“Fossil fuel economy has reached its limits”: EU to slash emissions and drag Australia with it

The European Commission has outlined its ambitious policy package to more than halve its emissions by 2030, a move which could have major consequences for climate recalcitrant trading partners like Australia – including an A$80 plus per tonne carbon tax on imports.

Overnight, the European Commission unveiled its ‘Fit for 55’ policy package, designed to deliver a 55 per cent cut to emissions by 2030, includes stricter emissions caps, increased spending on clean energy projects and an effective ban on petrol-fuelled vehicles by 2035.

The EU will adopt a new ‘renewable energy directive’ that will see the EU produce at least 40 per cent of its total energy consumption from renewable sources by 2030.

Crucially, this directive will apply to all energy sources, not just electricity generation – and will see a ramp-up of renewable energy use in transport, heating and cooling and industry. It will likely drive ongoing investment in new biofuels and green hydrogen use.

The package will also include strict new limits on emissions from passenger vehicles, with a target of emissions of new cars to be cut by an average of 55 per cent by 2030 and 100 per cent by 2035. This, as we report on our EV sister site The Driven, will effectively ban petrol-fuelled vehicles by 2035.

President of the European Commission, Ursula von der Leyen, said the package showed that the EU was willing to “walk the talk” on climate policy.

“The fossil fuel economy has reached its limits. We want to leave the next generation a healthy planet as well as good jobs and growth that does not hurt our nature,” von der Leyen said.

“The European Green Deal is our growth strategy that is moving towards a decarbonised economy. Europe was the first continent to declare to be climate neutral in 2050, and now we are the very first ones to put a concrete roadmap on the table. Europe walks the talk on climate policies through innovation, investment and social compensation.”

The package will have major ramifications for countries like Australia, which have significant trade links with EU countries but have yet to adopt similarly ambitious policies to tackle climate change.

Targeting these countries, the European Commission has proposed the creation of a new Carbon Border Adjustment Mechanism that will put an effective price on emissions embodied in goods imported into the European Union.

It argues the carbon tariff on imports is a justified measure to avoid ‘carbon leakage’, where emissions-intensive industries shift to jurisdictions – like Australia – where no price on carbon applies.

The proposal will target the imports of emissions-intensive materials, such as iron, steel, and aluminium. This is significant, as the EU ranks as Australia’s third largest export partners, with coal and metals representing the largest segments by value sent from Australia into Europe.

It could also serve as a model for other countries, and other major Australian trading partners, to introduce similar measures.

At the same time, the European Union will impose stricter emissions caps on its own emitters under the EU Emission Trading Scheme, accelerating the pace of annual reductions in the number of emissions permits available to purchase by emitters through auction.

In expectation of these stricter limits, the price of European carbon permits under the EU ETS has surged to consistently trade above €53 per tonne (A$84).

These higher prices, combined with the carbon border adjustment mechanism, could see Australian imports into the EU slugged with an equivalent carbon price of A$84 per tonne or higher.

To provide an incentive for other countries to place their own price on carbon emissions, under the plan, countries outside the EU would be able to offset or avoid the Carbon Border Adjustment Mechanism being imposed in their exports by introducing a similar level of tariff on their own emissions.

European Commissioner for the Economy, Paolo Gentiloni, said that the carbon border adjustment mechanism would prevent the EU’s climate policies from being “undermined” by lax policies in other countries.

“we are proposing a carbon border adjustment mechanism that will align the carbon price on imports with that applicable within the EU,” Gentiloni said.

“In full respect of our WTO commitments, this will ensure that our climate ambition is not undermined by foreign firms subject to more lax environmental requirements. It will also encourage greener standards outside our borders. This is the ultimate now or never moment.”

The Coalition government enthusiastically repealed an Australian carbon price in 2014, but by taking such an adversarial stance towards adopting any meaningful form of climate action, it could, ironically, see Australian industries slugged with a much higher price.

Federal trade minister Dan Tehan told ABC Radio National that the Morrison government may use the EU’s propose tariffs as an excuse to further baulk from taking stronger climate action.

“What we’ve seen here is the EU seeking to impose its views and its ways on other countries as to how they should go about it,” Tehan said. “And that ultimately, in the end, might not lead to the type of international cooperation that we need to reduce emissions.”

“If we’re going to successfully deal with climate change, we need all countries on board. The EU unilaterally imposing its views and its ways, is not necessarily going to achieve the outcomes that we’re all looking for.”

Carbon Border Adjustment Mechanisms have long been flagged as a way to bring recalcitrant countries into line – those refusing to implement policies consistent with meeting the goals of the Paris Agreement.

Australia has been singled out as a prime target of such measures, with the Morrison government refusing to commit to a 2050 net-zero emissions target and refusing to introduce meaningful policies to reduce emissions.

Australia also happens to be in the process of negotiating a new free trade agreement with the European Union, and Australian diplomats will be in overdrive in the hope that they can secure exemptions for Australian industries from any potential carbon tariff on exports.

It will mirror Australia’s current diplomatic efforts to avoid the UNESCO World Heritage Committee from listing the Great Barrier Reef as being ‘in danger’. The Morrison government will pay to fly ambassadors out to visit the reef in a major PR campaign – but has remained steadfast in its refusal to adopt stricter climate targets.