Is Europe losing its nerve on the green transition?

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Is Europe losing its nerve on the green transition? A flurry of initiatives in recent weeks from Brussels has caused many in European corporate boardrooms to wonder if the continent’s push to lead on green industry could be in danger.

First came the clean industrial deal, designed to support some of Europe’s biggest polluters while sticking to the EU’s green targets. Under a week later came the watering down of new emission rules for cars with combustion engines, which had been designed to speed up the adoption of electric vehicles. The moves came as the Trump administration pulls support for many green projects.

The line of attack against the EU’s green rules from heavy industry has been consistent. Karen McKee, head of US oil major ExxonMobil’s product solutions business, told FT colleagues last month: “We are achieving decarbonisation in Europe through deindustrialisation.” Sir Jim Ratcliffe, chair of chemicals group Ineos, said late last year of its new carbon storage project that it was “a far better way to decarbonise Europe than deindustrialis[ing]”. “That just moves the problem elsewhere, doesn’t solve it, and destroys jobs,” he said.

It is a fruitful line of attack on policymakers worried about grave challenges to Europe’s competitiveness, including its crucial automotive industry. But politicians have to ensure that they do not create new and potentially bigger problems in trying to solve that issue.

Take the decision to ease emission rules. Many carmakers had been lobbying Brussels for an easing in the rules agreed six years ago that cars and vans had to reduce their CO₂ emissions by 15 per cent from their 2021 levels. Amid stagnating sales of electric vehicles, Europe’s car industry warned that companies could have been hit by €16bn in fines this year if the rules were not delayed.

But the competition, especially in China, is not standing still. If the future is electric, it is not clear that allowing European carmakers to take a longer time will help them be competitive in the long run, even if it staves off short-term pain. Jim Rowan, chief executive of Swedish premium marque Volvo Cars, itself controlled by China’s Geely, is scathing in his criticism of the European Commission’s change in policy. “It’s a terrible, terrible decision by the EU. It destroys trust . . . Everybody knew the rules, everybody knew what was required,” he says.

The clean industrial deal is a more complicated matter, not least due to the complexity of the package. The European Commission insisted it was committed to its earlier Green Deal targets and touted up to €100bn in support for cleaner manufacturing. But the proposal was also designed to ease the pressure on heavy industry by watering down some climate goals as well as trying to take action on energy prices.

Many businesses are still trying to figure out exactly how the plans will affect them, for better or worse. And as with on car emissions, plenty fret that the end result could be to slow the green transition just as competitors in China are accelerating.

“I fully support somebody who says the change is too slow,” says Håkan Agnevall, chief executive of Finnish engineering group Wärtsilä. “Right here, right now there are setbacks, there are slowdowns. But if you take the bigger picture it’s more positive. We are building more renewable than ever.”

But even among those companies pushing ahead with sustainability and green energy, there is a belief that Europe needs to apply more carrot and less stick in its approach. “We don’t want to dismantle industry in Europe. We would wish there would be more industrial entrepreneurship here. We don’t want to fine them and punish them but encourage them,” says Kim Fausing, chief executive of the Danish family-owned industrial group Danfoss. He argues said that “sustainability makes us more competitive” by reducing energy consumption and boosting productivity.

The problem for policymakers is that if they really want a quick green transition, they almost certainly have to emulate the Chinese and subsidise it heavily. The sight of the Swedish government refusing to back Northvolt, Europe’s great battery hope, with public money even when Canada and Germany were ready to, underscored the problem. “The green transition will happen, in Europe too, but maybe not with too many European companies if we are not careful,” said one industrialist.

The balancing act for European policymakers between protecting industry, promoting growth, and acting on climate change is only getting harder.

richard.milne@ft.com