Europe Wants to be World’s Climate Change Police with Green Deal

Europe’s new top bureaucrat wants to breathe new life into the continent’s long-cherished dream of being the world’s climate cop. By fall, it should be clear whether she has any chance of succeeding.

Ursula von der Leyen, confirmed on Tuesday as the next president of the European Union’s powerful Commission, certainly talked a good Green game as she begged the EU’s parliament to approve her nomination: she promised proposals on a “Green Deal” within 100 days of taking office, the highlight of which will be a radical new Europe-wide tax on carbon dioxide, putting the EU on a legally-binding path to net zero carbon emissions by 2050.

The problem? Europe’s increasingly powerful Green movement isn’t buying it. And without them on board, von der Leyen’s commitments to tackling climate change are likely to end up being just more hot air.

“Good intent alone is not enough,” Philippe Lamberts, deputy head of the Green bloc in the European parliament, said in a statement. “We were elected on an agenda for change and we did not hear enough on our key demands, namely on concrete proposals to avert climate breakdown.”

Tax as a trade policy

Von der Leyen did promise to introduce a so-called “carbon border tax,” a device that would let the EU neutralize the advantage of countries where manufacturers profit from cheaper, but dirtier, energy. Such a tax would have the capacity to grow into a potent tool of trade policy, as the EU uses its market size to pressure trading partners into accepting more stringent climate change policies.

That would be a significant change from the free trade deal Europe just signed with the Mercosur bloc of south American countries, whose environmental commitments were limited to unenforceable promises on reducing emissions and deforestation.

“A comparable pricing of carbon should be an important part in the negotiations of future trade agreements,” a joint Franco-German position paper released on Monday said. The paper, drafted by the economic advisory councils to the French and German governments, made no secret of its ambitions, pushing for “a uniform CO2 price…that is applied globally, or at least within an extended international coalition of countries that is to be as large as possible.”

Border tax vs. trading scheme

So far, so green. The trouble with the experts’ proposal, as the Greens see it, is that it suggests building out the EU’s existing Emissions Trading Scheme, which the Greens loathe as ineffectual; they argue it’s been hollowed out by industry lobbying.

The scheme covers only 40% of EU carbon emissions and exempts key sectors such as transport. Under it, companies are given annual carbon allowances and must offset any excess emissions by buying carbon credits on the open market. The EU badly misjudged the balance between demand and supply in its first iterations, effectively giving many companies a free pass for the better part of a decade. However, the Commission revamped it for the coming decade last year, incentivizing businesses to cut their actual emissions and rely less on buying allowances. Prices have risen from a low of under 5 euros ($5.60) per ton of CO2 in 2017 to over 28 euros today.

“For the Greens, it is of utmost importance that the carbon border tax is introduced as a replacement of free emission allowances,” the party’s climate spokesman Bas Eickhout told Fortune in an email. “Otherwise we protect our industry doubly, which is unfair, ineffective, and goes against WTO-rules and the ‘Polluter Pays’ principle.”

It’s not easy being green

In that light, von der Leyen’s promise of a tax, rather than a beefed up Emissions Trading Scheme, appeared a sizable concession to the Greens, suggesting that she wants them to form part of a reliable, mainstream majority over the next five years—years in which Europe will have to navigate the hazardous waters of a trade war between the U.S. and China, its two biggest trading partners.

Unfortunately for her, the overture backfired: not only did she not persuade the Greens, she also offended many in her own center-right party’s ranks, who ideologically prefer market-based approaches over yet more taxes. As a result, she needed the votes of the conservative Polish Law and Justice Party, which has been under fire in Brussels for undermining the rule of law in recent years, to get her confirmation over the line—and even then she only succeeded by a handful of votes.

The vote result exposes the Greens’ lack of leverage: although they were among the biggest winners in May’s elections, they still have only 10% of the seats in the chamber. Moreover, the more ambitious climate goals of the parliament where they sit have already been rejected once by the EU Council, which represents the member states’ governments.

Further obstinacy may result in von der Leyen drafting a grandly dressed-up, but essentially toothless package, knowing that she can muster support from other corners more interested in safeguarding the interests of industry and agriculture. Either way, how she drafts her great Green Deal—and who she enlists to get it passed into law—will set the tone for the rest of her period in office.