Climate Capitulation: Will EU Trade Surrender to US Derail Global Green Goals?

The recently announced US-EU Framework Agreement on Reciprocal, Fair, and Balanced Trade is expected to lead to a seismic shift in European climate policy, undermining global climate action for years to come, or even reversing it. The agreement which is anything but reciprocal, fair or balanced, is heavily skewed towards the US, giving that country unprecedented access and freedom to dictate EU investments into the US. 

On the surface, it is a trade deal, but it has deeper implications, effectively becoming a climate capitulation. The EU is making unprecedented concessions that fundamentally contradict its position as a global climate leader.  Although the Framework Agreement has not been published yet, the Commission did publish the key terms of this agreement. 

A $750 Billion Fossil Fuel Lock-in

The centrepiece of this agreement is the EU's commitment to procure USD 750 billion worth of US oil, liquefied natural gas, and nuclear energy products through 2028. 

This is a critical step with potentially adverse ramifications, representing a dramatic reversal of the EU's decarbonization trajectory. It could effectively triple US LNG imports and lock Europe into and extended period of fossil fuel dependency. It won’t be too pessimistic to call this ‘the worst possible outcome at the worst possible time for climate action.’ 

Notably, the deal directly undermines the EU's own methane regulations and climate targets, shifting dependency from Russian gas to US fracked LNG, which carries an even higher methane footprint than conventional gas. 

Dismantling Climate Regulations

In addition to the energy commitments, the EU's concessions on its flagship climate regulations are more concerning. The framework agreement specifically weakens several key environmental measures that were considered inviolable pillars of the European Green Deal.

For instance, companies that are operating in Europe need to establish and report progress on plans to reduce greenhouse gas emissions in their own operations and across their supply chains. In the deal, EU leaders committed to ensuring these rules do not pose undue restrictions on transatlantic trade, which suggests they may be watered down.

Leeway on CBAM and Corporate Sustainability

The Carbon Border Adjustment Mechanism (CBAM) is the EU's tool to put a fair price on carbon emitted during the production of carbon-intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.

Nullifying its effect through the latest agreement, the EU is set to provide ‘additional flexibilities’ in CBAM implementation for US companies. Effectively, this is set to grant US exemptions that countries like India and other developing nations may not receive. This will create a two-tier system that undermines the mechanism's fundamental purpose of preventing carbon leakage. Notably, India's exports of CBAM-covered goods to the EU accounted for 9.91 percent of its total exports to the bloc in 2022-23.

Tackling corporate sustainability directives, the agreement also commits to reducing administrative burden on US companies under both the Corporate Sustainability Due Diligence Directive (CSDDD) and Corporate Sustainability Reporting Directive (CSRD). These measures were central to the EU's climate accountability framework.

Moreover, the EU also promised to ‘address concerns of US producers and exporters regarding the EU Deforestation Regulation’ with an intention to avoid ‘undue impact on US-EU trade'. This potentially exempts US agricultural products from deforestation standards applied to other nations.

The Developing World Left Behind

This preferential treatment for the United States contrasts starkly with the EU's approach to developing countries. While US companies receive exemptions and flexibilities, nations like India face the full force of EU climate regulations without similar accommodations. The CBAM has been cited by developing countries as precisely the sort of non-tariff barrier that the US has started railing against lately.

The CBAM, for instance, applies uniformly to all non-EU countries except those with linked emissions trading systems, creating an unequal playing field. This disparity is particularly problematic given that developing countries require USD 1.1 trillion annually by 2025, rising to USD 1.8 trillion by 2030, for climate action, as per UN Trade and Development (UNCTAD) data. 

The EU and developed nations have committed roughly USD 30 billion annually in public climate finance,  far short of what's needed. By prioritising trade relationships with a wealthy nation like the US,  while maintaining strict climate requirements for developing countries, the EU is undermining the principle of common but differentiated responsibilities that underpins international climate action.

Climate Diplomacy in Crisis

The EU has positioned itself as a global climate leader, providing the largest share of international climate finance and championing ambitious policies like the European Green Deal. 

However, this trade agreement exposes the fundamental contradiction between the EU's climate rhetoric and its willingness to compromise when faced with economic pressure from major trading partners.

The timing could not be worse. The Intergovernmental Panel on Climate Change (IPCC), in its recent report, has made it clear that limiting warming to 1.5°C requires immediate, rapid, and large-scale emissions reductions. Current national climate plans would lead to 2.7°C of warming, with the remaining carbon budget for 1.5°C likely exhausted by the early 2030s. Every year of delay and every policy reversal makes the challenge exponentially more difficult.

India and the Developing World's Dilemma

India has made significant progress on its climate commitments. The country achieved 40 percent non-fossil fuel electricity capacity ahead of schedule and reduced GDP emission intensity by 33 percent by as early as 2019, but now finds itself in an increasingly difficult position. 

The country has committed to reaching net-zero by 2070, with 50 percent share in electricity capacity now coming from renewables. However, India's climate finance needs far exceed its domestic capacity. 

The country requires massive investments in renewable energy infrastructure, grid modernisation, and industrial transformation to meet its ambitious targets. For India to realise its 2030 Nationally Determined Contributions (NDC) goals, the investment required is estimated to be INR 30 lakh crores over the period FY 2024-2030. 

The EU's willingness to provide preferential treatment to US companies while maintaining strict requirements for others has now added a huge barrier to India's as well as the developing world’s climate efforts.

Long-term Consequences for Climate Action

The implications of this agreement extend far beyond bilateral US-EU trade. By demonstrating that climate policies are negotiable when sufficient economic pressure is applied, the EU has set a dangerous precedent that could undermine climate action globally.

The USD 750 billion fossil fuel commitment will make it significantly harder for the EU to credibly advocate for climate action in developing countries or to maintain its leadership role in international climate negotiations.

Moreover, the weakening of key climate regulations like CBAM and the deforestation regulation could trigger a race to the bottom, as other countries demand similar exemptions. The EU's climate diplomacy partnerships with developing countries, which rely heavily on the credibility of EU climate policies, will be severely undermined by these contradictions.

More importantly, the EU-US trade agreement signals a fundamental shift in priorities that prioritises short-term economic considerations over long-term climate stability. 

As climate impacts intensify across Europe and the world, the true cost of this agreement will become increasingly apparent. The question remains whether the EU can recover its climate credibility or whether this marks the beginning of a broader retreat from climate commitments in the face of economic pressures.