Europe goes HAM on emissions reduction. But at what cost?
Will Europe pay the cost to be the boss?
I unpack how climate change makes our world weird one take at a time, so you donāt have to!
Hey Globetrotters and welcome back to Globetrottinā, my weekly take on the Reconfiguration š
The 90%
Last week, the European Commission announced an aggressive goal of 90% emissions reduction by 2040. Yeah, you heard read right:
The European Commission today proposed an amendment to the EU Climate Law, setting a 2040 EU climate target of 90% reduction in net greenhouse gas (GHG) emissions, compared to 1990 levels, as requested by the Commission Political Guidelines for 2024-2029.
Wait, Iām still trying to wrap my head around itā¦
Ok, I think Iām fine now. At any rate, while the EU still needs to pass this measure in Parliament (not an easy feat in its own right), if it does come to bear, itās a big effing deal.
What grabbed my attention with this measure is actually not its aggressiveness or the direction it will pull Europe towards (the right one if you ask me), but rather the implications. In a way, this is the reconfiguration at its glory: Climate change causing ripple effects that span beyond tree-hugging and foray into geopolitics, trade, society and more.
So, the question at the heart of Europeās quest to reduce emissions is: at what cost?
Decisions, Decisions
To be honest, if I knew what the cost would be, Iād be a very rich man. Instead, Iām writing a blog substack. Still, like in the 90s hit game Mortal Kombat, Europe will face multiple āChoose Your Destinyā moments. Letās unpack the main ones.
Geopolitics
Itās an established fact that China dominates the renewable kingdom, with its control over much of the renewables value-chain, including critical minerals, rare earth minerals, production and manufacturing (both mid- and downs-tream) and extensive knowhow. This command allows the Green Dragonš growing geopolitical clout as renewable energy become a central feature of Europeās future.
In its ambition to rapidly reduce emissions and decarbonize, Europe might find itself increasingly reliant on Chinese manufacturing and resources. Not because it wants to, but because the alternative will be far worse š¤·āāļø
Will Europe be willing to realign with China and trade Washington for Beijing? Or will it be able to develop autonomy and secure access to the resources it needs on its own?
Reliance on China, of course, is only one way the geopolitical angle can evolve. Other scenarios materialize, but Europe will experience a reconfiguration of its geopolitical landscape as a result of its response to climate change.
Trade & Resources
Whether or not it relies on China, Europe will need sooo many critical minerals and rare earth minerals that it is bound to look for additional resevoirs. And where can we find them? You guessed right - the Arctic!
Now, if youāve read this blog substack long enough, you know Iām obsessed with the Arctic, and with good reason. Natural resources are at the heart of the regionās reconfiguration, and Europe faces a cruel dilemma: Turn the extraction up to 11 and risk pushing the region to the brink of environmental disaster, orā¦ dial it down and hinder its own decarbonization.
(As an aside, the choices Europe is facing with respect to trade exceed extraction. Two notable examples of areas Europe will face choices in, like with Carbon Credits and Carbon Border Adjustment Mechanisms, but thatās for another time)
Security and Defense
It turns out both reducing emissions and fighting wars cost money. Who knew.
Europe is set to rearm in the coming decade in an effort to bolster its security, deter Russia and look cool in Arctic fatigues reduce its reliance on the US. That costs š°š°š°. How Much? Roughly 5% of GDP, as many countries committed in NATOās latest summit. Some countries, like Germany, are already breaking with tradition and setting aside colossal sums of money to finance this rearmament.
Europe is facing then a choice between Decarbonization and Rearmament, and from the looks of it, it just might favor the latter. Yes, in the long term emissions reductions is likely to promote economic growth, but the dilemma Europe is facing is here and now.
Is this a zero-sum game? If we look at the fine print, not necessarily. NATOās latest pledge provides a way to invest in projects that promote decarbonization and infrastructure modernization. This is consistent with recent takes on National Security, placing energy and infrastructure resilience as an integral part of nationsā security. Renewables, the argument goes, can help reduce reliance on petrostates and enhance security (unless, they are sourced from our good friends at the CCP)
But still, a the scale of decarbonization and emissions reduction makes you question whether NATOās 1.5% enabler-focused investment target will suffice. At some point, you have to wonder: Europe will have to decide if the next Euro will buy tanks and drones or solar panels. Push comes to shove, they might opt to deter Mother Russia than Mother Nature.
Society
Not everyone in Europe loves climate policies. While the EU cites strong support for climate policies, recent US backlash against renewables at the regional level a host of European opposition to climate policies suggest that support is fragile (examples include 2019 Dutch farmer protests, attemtps to stop windmills in Sweden, Germany, France and others). These policies often clash with costs of living and leave sectors feeling like they got the shaft (which often, they do).
Europe, then, faces a choice between pressing on and risk continent-wide backlashes, anti-climate sentiments and rise of populistic movement, or find an alternative that will make the transition slower and more costly. Given the rise of the extreme right in Europe, thereās a chance that additional discontent will lead to a parliament and commission that will abandon this measure altogether.
One lesson incumbent politicians seem to refuse to learn: ignore discontent and rise in cost of living at your own peril.
Paid The Cost to the Boss
The Reconfiguration does not give any slack, and Europe cannot shy away from the choices it has to make over the coming years.
My guess is that Europe, which has been a consistent proponent of decarbonization, is looking to achieve three things with this aggressive target:
Revitalize its industrial base through massive investments in infrastructure and climate-friendly technologies
Reposition itself as a leader in opposition to the USās major policy shift and take a firm stand on the global stage
Re-energize its population and signal its commitment to a liberal, free and equitable world (at least, thatās what I think they are trying to signal)
The real question is, will Europe be willing to pay the costs to be the boss? (Unless the far right secures power, which will make this a moot point)
Bro who cares?
Once again, everyone:
š§āš¤āš§Europeans are going to feel the impact of these policies and therefore should care deeply, one way or another.
š¹Investors can find many opportunities if Europe goes all-in on emissions reduction and invest in modernizing the continentās infrastructure and industrial base. Or, they can look at the cost of F-35s.
šEntrepreneurs can find reassurance in Europe as a virtual guerantoor of an endless stream of clients for ClimateTech, or open a Sandwich shopš„Ŗ.
š¤µPoliticians face rocky and turbulent times and they should expect no one to be happy. They should prepare their safety gogglesš„½
š§āāļøPolicymakers will have many, many papers to write š
Thatās it for this week
As always, stay tuned to Saturdayās edition of āThe Time Machineā, where I tell you what things you should care about this week. As a reminder, Iām still tweaking this newsletter, so if you have suggestions - hit me up!
See you on Saturday, and next week with a brand new take!
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