For years, the EU has branded itself as global regulator. With a slowing economy, it promises to reverse past decisions. But its economy will only thrive if it abandons this indecisive course. Its U-turn over banning internal combustion engines is a case in point.
Author: Michael Haiden
Europe’s carmakers had reason to celebrate when EU Commission President Ursula von der Leyen promised to review the proposed ban on internal combustion engines by 2035. The respite may only be brief, because the case of the combustion engine reveals a deeper problem with the European Union. The bloc is prone to implement overarching regulation which is not thought-out. Businesses, however, need certainty. If the EU does not change its stance on how it regulates to avoid more U-turns like this, it will only deepen its economic problems.
Currently, the EU likes to promote itself as the more stable, predictable alternative to Donald Trump’s United States. Where the American president follows an erratic economic policy, such as in his approach to tariffs, the EU appears calm and reasonable in contrast. But in reality, it is not the stable actor it pretends to be.
EU legislation on car makers makes this plain. The EU’s proposal was that, by 2035, all new cars sold in the bloc should be free of carbon dioxide emissions. By 2050, the whole transport sector should be carbon-neutral, said the rules. It was an ambitious piece of legislation, hailed as a great win for the climate.
The problem is Europe appears unlikely to follow through. Ursula von der Leyen has already promised a review. Industry lobbies, as well as the EU parliament’s biggest party, are putting pressure on the Commission to reverse the ban. This is likely due to Europe’s persistent economic problems. With insecure supply chains, an ageing population, competition from China, and now tariffs from the US, the EU turns to prioritising economic growth. It no longer has the luxury of anti-growth environmental rules.
This is good news. But the ban’s reversal, while potentially helping the bloc’s struggling carmakers, reveals a deeper problem within the EU – overambitious regulation. Ambition is, of course, nothing bad in itself. But the reversal reveals the EU writes legislation for show, rather than to create genuine incentives for its producers.
This could hurt the EU’s whole economy by eroding trust in its government. It is difficult to promote oneself as stable when passing legislation which is rolled back when times are tough. If the combustion ban is reversed, Europe is indirectly punishing the car companies which, over the last few years, have accrued the extra costs of switching to alternative engines. While economic problems may still warrant a rollback despite this issue, such indecisive leadership undermines the predictable environment that companies need. How should producers react to the next piece of similar legislation? Follow it? Or hope the EU caves in again?
The EU cannot continue passing activist-oriented legislation. It hurts innovation and it hurts companies – even those which do follow the legislation. To truly become the stable economic actor the EU fashions itself as, it needs a new approach to regulation. Most importantly, it must create the impression that when regulation is introduced, the EU is prepared to stick with it.
This would require a more thorough review of upcoming legislation – and an open ear for critics before it is passed. For any piece of legislation, the EU must not only ask if it is good for the climate or workers’ rights. It must ask itself if it’s prepared to stand by this regulation even during an economic downturn. Only then can regulation achieve its intended effect: nudging companies to do better.
Regulation can create incentives for companies to become more efficient. If done right, it can benefit both the climate and the economy. But while creating favourable conditions through legislation may seem appealing, regulation works best when used in moderation. Only then can companies expect that the EU is prepared to maintain its position even through an economic crisis.
For future regulation, the EU must consider this more restrained approach. It is easy to score political points with symbolic actions for the climate. It is far more complicated to run an economic bloc on this principle. If legislation continues to be introduced and then scaled back, both the economy and the climate will suffer.
Cover photo credit: Gemini
Michael Haiden is a research associate at the University of Hohenheim, Chair of Economic and Social Ethics. He is a writing fellow with Young Voices Europe, specialising in European politics and policy.
