly to reduce or prevent the effects of scenario 1. The World Bank points out that the number of people who will be forced to leave their homes could be reduced by as much as 80 per cent if appropriate actions are taken ²¹. These actions include large reductions in greenhouse gas emissions, the inclusion of climate migrants in development planning, and increases in investment to improve our understanding of internal climate migration. Furthermore, a clear legal framework of how to deal with climate refugees should be developed. These actions would massively reduce the social consequences for the potential climate migrants themselves, as well as for the EU.

Summary

The EU is the third-largest emitter of CO₂ in the world. It has managed to reduce its CO₂ emissions by nearly a third in the last three decades. The three main sectors of transportation, energy, and industry make up more than 80 per cent of all carbon dioxide emissions in the EU. Transportation has overtaken energy as the largest-emitting sector, making up nearly a third of all EU emissions. Cars make up most of these emissions. While the majority of cars will have to be replaced by electric vehicles, there also needs to be a permanent reduction in travel by car. Therefore, public transportation must be as attractive as possible, by reducing ticket prices and increasing the frequencies of trains and buses. Moreover, other forms of transportation, such as bicycles or e-scooters, should be further supported.

The second-largest emitting sector, the energy sector, has been in the middle of a transformation towards cleaner energy. However, despite the desperately needed shift to clean energy, there has been a significant lack of investment in clean energy during the last seven years. Industry contributes the third-largest emissions. In our current economy, there is only a very limited reintegration from the final stage of the process, the disposal, to other stages. In the coming decades, our economy will need to shift towards sustainability and circularity. Further, climate change increases all sorts of social issues, such as migration. Hence, a political solution will have to be found soon.

Outlook

While the shift towards sustainability challenges our economies in many ways, it also provides many opportunities. Green solutions will require creative, innovative ideas and incentivise entrepreneurship. Many new businesses and entire markets will be created. Reductions in single-person transportation will be a major part of the sustainable solutions. Further, a shift toward a circular economy and changes in the amounts and types of products we consume will be essential as well. The industry and transportation sectors will have to be based on renewable energies. International comparisons between the US and the EU show that emission reduction is not just about technology or financial means to invest. It is first and foremost about political will. Despite not being far ahead of the US in technology or gross domestic product, the EU has managed to reduce its CO₂ emissions by far more than the US.

Although the EU is doing relatively well in terms of emission reduction by international standards, it has not done nearly enough. There is no principle of relativity in climate-change effects. Whether or not the EU has contributed less than other big emitters in relative terms does not decide how bad the environmental and social consequences will be for Europe. The EU emission reductions are still not in accordance with the demands of the scientific community. Further, while the climate policies of EU governments have historically focused on long-term goals, many of them have lacked clear communication on how to achieve those goals. The result was that many goals have not been achieved. The integration of the scientific community into many EU governments has helped to address this issue. Some governments are regularly now double-checked by a scientific panel, making sure that the policies are in compliance with climate goals. After all, what good are ambitious goals if they are not achieved? Nonetheless, the measurable effect of the EU climate policies has shown that climate policies are effective and do reduce CO₂ emissions.

Acknowledgment

The authors would like to thank Prof. Dr Luz del Carmen Gómez Pavon, director Facultad de Ciencias de Electrónica FCE, Benemérita Universidad Autonóma de Puebla México, for years of support in this scientific area.

This article was originally published on April 14 2023

About the Authors

Davis Weidemann holds a BSc in Business Administration from the University of Southern Denmark. He is currently enrolled in a second BSc programme at Leuphana University, majoring in economics. Previously, he has taught micro- and macroeconomics as a student tutor at both universities. Besides economics, his research interests include political science, which he studies as a minor, as well as sociology and philosophy. He works as a student researcher at a market and consumer data company.

Michael Palocz-Andresen is working as a full professor at the Benemérita Universidad Autónoma de Puebla México. Since 2018 till 2022 he was a Herder-professor supported by the DAAD at the TEC de Monterrey. He became a full professor at the University West-Hungary Sopron, and a guest professor at the TU Budapest, the Leuphana University Lüneburg, and the Shanghai Jiao Tong University. He is a Humboldt scientist and an instructor of the SAE International in the USA.

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