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EU Compass Pointing Toward Deregulation
Tim Mohin
31 Jan
The EU released a Competitive Compass report pointing to deregulation but vowed to continue the Green Deal.
The deregulatory winds are blowing even stronger as Trump continues his barrage of new executive orders and rescinding Biden’s policies.
Following in the footsteps of California, New York introduced a new climate reporting bill.
The Swiss government brings in new court-mandated climate targets.
Attorneys General threaten asset managers (again).
Deep Seek sent shockwaves through the world of AI, but what does it mean for climate?
On the same day that a new report showed the EU's progress toward the Sustainable Development Goals (SDGs) is lagging, the EU Commission unveiled a new Competitiveness Compass.
The ‘Compass’ is the EU’s plan to regain its competitive edge and catch rivals China and the US. While EU President Ursula von Der Leyen maintains that "The EU stays on course for the Green Deal, without any question," the main thrust of the Compass from a climate and sustainability perspective is a ‘drastic change’ to the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and EU Taxonomy in the upcoming ‘omnibus regulation.’ The specific aim is to reduce reporting burden by 25% for large companies and 35% for smaller ones.
In a leaked Simplification Strategy document, we got an even better idea of how the omnibus might look, and it seems there will be a significant focus on reducing the burden for SMEs (Small and Medium Enterprises). A behind-closed-doors hearing in preparation for the omnibus will take place on February 6th ahead of its release on the 26th.
The Competitive Compass confirms what many have anticipated for months. However, it has still left many Europeans unhappy, who see it as a knee-jerk response to Trump. Tsvetelina Kuzmanova, at the Cambridge Institute for Sustainability Leadership, said the omnibus “risks being a short-sighted solution to a long-term challenge. By prioritising immediate political gains over a clear vision for competitiveness, we risk undermining the very businesses that drive innovation and sustainability.”
Even with the anticipated changes, Europe is on an ambitious pathway that would link decarbonization and competitiveness. Under upcoming policies like the Clean Industrial Deal, which will be released on the same day as the Omnibus (February 26th), the Europeans plan to meet the goals of their Green Deal while closing the competitiveness gap. By encouraging demand for low-carbon products while investing in the climate tech companies that are creating them. A snapshot of some of the other main climate and sustainability plans in the Compass include:
Reducing ‘carbon leakage’ (importing high-carbon intensity products) by expanding the Carbon Border Adjustment Mechanism (CBAM) to include more sectors and downstream activities and simplifying it for smaller companies.
A proposal to reduce the regulatory burden on small and mid-sized companies.
Improve resource efficiency through a Circular Economy Act.
Trumps Deregulatory Headwinds
The pace at which the Trump administration has been executive ordering and rescinding climate and sustainability policies has been stunning. Last week, we cataloged the ESG and climate executive orders in week 1. In week 2, there has been no slowdown.
There was a 2-page memo freezing $3 trillion worth of government funding, which targeted more than two dozen climate and energy programs. However, that lasted around a day when it was rescinded after a legal block. The “Environmental Protection” Agency is being filled with oil and gas lobbyists. And Transport Secretary Sean Duffy wasted no time reversing Biden’s fuel standards.
In case the pendulum swing feels dizzying, this OpEd from Thomas Friedman comparing Trump’s energy and climate policies to “woke” ideology might help.
And yet, there are some glimmers of hope. For example, even though Trump is opening more federal land for oil and gas leases, the industry is unlikely to take up the opportunity unless there is a considerable increase in the cost of oil. Plus, Trump’s pick to head the energy department is a champion of clean geothermal energy.
The rapid turn in policy is causing confusion and chaos among sustainability professionals. The overall ‘vibe shift’ has further silenced companies and put policymakers and activists on the back foot. All at a time when the effects of climate change are becoming obvious. New research this week found that of the 20,000 respondents across 20 countries, 56% have experienced a climate-linked extreme weather event within the last six months, and the majority believe there is a climate emergency.
New York Climate Reporting Regulation
Just as the deregulatory winds blow at the US federal level, state-level policies are picking up steam. New York continued its climate leadership this week with a new climate reporting bill.
The SB S3456 replaces another bill that was making its way through New York’s legislative process last year (SB S897C). The bill would require any company doing business in New York with more than $1 billion in revenue the previous year to report Scope 1 and 2 emissions in 2027 with limited assurance. Followed by Scope 3 in 2028. And would require reasonable assurance for Scope 1 and 2 and limited assurance for Scope 3 in 2031. New York has yet to issue a climate risk reporting bill, which may come later.
Switzerland Implements New Court-Ordered Climate Targets
Image by Jaoa Branco on Unsplash
In one of the biggest climate court cases last year, Europe’s Court of Human Rights (ECHR) found that the Swiss government’s lack of action on climate was damaging human health. The ECHR mandated the Swiss government to implement Paris-aligned climate goals.
The Swiss parliament initially voted to reject the court's ruling. Now, after some foot-dragging, they have created a new Paris-aligned goal to reduce emissions by 65% by 2035 against 1990 levels.
More Climate Court Threats
Despite already removing themselves from the Glasgow Financial Alliance for Net Zero (GFANZ), some of the world’s largest asset managers again faced the threat of legal action from a Texas-led effort supported by nine Attorneys General (AG) representing Republican states.
Although the letter said we “applaud you (the banks) for terminating your relationships” with the GFANZ groups, they wanted more answers. The letter says statements released by the firms after leaving the group claiming they would maintain their climate commitments were worrying to them. The letter gives the firms 45 days to answer some questions before legal action begins.
Deep Seek’s Impact on Energy
A new Chinese AI company came out of nowhere this week to shock global markets and question US dominance in AI tech. But what do Deep Seek’s more efficient AI systems mean for the climate?
Well, the fact that energy companies' market value also took a considerable hit shows how much they are tied to AI’s growth. The efficiency of Deep Seek means that AI will need less energy. The International Energy Agency claims the new AI has exposed the guesswork on AI’s power needs. With Deep Seek requiring 10% of the computational power as other models and the energy use at data centers being directly correlated to computational power, it could mean substantially less energy use.
However, in the long run, most AI experts say that the efficiency will just lead to more use, and it’ll probably mean that energy use for AI probably comes in at the lower end of projections.
The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer.
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The most recent episode of the Harvard Business Review’s The Climate Rising podcast is the second episode in their voluntary carbon market (VCM) series. In this episode is a panel discussion from VCM leaders in policy, business, and academia. Discussion centers around the role of VCMs in mobilizing finance for decarbonization, ensuring the integrity of carbon credits, and scaling high-quality projects.
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