EU Weekly | Climate Cacophony at EP Plenary
Also — Minimum Wage, ECB, Poland, USB-C, SMEI, CoFoE, India, Budget
Hi! Welcome to What’s up EU, your go-to newsletter to stay on top of the news. Our publication is also available in French, Spanish, Italian, Romanian, Russian, and Ukrainian. Feel free to share this newsletter with friends and colleagues.
What’s up EU is read by thousands of readers weekly. If you like the newsletter, don’t keep it for yourself and share it to friends and colleagues. If you like the newsletter very, consider supporting us and become a paying subscriber.
Parliament Fit for 55 Vote Turns Into Brouhaha
On 8 June, MEPs rejected three major legislative texts of the Fit for 55 package. The European Parliament was the stage for a coup de théâtre when a key reform of the Emissions Trading Scheme (ETS) was voted down, with negative effects on two other texts. While MEPs managed to agree on the ban of new combustion engine cars by 2035, the session dealt a hard blow to the EP’s hope of finding effective compromises on climate policy.
CONTEXT • On Wednesday, the EP voted on its most ambitious set of climate laws to date. The session was highly scrutinised, as legislation under consideration covered around half of the Fit for 55 legislative package presented by the Commission in July 2021. While the last few weeks already foreshadowed a tense plenary – with razor-thin majorities in the Committees and a backdrop of spiking energy prices – the EP’s failure to agree on major policy aspects was rather unexpected.
WHAT WENT WRONG? • Disillusionment filled the rows of parliament when the long-awaited reform of the ETS was rejected, as the Social Democrats group (S&D) surprisingly voted against it. A few minutes before that, right-wing group EPP was winning major battles on the final version of text: with the support of centrists from Renew, they managed to reduce the scope of the new ETS from 68% of emissions in targeted sectors to 63%. Nonetheless, it is the extension of free quotas until the end of 2034 — an amendment introduced by the EPP group and supported by far-right groups — that led the social democrats to vote against the text.
MUTUAL BLAME • “It is a bad day for the European Parliament”, ETS rapporteur Peter Liese (EPP) stressed after the vote. He added: “At many occasions in this report, the far-right, the socialists and the greens voted together” – a criticism that was also used by Renew leader Stéphane Séjourné to scold the social democrats. S&D leader Iratxe Garcia retaliated: “You can’t ask for a vote from the extreme right in order to reduce ambition and then ask for our vote in order to support it as a whole”, setting the stage for a mutual blame game.
DOMINO EFFECT (1) • The rejection of the ETS report had direct consequences on two other texts that were under consideration: the Social Climate Fund (SCF) and the Carbon Border Adjustment Mechanism (CBAM). The SCF is linked to the ETS revision, as it will aim at supporting vulnerable households when the ETS is extended to the building and road transport sectors. It will be partly financed with revenues from ETS, which is why it was not voted on during the plenary. “Let’s keep treating this as a package and postpone the final vote”, SCF rapporteur Esther de Lange (EPP) declared.
DOMINO EFFECT (2) • The final version of the report on CBAM was not voted on either. As it will impose a levy on high emitting imported goods to compensate for the cost borne by producers in the ETS, CBAM will have to coincide with the end of free permits allocated to vulnerable firms – without this, the scheme would be WTO-incompatible. The uncertainty around the deadline to end free allowances thus made the final version of the CBAM report impossible to adopt.
GOODBYE COMBUSTION • Despite the ETS turmoil, MEPs managed to agree on the ban of new combustion engine cars and vans by 2035. The final report is very close to the Commission’s proposal and keeps the 100% emission reduction target — a failure for the EPP group, which wanted to lower this objective to 90%.
“With the vote ending the sale of non-zero emissions cars in 2035, we are making a historic decision that leads us to a new era of climate neutrality”, President of the Environment Committee Pascal Canfin (Renew) commented.
OTHER TOPICS • An agreement was also found on other topics. MEPs voted in favour of reinforcing the ETS system for aviation and taking into account “Corsia”, the parallel compensation mechanism set up by the International Civil Aviation Organisation (ICAO).
The EP also agreed on the 40% by 2030 emission reductions objective and on the burden-sharing between member-states. Finally, MEPs voted in favour of the revision of the LUCLUF (Land-Use, Land-Use Change and Forestry) regulation aimed at reinforcing natural carbon sinks.
WHAT’S NEXT? • After it was rejected, the ETS report was referred back to the Environment Committee by request of the rapporteur: “We have the possibility to save the thing if everybody thinks twice (…). Please don’t kill the ETS, vote for bringing it back to Committee to have a second shot”, Peter Liese insisted.
The CBAM report was also referred back to the Committee. Along with the SCF, these three texts will be voted on during the next plenary on June 22. Until then, MEPs will have to rethink their positions and find new compromises.
ICYMI — Minimum Wages, Ukraine, ECB, Poland, USB-C, Supply Chains, Treaty Change, India, EU Budget
EU MINIMUM WAGE • The Council and Parliament have found an agreement on the draft directive on adequate minimum wages in the EU. The directive intends to promote statutory minimum wages and promote collective bargaining. This does not mean an EU-wide minimum wage, but merely that Member States will have to put in a framework for wage-setting. Member States will have to take action plans so that 80% of the workforce is covered by collective bargaining. Some countries, such as Denmark, are not happy and see this as undue meddling.
We had a chat on what the directive means and what it does not with MEP Dragoș Pîslaru from Romania, chair of the Employment and Social Affairs Committee at the European Parliament. Check it out here.
UKRAINE • The European Commission is expected on 17 June (Friday) to issue a recommendation in favour of granting Ukraine the candidate status to the bloc, European Commission President Ursula von der Leyen said on a suprise visit to Kyiv on 11 June. The Commission is due to complete its preliminary assessment, but it is for the European Council to vote in an upcoming meeting on 24-25 June. On 8 June, the speaker of the Ukrainian Parliament spoke at the European Parliament. Ukraine’s bid was strongly endorsed by European Parliament President Metsola. The topic is still divisive within the Council, where quite a few Member States have mixed feelings about Ukraine’s rule-of-law record and the geopolitical implications of such a step.
LAGARDE READY TO GO FOR A HIKE • The ECB’s Governing Council met in Amsterdam on 9 June to announce it will go forward with the ‘normalisation’ of its monetary policy — a rise in interest rates in July by 25 basis points and the phasing out of the ECB’s net asset purchases under the APP. This is the first rate hike in a decade, amidst record high inflation in the eurozone. Inflation should settle at 6,8% in 2022, while core inflation — excluding energy and food — should hit 3,3% in 2022. The ECB hinted at a new possible rise in interest rates for September.
With spreads between Germany and Italy rising, some fear that this move could asymmetrically hit the countries economically most affected by the COVID-19 crisis and war in Ukraine. Christine Lagarde said the ECB is ready to act to prevent ‘fragmentation’ in the eurozone, i.e. diverging borrowing costs — while remaining careful not to send a message which could be seen as contradictory to the ECB’s rate rise and asset purchases agenda. Flexibility in the purchases under the current Pandemic Emergency Purchase Programme is an opinion, according to the ECB. “The ECB needs a simple and credible plan to deal with financial fragmentation. PEPP reinvestments are unlikely to do the trick. Ending APP reinvestments would make things much worse. Better have a clear strategy in place before spreads get out of control”, commented Frederik Ducrozet, from Pictet Wealth Management.
POLAND DRAMA • Invited to speak before the European Parliament to defend the approval of the Polish recovery plan, the President of the European Commission sought to reassure. She recalled the three conditions set for Poland's access to European funds and insisted that these "milestones must be fulfilled before any payment can be made". However, MEPs did not seem convinced. During the debate, several MEPs, including Sophie In't Veld (Renew) and Damian Boeslager (Greens) raised the possibility of pushing the Commission to resign via a motion of censure. Did Ursual von der Leyen's speech soften the Parliament? Probably not. Without going so far as to express defiance towards the College of Commissioners, a majority of the House (411 votes) expressed its concern and called on the Council, which must now decide by qualified majority, to approve the recovery plan only once all the conditions set by the Commission have been met.
ONE CHARGER TO RULE THEM ALL • On 7 June, Council and Parliament reached a political agreement on a directive which would “make a USB-C charging port mandatory for a whole range of electronic devices. This will mean that all devices can be charged using the same charger”. The EU’s regulatory clout — dubbed ‘Brussels Effect’ by Anu Bradford — already pushed the number of commonly used chargers down from 30 to 3. The move will be costly for Apple’s lightning chargers, whereas Android and Google devices are USB-C compatible. The regulatory change could cost Apple up to 1 billion dollars, according to a study by Wedbush Securities. Apple is already testing USB-C compatible iPhones. The directive is intended to reduce consumer spending on chargers and electronic waste.
STOCKPILING • The upcoming Single Market Emergency Instrument (SMEI) is raising concerns among Member States and industry groups. This new tool is designed to address supply chain issues during crises, building on the EU export controls put in place during the COVID-19 crisis. The Commission wants to beef-up its toolkit by monitoring stocks of strategic supplies, exports to third countries, and ensure diversification of supply chains in critical products and/or raw materials. Branded as a strictly defensive instrument, the proposed content of this trade tool has been criticised for considerably broadening the EU’s power over industry supply chains. Nine Member States have come together 8 June to pen a letter warning the Commission not to overstep its authority over industry.
EP ENDORSES TREATY CHANGE • On 9 June, the European Parliament adopted a resolution “calling on the European Council to agree to start the process to revise the EU Treaties”. This resolution follows the conclusions of Conference on the Future of the Europe (CoFoE) which came to a close on 9 May. It calls for the end of unanimity voting at the Council. It is for the EU’s 27 Member States, in the Council, to decide to set up a ‘convention’ to start the highly divisive process of Treaty change.
INDIA TRADE TALKS • The EU and India are starting trade talks in Brussels on 17 June. The discussion had stalled, amidst disagreements : “while the EU insisted on duty concessions on automobiles, alcoholic beverages and dairy products, India's demands included greater access to the EU market for its skilled professional”, notes The Economic Times of India. In April, European Commission President Ursula von der Leyen went on an official visit to India to mark the 60th anniversary of EU-India ties as part of the Raisina Dialogue.
EU BUDGET • The European Commission published its proposal for the 2023 budget on 7 June, totalling 185,6 billion euros (excluding NGEU). The bulk of next year’s commitments are directed towards the Common Agricultural Policy and regional development and cohesion. The draft budget specifies that financial measures to support the war in Ukraine will be added when more precise estimates of the needs become available — a lack of clarity called out by Nicu Ștefănuță (Renew), chief budget negotiator at the European Parliament The EU’s seven-year budget is likely to be reassessed soon, as EU funds are being reallocated to foot the bill of the humanitarian crisis and financial assistance to Ukraine. The draft budget now has to go through the Council of the EU and the Parliament, for an adoption in the fall.
What we’ve been reading this week
Angela Merkel’s defence of her foreign policy record in her first public interview since December has sparked heated debates about the responsibility she bears for the invasion of Ukraine and Germany’s state of unpreparedness for the conflict. While some, like Andreas Kluth, don’t hesitate to compare her to Neville Chamberlain, others, among whom Leonid Bershidskiy, take a more supportive stance, highlighting the critical importance of the Minsk agreements for giving Ukraine time to rebuild her military.
In a Policy Brief for the Egmont Institute, Jean-François Drevet calls for a renewed strategy to manage the EU’s relationship with Turkey, starting with a plan to counter President Erdogan’s habit of using blackmail to get what he wants.
The ECFR has published the European Sovereignty Index, which evaluates and ranks EU member states according to how sovereign they are, across six categories: climate, defence, economy, health, migration, and technology.
In his newsletter, economist Joseph Politano highlights the fundamental differences between European and US inflation, arguing that the former is here to stay, as it is driven by high energy prices, which, partly because of the conflict in Ukraine, will remain high for the foreseeable future.
The Wall Street Journal’s Christopher Mims surveys the challenges faced by Meta as it seeks to reinvent itself away from an advertising-centric model exposed not only to the whims of regulators, but also to those of its fellow tech giants.
In the LRB, Alexander Clapp has a highly readable review of Mark Mazower’s The Greek Revolution: 1821 and the Making of Modern Europe.
This week’s newsletter is brought to you by Hélène Procoudine-Gorsky, Marceline Doucet, François Hemelsoet, Augustin Bourleaud, Maxence de La Rochère, and Thomas Harbor. See you next Tuesday!