Nick Butler, professor and chair of the Kings Policy Institute at Kings College London, author of the Financial Times' blog, energy commentator

 

The European Union is set to impose tariffs against goods from countries which do not match its environmental standards.  These new measures endorsed two weeks ago by the European Parliament could hit many countries across the world including Ukraine.   Ukraine has begun the difficult process of decarbonisation.  What the country needs now is investment, engagement and technology transfer - not the imposition of tariffs.

The Green Deal proposed by the European Presidency has offered a rare measure of optimism during the dark period of the Covid pandemic. The measures proposed offer a chance for creating a future which could be better than the past – with the risk of climate change reduced and the natural environment protected. 

The EU leads the world in taking action to reduce emissions.  The Green Deal, which contains strong commitments to electrification of sectors such as transport and to the development of a new clean energy source through the use of hydrogen, will extend that lead.  The Green Deal is supported by the promise of investment from EU and national sources of some € 750 bn over the next decade.

But the European Union can’t achieve its green objectives on its own.  The 27 member states account for just under 10 per cent of global emissions according to the authoritative data produced by the International Energy Agency. That number has been falling and will continue to fall even before the Green Deal measures are implemented because Europe’s economic growth rate is much slower than that of countries such as China and India.

European policy on climate change needs to look outwards rather than simply focusing on internal issues. 

So far the main externally  focused element of the Green Deal agenda has been the Carbon Border Adjustment Mechanism – a tariff to be imposed on products from countries which do not match the EU in terms of decarbonisation and commitments on carbon.  The details are not yet clear but it is already obvious that Ukraine could be one of the many countries affected.

It could seem logical for European politicians to want to ensure that their investment in a cleaner greener future does not force companies to relocate activity to countries where standards and therefore the costs of doing business are lower.

But the tariff led approach policy is the wrong approach.  First the movement of industrial activity away from the EU has not been driven by energy costs but by the simple fact that other markets have been growing more quickly.  Serious analysis published by the authoritative Brussels based think tank Bruegel confirms that judgment. Relocation is driven by the attraction of new and growing markets for industrial products from cars to steel to chemicals. 

The second argument against tariffs is that they won’t work. Europe does not have the capacity to inspect the complex supply chains involved in most traded goods and will find it impossible to identify the carbon content of any particular product from ceramic goods to computers.  Without the detail any tariff would have to be imposed on the basis of generalised assumptions – about whole countries or sectors, penalising those manufacturers including those in Ukraine who are making great efforts to reduce their carbon impact.

Thirdly tariffs will provoke retaliation. Does anyone in Brussels really imagine that China, India or the US will  passively accept being priced out of the EU market ?  Trade disputes have a tendency to escalate and the EU, which needs more rather than less trade could lose out badly.

Tariffs are the wrong answer and the EU  should pursue a better route to reach its goal of mitigating the risks of climate change. Engagement, investment and technology transfer would be much more effective  than punitive tariffs . EU companies have much to gain by helping other countries to decarbonise than by sheltering behind a protectionist wall. 

That process of engagement should start in the European neighbourhood.  By 2030 according to the International Energy Agency emissions of greenhouse gases from three of the EU’s neighbours – Russia, Turkey and Ukraine - will, on current policies, exceed those from the Union’s 27 member states.  

Ukraine should be the test case for a policy of engagement, building on the association agreement with the EU which already exists.  The transition to a lower carbon economy in Ukraine has begun but there is much to do.  The country Is just starting to move away from reliance on coal and to develop low cost low carbon alternatives such as wind and solar.  Ukraine also has great potential to be a location for carbon capture and storage and for the development of hydrogen – the most likely long term alternative to the use of coal, oil and natural gas.

To develop this potential Ukraine needs a secure regulatory system which is underpinned by the rule of law. That is essential if investment is to attracted from within Ukraine and from international companies.  The European Union should be encouraging such investment. 

Tariffs will do nothing to advance investment in the modernisation of industry and the transformation of  key sectors such as transport.  Limiting trade will hold back economic growth and leave countries such as Ukraine poorer adding to the problems caused by the Covid recession.  Poverty and environmental progress do not go together.

Ukraine is not a part of the EU but it has a highly valuable association agreement which should be used as a platform to raise the standards of environmental protection which were so badly neglected under the Soviet system.  For the European Union creating an island of 27 countries with minimal emissions would make very little difference to the global situation.   Climate change does not recognise international borders.  Europe  needs to look outwards and to do more.   Ukraine would be a great place to start.