By Cameron Fulton
As the world paused over the past two years, contrariwise the green revolution has shifted into top gear. The Paris Agreement has regained its initial momentum, through the U.S. re-joining, and additional growth of green corporations in markets throughout the pandemic seems to have finally brought the environment to the public front.
In the U.K., the modernisation and transition of the automobile industry into electrical usage has already gained traction with proposals for a Nissan battery factory recently published by the FT, alongside plans for a further six ‘giga factories’.This comes in tandem with the recent green-led ten-point plan from the British government. Amid the curtailing of diesel cars by regulation and investment into offshore wind-power, Britain is beginning to accelerate into a greener future with the aim of reducing emissions by 44% across 30 years. Indeed, the U.K. has consistently held the title of the fastest G20 country to decarbonise since 2000. Hence, its no surprise that Britain is leading by example with its hosting of the COP26 Summit this year, defined as ‘make or break’ by UN Secretary-General António Guterres. Following on from a disappointing COP25, the delayed summit will seek to finance and strengthen climate action. But, whilst the U.K. will lead the international effort to address the climate crisis and navigate the contentious clash of China and the United States’ contrasting climate policies, Europe has otherwise effectively been left in the slow lane.
Brussels is launching its own green revolution through regulation and investment into electrical cars. Global sales of electrical vehicles are expected to grow by 50 per cent this year alone, and the E.U. is desperately hoping to capitalise from this growth. Attempting, by 2030, to de-carbon the economy by 55 per cent has led to a proposed carbon tax which would look to disincentivise usage of fossil fuels and encourage greener alternatives. The tax would both reduce aggregate demand for harmful fuels whilst improving the relative price of ‘going green’. This is a constituent part of the expansion of the Emissions Trading Scheme, which hopes to raise the cost of pollution for industries across the continent. Further, the EC is targeting a ‘modest’ additional 1 million charging points for electrical cars throughout the bloc over the next four years. This would ensure the sunk capital costs of electrical cars are funded, thus reducing costs of the vehicles in the long-run, making them more competitive and readily available against already established petrol stations. Frans Timmermans, European Commission Vice-President for Green Policy, stated that the Union intends to make electrical cars ‘accessible’ and cheaper for its people. The Commission is pushing through legislation that will force production and usage of green vehicles, as the bloc aims to be the first major region to have net-zero carbon emissions by 2050. All these policy announcements may create the appearance of a cohesive E.U. united against the climate crisis but, under the surface, the reality is far more fragile.
Gross domestic product already differs vastly across the bloc, ranging from median GDP per capita being €7,338 in Romania to €28,943 in Luxembourg. Although entering the union has seen improvement to equality and economic prosperity proven ex-ante[1], periphery nations have struggled to reach the heights of their western European counterparts, as prosperity remains focused on the Inner Six[2] of the E.U. This has caused division in the bloc’s politics: the prosperous inner and the rest. This is exemplified in countries such as Greece and the Czech Republic, whose populations hold a 43% negative view on the European Union, and proven historically in 2016 through Brexit. And as green policy gathers pace across western Europe, this could become yet another point of contention. Investment into electrical car charging points at this point has led to 70 per cent of E.U. points residing in Germany, France, and the Netherlands. Whilst the Dutch have 66,665 charging points, Lithuania has only 174. Investment is accelerating Western Europe into a green age, whilst the rest are being left in the dust.
Poorer eastern member states complain of the disproportionate costs expected from the move to green, with their economies structurally more fossil-fuel reliant. Forced public costings from EC regulation will be disparate due to the lack of infrastructure and adverse effects on present industries. The European Automobile Manufacturers’ Association (ACEA) suggested a regional ‘imbalance’ could cause a ‘two-track rollout’, with the resulting potential for factors of production migrating into the more prosperous Western Europe, further depressing the economies of Eastern and Central E.U. members. New-age green industries will thrive in Germany and France under new regulations and investment; Eastern Europe could be instead strangled.
Western centralisation of the E.U. is simultaneously furthered by the production of electrical cars. Just take the example of Tesla which publicly stated plans to invest in a German plant in 2018. Though this does benefit E.U. economic growth, it again implies that the prosperity of a green E.U. economy is not equally distributed to poorer member states. This will be magnified by the E.U. effectively setting a deadline for petrol and diesel car production for 2035: regulation for a 100 per cent reduction in average CO2 emissions in new cars is currently under consideration. As the green car industry enters, fossil fuel-led car production becomes redundant, leading to structural unemployment and economic depression for regions, with eastern economies likely sufferers. 75% of Bulgarians already comment that EU membership has either weakened or failed to strengthen their economy due to economic integration both draining their industries of resources such as labour and restricting action through legislation. Further red tape will only see this figure rise, as the state’s prosperity ebbs away. Such imbalance and discontent contradict the fundamental values of the E.U. in fulfilling economic integration – hence, intensified political resentment lies ahead if this tunnel-vision green policy is not thoroughly recalculated.
Planned flat-rate carbon taxes will not be the solution either. Bitterness regarding such a policy was exemplified in France, where the raising of fuel taxes was duly met with the ‘gilets jaunts’ protests in 2018. Demonstrators objected to the again disproportionate effect on lower-income households and eventually led to the freezing of the tax hike in 2019. If regulation, favourable for the richer centralised member states, is passed, peripheral states could be forced under Brussels’ thumb (a common criticism of E.U. and single market policy). Protests, like those in France, could return elsewhere in the E.U.
With a greater shift of demand towards electrical cars, alongside planned government subsidies[3], the price of going green should decrease in the long run. But, if the price of electric cars is not to fall in the short-medium term, then consumers will likely wait to make the change. And with inflated tax-induced costs short-term, this will cause sufferance to those who cannot afford to change until these prices fall. If the policy is to succeed, the bloc must act quickly. In essence, the E.U.’s climate policy is a balancing act of bureaucracy, meeting the Paris agreement and appeasing its people – and for a blanket policy across the bloc, this will be a difficult without economic consequence.
The ACEA have suggested regional regulation and quotas; however, this would be a step backwards regarding legislative integration across the bloc. Failure to align regulation during the early stages of green policy in car making and usage will lead to an asymmetry that could splinter the already fragile economic integration within the E.U. Singular policy for all member states is required.
Therefore, the EC must strike a balance between regulation and keeping peace with member states: initial tax breaks may be required to avoid depression in eastern economies, with added subsidies to ensure that the environment is not put on the backburner. Recent promises from Ursula Von Leyden, EC President, are assuring, with regulation that will account for “lower incomes” that “cannot carry the burden”. Still, promises do not necessitate action, with the E.U. already facing a hefty bill from the ongoing pandemic emergency purchase programme, costing around €1,850 billion. Further excessive fiscal expenditure may be difficult to justify.
Electric or plug-in hybrid vehicles accounted for 10 per cent of all cars sold across the EU last year, according to ACEA figures, but is expected to observe exponential growth in response to the latest regulation. With the markets set to explode across the world, the European Commission must decide how to balance growing inequality and carbon emissions targets. The bloc is set for a greener and brighter future: but, as ever, some member states are set to shine a little brighter than others – unless action is taken.
The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.
Image: Unsplash
[1] Cecchini (1988) and Baldwin (1989).
[2] France, Germany, The Netherlands, Luxembourg, Belgium, Italy
[3] Timmermans is proposing a Climate Action Social Fund to cushion the costs for lower-income households in switching
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