Note: This transcript is auto generated and lightly edited.
CECILIA: What we need to do in a turbulent world, you also need to focus on your own growth, on your own strength, making sure that the internal market can deliver more internal growth. Not that we're...decoupling from the rest of the world, but we can do much more internally by taking away lots of obstacles in the internal market that has been holding us back. So I think this narrative needs to be promoted even stronger and to also face those who say that we can't do both. We have to wait. First, we do the innovation and the competitiveness and then we'll deal with the climate. Climate cannot wait. We have to do both at the same time. And if we do it right, it can be a very happy marriage.
MONICA: Welcome to Policy for the Planet, a podcast exploring the global response to the climate crisis. We'll unravel the complex tradeoffs of different policy choices to steer us toward sustainable solutions and public well-being.
I'm Monica de Bolle, a senior fellow at the Peterson Institute for International Economics.
Welcome to the conversation.
We last spoke about the European Union's climate agenda with Jacob Funk Kirkegaard in October, but since then, geopolitics have shifted drastically with the inauguration of US President Donald Trump. Bringing with him a controversial economic policy, it's only natural to wonder whether massive across the board tariffs will impact the European Union's climate strategy, especially as the United States moves away from the conversation.
Joining us today is Cecilia Malmström, nonresident senior fellow at the Peterson Institute for International Economics and a former member of the European Commission and the European Parliament. She served as European commissioner for trade from 2014 to 2019, dealing with the first Trump administration tariffs and negotiating bilateral trade agreements with key countries, including agreements with Canada, Japan, Mexico, Singapore, Vietnam, and the four founding Mercosur countries.
Well, hello, Cecilia, and welcome to Policy for the Planet. It's a pleasure to have you on the show. I'm going to start off by asking you to sort of do a little bit of a bridging exercise, if you will, for us, because the last time we spoke about Europe on the podcast, we spoke with a mutual colleague of ours, Jacob Kierkegaard, and this was prior to the US election.
Now we've had the election, it's a different context. So my first question to you and where I'd like us to start off is what has changed regarding climate change in Europe since the election in the US?
CECILIA: It's a real pleasure and an honor to be here with you on this fantastic podcast. Well, on the one hand, everything has changed because of course, what's happening with the on the defense era and what's happening with the tariff, which is dramatically shifting the priority. On the other hand, nothing has changed because the climate threat is as big as it was before the 5th of November. So the EU is determined to take the global lead.
When it comes to the green transition. But of course, we also have internally in the EU, and I think Jacob referred to this, voices who think that maybe climate should be a little bit lower on the priority list now that we need to think about economic growth, innovation and competitiveness. But we can come back to all this.
MONICA: But let me ask you a follow on on this. So how can Europe be the lead with respect to climate? It already is the lead in so many ways, but how can Europe continue to be the lead in climate and climate issues and the climate agenda if there is this shift of priorities?
CECILIA: That's the question, of course, that everybody's asking, because right now, if you look at the news flows and the political debates, it's not climate that is being discussed, unfortunately. I hope when things calm down a little bit, maybe that will return. But I think leading up to the different COP meetings that are happening in Brazil and others, the European Union is preparing very much for this, getting mandates, engaging with stakeholders and is determined with a vast group of allies to keep on pushing for international results and to keep on doing its domestic agenda as well.
MONICA: So at the moment, it seems like the priorities have shifted to the overall environment of relatively low growth in Europe, low productivity, over regulation, which has really become a thing everywhere. Everyone's talking about it. And regulation is very important for the climate agenda. with these issues in mind, how do you see, again, it's a little bit more exploring the first point you raised. So how do you see all of this coming together as in how does the regulation slash growth slash productivity concerns connect with the climate agenda?
CECILIA: Well, think it's a mistake to assume that climate engagement and green policies are in contradiction to competitiveness. On the contrary, the EU is trying to unite all this, making a green competitive transition and making sure that the green technology, the greening of energy, which is important and very difficult, I do not deny that, can be done in a way that is competitive. We already know that the green technology creates a lot of jobs and that companies all over the world, including in Europe, have been very innovative in trying to find new versions and new ways to work and also finding customers for that. So it is not a contradiction that I accept and that most people accept.
Having said that, of course, when you do the green transition and the EU has adopted something it's calling the Green Deal, making a lot of proposals and legislation, with the aim to be climate neutral by 2050. And of course, that includes so many areas, in forests, in agriculture, in energy, in housing, in transport and what have you. And regulation comes out from that. In the beginning, five years ago, there was some resistance with the industry, but now they've said, okay, let's do this together so that we know the rules of the game, so that we can have a predictability in this, so we can do the transition. And many companies have done so and they will continue. Now, of course, some of this has been done, maybe it has created a little bit too much bureaucracy, especially for small and medium companies, who have to do a lot of reporting on due diligence, on the whole sustainability of every step in the supply chains. And it's hard for a small company because it requires a lot of work, a lot of manpower.
And there is a realization that yes, we need to take this into account. And therefore the Commission has proposed simplification and excluding small and medium sized companies from some of the reporting mechanisms, also trying to simplify so that you don't have to do 10 different reports, that you can do one more comprehensive and also delaying some of the entry into force, so phasing them in in a way that is more acceptable.
But there are still political forces in the European Parliament and in some countries who claim that we can't really care about this right now. We have to focus on competitiveness and it would create a problem for our competitiveness if we have to follow the Green Deal. I would say mainly in the car industry, but that is also because some parts of the car industry have not done their homework.
MONICA: The political economy of this is very complicated, as you're pointing out. And one of the things that is striking and that seems difficult to resolve is you talked about small business, you talked about medium-sized companies, how they're affected, how simplification efforts are underway to alleviate those problems and make the meeting, the climate agenda goals and so on easier on these companies.
But I can't help but think of the farmers and the agricultural sector, specifically because we know that there have been a lot of farmer led protests in Europe with respect to all of this and mainly a lot of it to do with the climate agenda. So talk to me a little bit if you could about the political economy and in particular this issue as it comes up in other sectors of the European Union. So not just the small businesses, but things like the agricultural sector and potentially other sectors where these issues are playing out.
CECILIA: You're right to raise the farmers issue because there were protests in Europe, last spring leading up to the European Parliament elections, but actually we saw protests in India, in Mexico, all over the world as well because many farmers feel that they pay an disproportionate burden of the transition. And I can't, you know, it's hard to judge on an individual basis, but of course they will have to move towards much more sustainable energy consumption, they will have to take away some of the fertilizers that are not climate friendly, and they will have to make adjustments as well. In the European Union, there has been a lot of subsidies given to the farmers to make this transition. And as we saw the peak of the demonstrations last May, June, the European Commission also, you try to engage with the farmers and see that they actually excluded some of the chemicals from the farming industry, from the legislation that they were going to be forbidden. They prolonged the deadlines a little bit and they have also set up more funds to help especially smaller farmers in the transition. But many farms have already done this transition and that can be competitive and consumers all over Europe, they...
They want a more sustainable farming. But of course, we want also our farmers to survive. So that kind of balance is tricky and it is a difficult political equation. But it has come down right now. And as always when there are big demonstrations, there are always people who try to fuel the debate. And even if I respect and recognize the concerns many, many agriculture and farmers have.
There were a lot of fake news in this as well.
MONICA: So it's a huge issue and as you've rightly pointed out, there's a lot of factors playing into this and a lot of it was already there even before, I mean, the US elections haven't changed anything in that respect because these issues of climate competitiveness and potential ways by which people think about these things were already present before. But I do have to ask you, how does... the change in regime, I guess we might put it that way, with respect to tariffs and protectionism, generally speaking, how does that really affect or amplify some of these problems and some of these challenges that Europe is currently facing?
CECILIA: It comes with enormous risks. Now, of course, the tariffs are only now and shortly entering into force. So we can't really scientifically evaluate the effects of it. We've seen the stock markets falling all over the world. We see the chaos that this is resulting in, and it will lead to higher prices, to inflation and so on. And mainly it is shifting the attention from domestic policies. The EU is in a process of reforming its internal market, of investing in innovation and growth. had some Italian former prime ministers who have produced reports. They go under the name of Mario Draghi report and then Nicoletta report. they have proposed hundreds of really good proposals that we now need to put into action. But of course, with tariffs coming in, whole attention is on this. Shall we retaliate? What will happen tomorrow? How can we negotiate?
Etc. And if we enter into force, I mean, this is a global issue. So it risks very much to disrupt supply chains, which are important for the green transition, because everything today is so interconnected globally. I don't have to tell the listeners here. They're probably all very well educated economists. But if that gets disrupted, it can delay the green transition. We also risk to see increased emissions.
Of course, we can maybe the whole issue of carbon pricing that you talked about with Jacob, the C-BAM, maybe that will be used as a political weapon in this as well. We already hear from the US administration that this is considered as one of the unfairnesses towards the US. So it really risks...deviating from the focus to do the green transition.
MONICA: And just to clarify, the CBAM is the carbon border adjustment mechanism that Europe has put in place. Do you want to just briefly explain that in two seconds?
CECILIA: Yes, mean, pricing carbon is generally considered as one of the best ways to reach the Paris Agreement goals of decarbonization. You can do it in different ways. And I think there are 79 different versions globally. The CBM is the most ambitious one because it puts tax or a fee on carbon on goods, imported goods, depending on their carbon leakage, so that they then the idea is that it will level the playing field because the European Union produces in steel, aluminium, cement, energy and a few other items already pay a fee to do this. whereas other countries can produce it in a dirtier way. So the aim is to push them to have a more sustainable production via those fees. I think it...
It has gradually started to into force with different faces and reporting and monitoring and so on. I think it will probably be delayed a little bit as well, not only because of the tariffs, but also because of this whole debate on is it possible to do it? Will it harm competitiveness? And also the fact that some of the poorer countries in the world, even if they wanted to comply with all these requirements, they're not really able to do that.
MONICA: So let me switch gears a little bit and ask you about energy which is a big one. What will be the future sources of Europe's energy in the next five years, 10 years, or even if we want to go that far? 50 years. I mean, we're thinking long term. What are the long term sources of energy for Europe?
CECILIA: I guess, sorry. I wish I could answer this. This is of course very much dependent on policy, on economic development and not least technological development. There's so many things happening in this area. It's hard to have an overview and it's hard to know exactly when you can deliver. I think both in five- and ten-years time there will be a mix of energy. There will be a gradual increase of renewables and mainly solar, wind, natural gas.
But it will also be nuclear to supplement that there are even countries in the European Union now who are expanding their nuclear power as a sort of transitionary source of energy. And I think we will see this in the coming 10 years. There is more and more focus on decarbonized gas, on hydrogen gas.
Maybe in 10 years, there's a lot of investments, a lot of cooperation, there's a lot of specific projects going on on cooperation here within the European Union. And then as we go even further, probably nuclear fusion development, depending on how technology advances there, green hydrogen is what the scientists are talking about, but exactly when and how this will enter into to be a significant part of the energy mix that I'm not able to tell you. But I think it's interesting to see how quickly, a little bit below the big headlines, this is developing all over the world.
MONICA: But it's interesting. And it's interesting that you mentioned green hydrogen because of course green hydrogen is pretty much on everybody's radar. And in particular, when we think of big global South countries like Brazil and India and others, green hydrogen is very much on their radar. And not only that, there is some investment already happening in these countries in Brazil specifically by European companies in the specific development of green hydrogen capabilities.
That's really interesting, especially if Europe does end up taking the lead in the climate.
CECILIA: That's why it is so, sorry, I didn't mean to interrupt you. And that's it's so important to keep on working multilaterally and plurilaterally. Now, of course, the whole world's focus is on tariff right now. I can understand this. It is a very worrying global situation. But the networks that we have, the global organizations, everything from the United Nations and its different agencies to WTO, to G20 and so on, we've really...
Climate change is a global problem. We do need to pool all our resources and knowledge together to learn from each other, to facilitate the transfer of green technology, help facilitate the trade in it as well, and cannot be hold back because of this upcoming trade war.
MONICA: But we do have one other issue. Well, we have so many issues, but one other. Yeah, there's no shortage of issues, but there is one other big issue, which is defense spending. And the fact that Europe is now going to have it, it's already doing that, shifting to figuring out exactly how it's going to finance its own defense needs and so on. How is that going to affect and potentially even divert the climate agenda?
CECILIA: I could go on for hours.
Well, again is a huge issue. Europe is trying to upscale its defense contribution to NATO, but also trying to establish better cooperation internally in the EU and with some other allies such as UK, Norway, Canada as well, because we don't really know how big the American engagement will be here and also bearing in mind that we still have this terrible conflict with the Russian invasion of Ukraine where people are dying every day and Europe is committed to continue to support Ukraine in this. And for this we need, well, it's money, it's technology, but it's also weapons. And we talk about enormous sums. We talk about trillions of euros or dollars. And of course this will divert from other planned investments, mainly in the green area.
Again, hard to say because right now there are lots of talks, there lots of plans, there are lots of proposals on the agenda, but no hard decisions yet. But of course, we talk about massive investments and those investments have to come from somewhere and every country is struggling with their healthcare service, their education and so on. So there has to be priorities unless you find new ways and you could take big joint loans and you can have public private partnerships and so on.
But at the end, there's always someone who has to pay for it. So while this is unfortunately necessary, it also risks to divert investment from the green transition, think.
MONICA: So we've talked a lot about a lot of difficult, really difficult issues that will inevitably affect the climate agenda in a negative way. mean, if it's diverting some resources from that, then it's not the positive impact we'd like to see. But I want to ask you, what are the opportunities for Europe now in this changing world, in this changing geopolitical environment with the...long-standing questions that we're going to continue to have specifically on climate but also on public health and so many other areas. There are opportunities obviously. What are they?
CECILIA: Of course there are opportunities, never waste a good crisis, as they say. We have to sort of promote the truth that decarbonization is a source for growth. And that this is something that is not, as I said in the beginning, it is not in contradiction with innovation. On the contrary, lately we have seen that in the green technology sector, and you mentioned some in the energy that is happening now, there's a lot of innovation which has positive spin-offs as well. So we need to find a way to agree on the… and this is what the European Commission is trying to do now in a big sort of program labeled the clean industrial deal, which is trying to merge the green transition with also competitiveness, not one way or another, but both focusing on very energy heavy industries, try to see how we can help them through. Pooling research resources, innovation money, partnerships, and also the small companies in this. And this, think, will dominate very much the sort of domestic agenda in the European Union now, how we can do that.
Because what we need to do in a turbulent world, you also need to focus on your own growth, on your own strength, making sure that the internal market can deliver more internal growth. Not that we're… decoupling from the rest of the world, but we can do much more internally by taking away lots of obstacles in the internal market that has been holding us back. So I think this narrative needs to be promoted even stronger and to also face those who say that we can't do both. We have to wait. First, we do the innovation and the competitiveness and then we'll deal with the climate. Climate cannot wait. We have to do both at the same time. And if we do it right, it can be a very happy marriage.
MONICA: Well, Cecilia, I'm very happy that we could end this episode on a positive note, because I agree with you. I think there is a wide open sort of path ahead of us with lots of uncertainties, no doubt, but with lots of opportunities as well. So I can only thank you for coming on the show. It's been a pleasure to have you and the honor is all ours. Thank you so much.
CECILIA: Thank you so much Monica.
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Special thanks to Jennifer Owens and Alex Martin, our producers, Melina Kolb, our supervising producer, and Steve Weisman, our editorial adviser. This podcast is brought to you by the Peterson Institute for International Economics. Learn more at piie.com.
Until next time, here's to creating meaningful impact. Stay motivated, stay curious.
