EU should force customers to buy less polluting products, companies say

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Major industrial and fossil fuel companies including Shell, BP and Tata Steel are among those calling on European politicians to consider forcing consumers to buy less polluting products, arguing that such action is needed to boost investment in the energy transition.

In a letter to the European Commission, published on Wednesday, they say companies trying to invest in production methods that may result in lower carbon emissions are “pricing themselves out of the market” due to high costs, and authorities need to step in to create demand for their products.

“We will need to focus on demand creation to achieve new investment prospects,” they said in a letter to Wopke Hoekstra, EU climate commissioner, warning of an “industrial exodus” without intervention.

Fossil fuel combustion and industrial processes account for 85 per cent of global CO₂ emissions and 64 per cent of total greenhouse gas emissions, the Science-based Targets Initiative said this week, as it released proposed new standards for the oil and gas, chemicals and energy sector.

“The oil and gas industry desperately needs a blueprint to decarbonise if humanity is to stop the most catastrophic impacts of climate change,” it said.

The European Commission, which is grappling with concerns about economic decline, is looking to spur investment in sectors behind the green energy transition. The EU has already cut its emissions by about 37 per cent since 1990, as it has shifted towards solar and wind energy.

While the bloc has successfully grown renewable electricity generation, other parts of the shift away from the use of fossil fuels in industry have been bumpier.

A recent report by former European Central Bank President Mario Draghi has outlined a proposed “new industrial strategy for Europe”, in order to keep pace with the US and China.

The suggestion of mandates is likely to be controversial, however, given the risk of driving up costs for consumers following the cost of living crisis of recent years, generated by government pandemic spending and a spike in supply chain costs, as well as energy prices following the war in Ukraine.

It may also trigger concerns that, if poorly designed, mandates could prop-up demand for products which do not significantly reduce greenhouse gas emissions.

The EU is introducing a carbon border tax, known as the carbon border adjustment mechanism, to protect European companies investing in lower carbon manufacturing by taxing higher carbon-intensive imports.

But the signatories argue this action is not enough, as it does not help European exporters, and generally covers raw materials rather than “finished and semi-finished products” such as “cars, furniture or toys”.

The signatories highlighted examples of mandatory requirements already in place such as rules obliging fuel suppliers to supply a certain proportion of “sustainable” fuels.

Products such as “cleaner-produced” plastics, synthetics, rubber, steel and several building materials and fuels, could be covered by such mandates, the companies suggest.

The letter is also signed by biofuels producers Neste and plastics feedstock producer BlueCircle Olefins, among more than 60 names including industry associations and large energy groups such as German electricity generator RWE, Sweden’s Vattenfall and Norwegian wind energy group Ørsted.

“The [European] industry’s existing business model is already under pressure, while it is also no longer able to pay the (high) additional costs of sustainability out of its own pocket,” the letter complained.