Green trade

REPORT: Keeping the balance. How to reconcile the EU’s trade,climate and industrial policy objectives

Authors: Tymoteusz Goździk, Kamil Laskowski i Wojciech Lewandowski

Transformation of the EU economy alone will be insufficient to halt climate change. The challenge is to extend this process to third countries and for Central and Eastern Europe to seize the opportunity to reposition itself in the supply chain. Green transformation will allow to take over industrial production and increase market shares.

This publication is a synthesis of three reports produced by the WiseEuropa Institute on the European Union’s trade policy in view of proposed changes to EU climate law.

The underlying motive behind our analysis was to see the links between the different areas of EU policy and to highlight some of the inevitable tensions and contradictions that arise due to the divergence between the objectives pursued in different areas. On the one hand, the EU is obliged by the Treaties to pursue a trade policy characterised by the promotion and implemen¬tation of free trade. On the other hand, the EU should aim to protect the competitiveness of European industry and ensure favourable conditions for its development. In the context of the pursuit of climate policy, this entails the costs associated with the green transition. Without the introduction of appropriate tools and measures to level the competitive playing field between EU and non-EU producers, not only cost competitiveness but also climate policy objectives will be jeopardised if a global increase in emissions is associated with relocation outside the EU.

REPORT: Carbon Border Adjustment Mechanism (CBAM)

Authors: Krzysztof Kobyłka i Marianna Sobkiewicz

Driving climate policy in the industrial sector is a particularly challenging task. Collectively accounting for around 22% of the EU’s annual greenhouse gas emissions, industry is key to achieving climate neutrality. However, the specific nature of this sector and the way some goods, such as steel or cement, are produced, involves process emissions resulting not from the combustion of fuels but from chemical reactions in the production of the good.

In recent years, emission reductions in the industry have been based mainly on energy efficiency improvements, feedstock additives, or the introduction of elements of a closed-loop economy. As the relatively more readily available ways to reduce their emissions have been exhausted, industry in many
sectors has reached a point where full decarbonisation means investing in low-carbon technologies. These require large investments and their maturity, both technologically and economically, is as yet uncertain, which translates into high investment risks that make financing such projects difficult.

The Carbon Border Adjustment Mechanism (hereafter CBAM), officially presented by the European Commission on 14 July 2021 as part of the Fit for 55 legislative package, is intended to be the answer to the growing need for regulatory pressure to reduce emissions in industry. CBAM is a proposal in line with the ‘green turn’ of the EU trade policy presented by us (Laskowski et al., 2022), which will have a very strong impact on industry in the European Union and the situation of Central and Eastern European producers. In this publication we will summarise the legislative progress of the CBAM regulation,
describe the diverging positions and the formation of a compromise, and explain what climate clubs
are and why they are important in the context of CBAM and in the next steps in the legislative process.

REPORT: Green turnaround. Regulatory changes to the EU trade policy

Authors: Kamil Laskowski i Wojciech Lewandowski

CEE countries should change their attitude towards green trade and carry out a “green turnaround” on a regional scale. Accelerating the pace of the green transition will improve the competitive advantage of the region’s producers, and will bring economic benefits to them. However, in their operations they need to focus on environmental issues more closely.

The European Commission has proposed a number of legislative initiatives at EU level aimed at greening EU trade policy. These initiatives will have an impact on levelling the competitive position of producers in Europe and in third countries, but will also entail new obligations on the part of EU operators. The changes initiated by the implementation of these initiatives may translate into opportunities for Polish producers to attract contractors and relocate production from Asia. For this to be successful, however, it is necessary to implement appropriate measures and prepare for the upcoming changes. In our latest report on the regulatory changes to the EU’s trade policy, we explain how to do this.

Our paper exposes the CEE perspective on these issues and presents a comprehensive overview of the most relevant legislative initiatives of the European Commission. We aim to show that the effect of these initiatives will be long-lasting and durable, but the success of the “green turnaround” will depend on its longevity. However, already at this moment it is possible to show what consequences this shift will have on the market players, including cross-border businesses and domestic industry companies.

REPORT: Green Realism. How to spill the European Green Deal over the borders of the EU and make it work for CEE countries?

Authors: Kamil Laskowski i Wojciech Lewandowski

Import-competing companies from the CEE region and policymakers should push forward the green trade policy agenda and strongly advocate for its implementation in a robust framework and coherent manner. “Green realism” is an attitude that perceives the conditions related to sustainability introduced to trade agreements and domestic regulation through the lens of the position of domestic producers within global value chains. Simultaneously, to avoid accusation of merely being “green protectionism”, the green reorientation of trade policy must be accompanied and mutually strengthen the domestic policies and regulations.

Due to its strong position and its big share in the world trade, the EU has the potential to use its trade policy as the “powerful tool” to extend the range of its domestic policies beyond the Union borders. This opportunity has also been recognised by the European Commission with respect to climate policies, such as its landmark green growth strategy: the European Green Deal. With the smart use of trade policy instruments, the EU may increase global outreach of the European Green Deal and increase the level of global ambition. The war in Ukraine, raising new security issues for Europe, adds a significant impetus to the European Green Deal. The EU has already declared its goal of fast reducing dependency on Russian fossil fuels and ramping up the production of clean energy. This acceleration may have a broad influence on various EU policies.

This policy brief brings a comprehensive analysis of the European Union approach, as well as assesses its effectiveness to 23 February 2022. From then on, the EU has adopted various restrictive measures on Russia in connection with the war in Ukraine. They inculde, but are not limited to, sanctions imposed on the Russia’s financial, energy, airspace and transport sectors, and the Russia-EU exchange of dual-use goods and advanced technology items. It remains clear that these restrictive measures will have the impact on the EU trade in many areas, which provides an additional argument for speeding up the green transformation in the EU to reduce dependency on imports from Russia. This development is signalized in this paper in the part related to the “green strategic autonomy”, however, the mid- and long-term scenarios of this will be outlined in the final report in this project.