The geopolitics of the European Green Deal

• The European Green Deal will have profound geopolitical repercussions, some of which are likely to have an adverse impact on the European Union’s partners.
• The EU should prepare to manage these repercussions in its relationships with important countries in its neighbourhood such as Russia and Algeria, and with global players such as the United States, China, and Saudi Arabia.
• The bloc should engage with oil- and gas-exporting countries to foster their economic diversification, including into renewable energy and green hydrogen that could be exported to Europe.
• The EU should improve the supply security of critical raw materials and limit its dependence on other countries – primarily on China – for these materials.
• It should work with the US and other partners to establish a ‘climate club’ whose members would apply similar carbon border adjustment measures.
• The EU should become a global standard-setter for the energy transition, particularly in hydrogen and green bonds.
• It should internationalise the European Green Deal by mobilising the EU budget, the EU recovery fund, and EU development policy.
• The EU should promote global coalitions for climate change mitigation, such as one to protect the permafrost.
• The bloc should promote a global platform on the new economics of climate action, to share lessons learned and best practice.

INTRODUCTION

In December 2019, the European Commission introduced the European Green Deal, an ambitious policy package intended to make the European Union’s economy environmentally sustainable. The goal is to reach climate neutrality by 2050, and to turn the transition into an economic and industrial opportunity for Europe. The deal is made up of a wide array of policy measures and subsidies aimed at cutting pollution while increasing research and investment in environmentally friendly technologies.

The Green Deal is at root an effort to transform the European economy and European consumption patterns. But, because it entails a fundamental overhaul of the European energy system and because it ranks so high on the EU policy agenda, it will also change the relationships between the EU and its neighbourhood – and it will redefine Europe’s global policy priorities. As such, it is a foreign policy development with profound geopolitical consequences.

Firstly, such a sweeping structural change will alter European trade and investment patterns. The EU imported more than €320 billion worth of energy products in 2019, and more than 60 per cent of EU imports from Russia were energy products. A massive reduction in this flow will restructure EU relationships with key energy suppliers. Countries including Russia, Algeria, and Norway will, ultimately, be deprived of their main export market. Inevitably, Europe’s exit from fossil-fuel dependency will adversely affect a number of regional partners, and may even destabilise them economically and politically.

Secondly, Europe accounts for around 20 per cent of global crude oil imports. The fall in oil demand resulting from Europe’s transition to renewables will have an impact on the global oil market by depressing prices and reducing the income of the main exporters, even if they do not trade much with the EU.

Thirdly, a greener Europe will be more dependent on imports of products and raw materials that serve as inputs for clean energy and clean technologies. For example, rare-earth elements, of which China is the largest producer, are essential for battery production. Moreover, Europe could remain a major net importer of energy but that energy will need to be green, such as green hydrogen produced in sun-rich parts of the world.

Fourthly, the Green Deal will have an impact on Europe’s international competitiveness. If European firms take on regulation-related costs that their foreign competitors do not bear, they will become less competitive both domestically and abroad. And if the EU attempts to limit this loss and avoid carbon leakage by imposing tariffs on carbon-rich imports, it risks being accused of distorting international trade. That might lead to friction with major trading partners, particularly carbon-intensive ones, if they view a carbon border adjustment mechanism as an illegal trade barrier.

But, most fundamentally, the Green Deal is foreign policy because climate change is a global problem. A transition away from carbon that would only focus on Europe would not do much to mitigate global warming, as Europe accounts for less than 10 per cent of global greenhouse-gas emissions. Worse, if the Green Deal simply displaces Europe’s greenhouse-gas emissions to its trading partners, it will have no impact at all on climate change. If only for this reason, the EU is likely to push very hard for ambitious, enforceable multilateral agreements on containing global warming and will subordinate some of its other objectives to this overriding priority. The European Commission has already recognised that it will either need to export its standards or create a border adjustment mechanism to maintain European competitiveness and prevent carbon leakage.

All these factors imply the EU will need to develop new trade and investment agreements, new models of financial and technical assistance, and, more generally, a new approach to international diplomacy that will encourage sustainable investment and development. This international activism will necessarily spill over into relationships with the United States and China, which have their own views on how to promote sustainable development and manage international climate negotiations. Relationships with other countries whose export interests will be directly affected – including the Gulf states and Russia – will also be transformed.

All these foreign policy efforts will provoke a geopolitical response from the EU’s international partners. Responses will range from cooperation in implementing complementary climate policies to competitive efforts to redirect trade and investment flows, to downright hostile efforts to counter the effects of the Green Deal.

In this paper, we map out the geopolitical implications of the Green Deal. We look not only at the effects of purposeful efforts to export climate policy but also at the unintended side-effects. The second section focuses principally on the effects on Europe’s energy trade patterns, its development policy, its approach to climate negotiations and, most controversially, the proposed carbon border adjustment mechanism.

The third section examines how other countries (with case studies of the US, China, Russia, Algeria, and Saudi Arabia) might understand the Green Deal and how they are likely to respond.

The final section proposes an external action plan as an integral part of EU climate strategy. To succeed, the EU must address head-on the difficulties the Green Deal is likely to create with its economic partners and neighbours. Only a pro-active EU attitude will help turn potential friction into opportunities for renewed international partnerships. We therefore suggest a series of EU foreign policies to buttress the Green Deal. To succeed in implementing the Green Deal, the EU and its members will need to mobilise all their instruments of foreign policy in support of that agenda.

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