How Europe's ambitious new climate agenda will affect businesses

The European Union's plan to cut its greenhouse gas emissions by more than half by the end of the decade will touch almost every industry in the trade bloc, with profound consequences for jobs and the bloc's economy

By Jack Ewing, Stanley Reed and Liz Alderman

Published: Jul 15, 2021

Image: REUTERS/Annegret Hilse

FRANKFURT, Germany — Cars with internal combustion engines will disappear from European showrooms by 2035. Steel producers and cement makers will pay for every ton of carbon dioxide their factories emit. Cargo ships may not be able to dock in ports like Rotterdam, Netherlands, or Hamburg, Germany, unless they run on cleaner fuels. Commercial airliners will be required to fill up with synthetic fuel produced with green energy.

The European Union’s plan to cut its greenhouse gas emissions by more than half by the end of the decade will touch almost every industry in the trade bloc, with profound consequences for jobs and the bloc’s economy. European leaders said the climate package presented on Wednesday could put Europe at the forefront of new technologies like electric car batteries, offshore wind generation or aircraft engines that run on hydrogen.

But the transition will also be painful for some consumers and companies, raising the cost of a wide variety of goods and services, like video monitors imported from China, for example, or a vacation flight to a Greek island or even a full tank of gasoline. Companies that make products destined for obsolescence, like parts for internal combustion engines, must adapt or go out of business.

The proposals could reshape polluting industries like steelmaking, which directly employs 330,000 people in the European Union.

“This is a truth that needs to be told,” said Akio Ito, a senior partner at Roland Berger, a consulting firm based in Munich. “One way or the other, we as consumers will have to pay the price for the green transformation.”

Ito said the new proposals would challenge industries in a number of ways. Companies would need to switch to cleaner energy sources like hydrogen that are likely to be more expensive. There is a risk that European companies will begin relocating some of their most polluting operations, like making iron, outside the European Union’s borders, he said.

Frans Timmermans, the European commissioner responsible for the so-called Green Deal, acknowledged Wednesday that “some sectors will profit more than others.” He said the onus is on the European Commission to show that the burdens and rewards can be allocated fairly.

The European Commission’s plan, “Fit for 55,” calls for its 27 member states to cut their output of greenhouse gases by 55% by 2030, compared with 1990 levels.

The European Union’s target is more aggressive than that of the United States, which committed to reduce emissions by 40% to 43% over the same period, but behind Britain, which pledged a 68% reduction. China, the world’s largest emitter, has only said it aims for emissions to peak by 2030.

Here’s how the plan would affect industries in Europe.

Automakers

Most automakers have announced plans to shift to electric vehicles, but many have resisted putting an expiration date on the fossil-fuel powered vehicles, which still generate the most profits. The European Commission plan would effectively require all new cars to be emissions-free by 2035, removing any flexibility for companies like Volkswagen, Mercedes-Benz or Renault to continue selling some gasoline or diesel vehicles, including hybrids.

The commission’s plan also includes some provisions that benefit the industry. Public funds will be used to help build charging stations every 60 kilometers, or 36 miles, on major highways, a move that will encourage sales of electric cars. The commission will also help finance a network of hydrogen fueling stations, benefiting companies like Daimler and Volvo that are planning to build long-haul trucks that run on fuel cells that convert hydrogen to electricity.

The association representing European automakers said the charging networks envisioned by the commission were not dense enough and complained that it would be wrong to ban internal combustion engines altogether.

The European Union should “focus on innovation rather than mandating, or effectively banning, a specific technology,” Oliver Zipse, CEO of BMW and president of the European Automobile Manufacturers’ Association, said in a statement.

Airlines

Aircraft are major producers of carbon dioxide emissions but also difficult to convert to emission-free operation. According to the commission proposals, airlines would be compelled to begin mixing synthetic fuel with the fossil fuels they now use, and they will no longer receive tax breaks on fossil fuels. In other words, they will have to pay more to pollute.

Airlines for Europe, an industry lobbying group representing Air France-KLM, easyJet, IAG, Lufthansa Group and Ryanair — Europe’s largest flagship and low-cost airlines — has said that its members back a green transition but that they would seek simpler regulations and financial support.

“Taxes siphon money from the industry that could support emissions’ reducing investments in fleet renewal and clean technologies,” Willie Walsh, director general of the International Air Transport Association, said in a statement.

Airbus, the world’s largest plane maker, has pressed for subsidies for airlines to renew its fleets and support for technology that uses sustainable fuels. The European giant, whose main stakeholders are the French, Spanish and German governments, has announced plans to develop carbon-neutral planes within five years and recently unveiled a zero-emission concept aircraft that runs on hydrogen.

Shipping

The deal singles out companies that ship cargo by water, making them pay more for the emissions they generate to encourage their transition to cleaner energy. Most ships plying the seas today run on low-grade oil and are major polluters.

Shipping industry lobbyists have already complained it was unclear how the plan would be applied and which shipping routes would be affected. “Is it just going to be European ones, or half the trade between China and the EU?” S&P Global Platts said in a note.

Heavy industry

The European Commission plan would raise the cost of polluting by tightening the European Trading System, which compels companies to effectively pay for the dangerous carbon dioxide they release into the environment. Anticipation of the changes has already helped drive up the price of credits by about 50%.

Steelmakers have warned that the proposals could further erode their competitive advantage over producers in China and discourage the investment needed to shift to lower emissions.

“We will be facing increased carbon costs, that is going to be the ultimate result,” said Koen Coppenholle, CEO of Cembureau, a cement industry trade group.

Energy

Electricity producers will be pushed to speed up the switch to wind, solar and hydropower from coal. Renewables already account for 20% of the electricity produced in Europe. The goal is to raise the figure to 40% by 2030, largely by increasing the penalty that utility companies pay for power generated by fossil fuels, which would make wind and solar more attractive financially.

Given how many business interests are at stake, the plan is likely to face furious lobbying by industry representatives as it makes its way through the legislative process in Brussels. The commission’s proposals require endorsement by the European Parliament and leaders of European national governments before they become law, a process that is expected to take around two years.

Proponents of the commission’s plan can tap deep support from Europeans increasingly alarmed by wildfires, record hot summers, severe storms and other tangible evidence of the toll of climate change.

“We saw tornadoes in the Czech Republic. Who would have ever thought of that?” Timmermans said. “Anyone who wants to deny the urgency of the climate crisis should look again.”