EU climate policy

The Council of the European Union failed to agree policy for the EU's long-term climate strategy on 18 October, postponing the issue until the EU's December summit. In June, the council had similarly failed to adopt a policy stance given the opposition of Czechia, Estonia, Hungary, and Poland to the EU Commission's proposed net-zero emissions target for 2050.

This is backed by many EU countries, including France, Germany, and Finland, but others oppose it due to their heavy reliance on fossil fuels. Poland claimed that significantly increased funding would be required to reach a climate-neutral economy, especially for poorer member states. Earlier in October, the EU's environmental ministers also failed to agree to increase the carbon emissions reduction target for 2030, given opposition from 10 member states, including Greece and Romania. Currently, the EU aims to reduce emissions by at least 40% from 1990 levels by 2030.

Significance

EU member states are currently negotiating the EU's next budget framework for 2021-27, with budget talks very likely to be tightly interlinked to climate targets. Eastern and southern EU states will press for increasing outlays on energy transition including raising the proposed Energy Transition Fund (ETF) for fuel-dependent regions in the 2021-27 budget framework, currently planned at EUR5 billion.

Since many western member states, including France, Sweden, and Finland are sensitive to climate-change issues and given the strong "green" focus in the European Parliament, alongside external lobbying by environmental organizations for energy transition, IHS Markit expects eventual EU consensus to expand funding for modernizing carbon-intensive assets and infrastructure, benefiting Poland, Czechia, and Estonia. In-principle, agreement to increase EU environmental taxes is also likely, potentially involving a carbon levy, electricity tax, and/or plastic-waste tax, while phasing out fossil fuel subsidies. However, the latter change appears potentially slow-moving.

If Germany takes a stronger position favoring carbon neutrality at the December summit, this would indicate greater scope to agree concrete policies, including support for energy transition, while facilitating adoption of the 2021-27 budget framework, probably by the end of first-half 2020: further inability to agree would indicate a slower and harder budgetary timeline.

Posted 25 October 2019 by Petya Barzilska, Sr. Research Analyst II, Europe & CIS Country Risk, S&P Global Market Intelligence