Will climate change policies change after the EU 2024 election results?

Politics are not a threat to the EU carbon market. Europe has worked hard over the past decades to set effective climate change policies to fight global warming. The bloc is the fastest warming continent and has ambitious targets for the years to come - politicians are making sure that we do our best to keep our planet inhabitable. The EU has historically led global climate policy efforts, as seen in initiatives like the Carbon Border Adjustment Mechanism. The cornerstone of the European fight for climate change is the EU Emissions Trading System (ETS) built in 2005, aiming for a 62% reduction by 2030. Despite recent election results with a more rightward-leaning EU Parliament, significant backtracking on climate policies is legally challenging and unlikely. The EU's established climate framework is robust, limiting political risks to European Union carbon allowance (EUA) investments.

• Why is climate change important in Europe? 
• What are the European Climate Change policies in 2024? 
• Will the EU election results change the climate change policies after 2024? 
• Will the carbon pricing climate change policy be impacted with the new EU parliament? 

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Why is climate change important in Europe? 

Why are climate change policies needed in 2024? 

In 2023, the European Union as a whole emitted 3.4 billion tons of CO2 - a recent Reuters’ report states that the bloc is the fastest-warming continent. Last year, the main sectors that emitted 59.5% of the bloc’s emissions were “Households”, “Manufacturing” and “Electricity”. The European Union has a long track record of making decarbonization efforts - compared to 2022, CO2 emissions in the bloc decreased by 5.5% in 2023. Climate change policies in the EU are already giving some results but as more actors get involved in the fight for climate change, the outcomes are to be enhanced over the next decades.  Reaching climate neutrality by 2050 is no easy task. 

What region is the world leader on climate change policies? 

The EU has historically been the global leader in climate change policies. At international climate summits, Europe has consistently demonstrated high levels of ambition. For instance, at the latest COP 28 summit, European representatives urged the largest polluting countries to honor their commitments and advocated for a tripling of renewable energy capacity. Another example is the introduction of the Carbon Border Adjustment Mechanism in 2023, which signals the EU regulators' commitment to encouraging more global efforts in decarbonization.

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What are the European Climate Change policies in 2024? 

What are the European Union climate change policies objectives in 2024? 

Regarding its decarbonization objectives, the EU has set several milestones for the coming decades. Under the European Green Deal, the EU aims to achieve carbon neutrality by 2050. To reach this, by 2030, the EU plans to reduce its carbon emissions by 55% compared to pre-industrial levels, as outlined in the Fit for 55 agreement. Finally, a recent communication on the 2040 targets announced that the bloc aims to cut 90% of its emissions by that year.

What are the European Union climate change policies in 2024? 

Here is a list of some concrete climate policies in the EU that are already undertaken: 

• Adaptation to Climate Change:some text
  • Better data gathering, nature-based solutions, and integration of adaptation into policies.
  • Regulation adopted in April 2020 facilitates use of treated urban waste water for agricultural irrigation.
• CO2 Emissions from Transport:some text
  • Stricter emission limits for cars, vans, trucks, and heavy-duty vehicles to reduce CO2 emissions.
  • Limits set for new vehicles from 2030 onwards to emit less CO2 compared to 2021 levels.
• Land Use and Forestry:some text
  • Regulation adopted in May 2018 incorporates greenhouse gas emissions from land use, land use change, and forestry into 2030 climate and energy framework.
• EU Emissions Trading System (ETS):

• Cap-and-trade scheme with objective to reduce emissions by 62% compared to the 2005 levels, by 2030.

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Will the EU election results change the climate change policies after 2024? 

Will the 2024 EU parliament adopt new climate change policies? 

In early June 2024, the results of the EU parliamentary vote indicated a shift towards a more rightward-leaning institution. There are apprehensions that this change could lead to a dampening of EU ambition regarding climate action, as newly elected MEPs may prioritize other issues such as security or economic development.

Will the previous EU climate change policies be affected: expert’s insights

In their response to the EU parliamentary results and discussions with major EU climate change stakeholders, Reuters has reported that 

• “While new climate measures might face a tougher ride, a full-scale reversal of the dozens of EU climate policies passed in the last five years would be legally difficult.” 
• In the same article, Krzysztof Bolesta, Poland's secretary of state for climate, stated, "All new policies will be harder to pass. But backsliding is very unlikely." 
• Bas Eickhout, head of the European Parliament's Greens lawmaker group, said that, "I don't think that we'll be rolling back on (climate) policies. But I do think that it will be more complicated to get new policies off the ground." 

Is it possible to erase all the previous EU climate change policies?

The legal procedures to backtrack on previously voted complex international legal texts are lengthy. They require the involvement of many national and international representatives over a long period of time. This makes it nearly impossible to cancel prior commitments and decisions. Additionally, the president of the EU Commission plays a crucial role in amending EU texts, and with the election results, it is highly likely that Ursula von der Leyen will remain in power. She is very defensive regarding climate policies and is expected to uphold the EU's climate change policy ambitions.

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Is there a climate change policy political risk for Carbon Allowances? 

What were the EU carbon allowance prices on the day after the election results?

On the day following the EU election results, there was a slight short-lived initial drop in EUA prices. At 9 AM, EUAs were trading at €68.24, and by 11:45 AM, they had dipped to €67.8. However, the prices rapidly rebounded to the opening levels. Yan Qin, a lead carbon analyst at the London Stock Exchange group,commented "I think the U-shaped recovery also reflected that participants began to realize the 'very limited' impacts of the election outcome on near-term EU ETS dynamics."

Will EU carbon allowance prices be impacted by the EU election results in the long run?

The market recovery on the same day of the drop indicates that the initial price reaction was an overreaction. Market participants recognize that the EU ETS fundamental rules and the supply calendar are not likely to be negatively impacted by the new EU Parliament rule.

What happened at the beginning of June shows that the political risk in assessing carbon allowance investment price returns is limited. The scheme is well-established, robust, and sophisticated, with significant involvement from both national and international stakeholders. Such a large-scale framework is unlikely to undergo sudden and drastic changes or U-turns overnight.

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Key Takeaways:

• Political Stability in EU Carbon Market: Politics do not pose a significant threat to the EU carbon market, thanks to decades of established climate policies.
• EU's Climate Leadership: Europe is the fastest-warming continent and has set ambitious climate targets. It has shown global leadership through initiatives like the Carbon Border Adjustment Mechanism.
• EU Emissions Trading System (ETS): Established in 2005, the ETS is central to the EU's climate strategy, targeting a 62% reduction in emissions by 2030.
• Election Impact on Climate Policies: Despite a shift towards a more right-leaning EU Parliament, significant backtracking on climate policies is legally challenging and unlikely.
• Climate Importance in Europe: In 2023, the EU emitted 3.4 billion tons of CO2, necessitating robust climate policies to achieve climate neutrality by 2050.

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