EU Pollution Tax

The European Union formally approved (April 18) a plan to impose a “Carbon Border Adjustment Mechanism” (CBAM) on certain imports, as part of a broader plan of measures approved last December to reduce EU carbon emissions 55% by 2030.

The EU claims that the law will incentivize non-EU countries “to increase their climate ambition and ensure that EU and global climate efforts are not undermined by production being relocated from the EU to countries with less ambitious policies.”

The CBAM will apply to iron and steel, cement, aluminum, fertilizers and electricity, potentially to indirect emissions (i.e.,those that result from an organization's activities, but are actually emitted from sources owned by other entities), and downstream products such as screws and bolts and “similar articles” of iron and steel.

The EU-approved legislation must still be approved individually by member EU countries before being put into place.

(posted: 4-20-22)

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Finland, Sweden, and NATO

Turkey and Hungary ratified NATO membership for Finland (March 30), the final countries needing to do so. Neither country has taken action on Sweden.

There is speculation that both countries are coordinating Sweden NATO policy, but this is not confirmed. Turkey indicated in February 1 that it will only support Finland membership, not Sweden given its stance on Turkish dissidents within Sweden that the country will not extradite to Turkey. Turkey also criticized the lack of Swedish government action against individuals in Sweden involved with a public Koran-burning incident last year.

The lack of Turkish support of Sweden has put US approval of the sale of F-16s for Turkey at risk. Twenty five US Senators sent a letter to the President suggesting that without Turkish ratification of Sweden and Finland to NATO, the Senate may not approve the sale.

In the United States, the Senate voted to ratify admission in August 2022 by a vote of 95-1, with one Senator voting “present” (Senator Rand Paul: R-KY) and one voting “no” (Senator Josh Hawley: R-MO). Three Senators did not vote.

NATO’s criteria for joining the organization includes a requirement to have “a functioning democratic political system based on a market economy; fair treatment of minority populations; a commitment to resolve conflicts peacefully; an ability and willingness to make a military contribution to NATO operations; and a commitment to democratic civil-military relations and institutions." Members are also expected to finance a share of costs associated with NATO’s operations and activities.

(updated: 3-31-23)

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EU-UK Northern Ireland Agreement

The European Union (EU) and United Kingdom (UK) agreed to an updated trade approach with Northern Ireland that is intended to both ensure effective compliance with EU trade rules given Republic of Ireland's EU membership, and at the same time ease post-Brexit trade challenges between Britain and Northern Ireland of the UK. The agreement is referred to as the Winsor Framework.

Under the Framework, goods moving from Britain to Northern Ireland will undertake “green lane” processing procedures, which are intended to ease trade challenges affecting Northern Ireland business and consumers. Green lane goods can now move between Britain and Northern Ireland “without red tape or unnecessary checks, with the only checks remaining designed to prevent smuggling or crime,” according to a summary from the British Prime Minister’s office.

Goods moving to the Republic of Ireland via Northern Ireland will move through “red lane” processing procedures, procedures that will be consistent with EU trade enforcement needs under its unified market.

There was concern that absent an agreement and full compliance with EU trade rules, a hard border between the Irish Republic and Northern Ireland may have been necessary. A hard border, however,  is inconsistent with the Belfast Good Friday Agreement which has helped bring sustained peace, without a hard border, between the two parts of Ireland.

The Windsor Framework also provides perceived enhanced autonomy to Northern Ireland with an updated “Stormont Brake,” which permits the Northern Ireland assembly to challenge EU trade decisions of the European Court of Justice (ECJ) that could affect Northern Ireland trade. It is not known if the use of the Brake will be needed, but if it is then UK's unified legislature would still have the ability to veto objections of the Northern Ireland assembly.

In addition, the use of the Stormont Brake will depend partly on decisions flowing from a working Northern Ireland executive, which is the governing administrative arm of the assembly. However, the key Northern Ireland party aligned with Britain–the Democratic Unionist Party (DUP)–is currently choosing not to participate in a power-sharing executive. If, and when, a successful powersharing arrangment does come together, there may not be enough support to use the Stormont Brake given that some powersharing elements will likely be supportive of the EU.

(posted: 2-28-23)

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European Union Planning a Starlink Rival

The European Union (EU) voted in favor (February 15) of developing and deploying a rival Starlink system project called IRIS².

The planned system will encompass a network of 170 satellites to be deployed by 2027 serving both military and commercial needs. It would provide high-speed, low-latency internet connection to Europe, and potentially areas within Africa.

The EU launched its own satellite navigation system decades ago after the US upgraded its global positioning system (GPS) for commercial uses in addition to its original military purposes.

(posted: 2-27-23)

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Natural Gas Price Cap

The EU, in an effort to address excessive natural gas pricing in the face of allied efforts to gradually cut off Russia as a supplier, agreed (December 19) to a price cap scheme on natural gas.

Specifically, a price cap will be activated if gas prices exceed €180 euros per megawatt-hour on the Dutch Title Transfer Facility for three working days, and also if they are €35 higher than a reference price for liquefied natural gas on global markets in the same period.

The EU says the cap is intended to help curb episodes of excessive gas prices, due in part to market dynamic bidding practices that the EU believes does not appropriately reflect world market pricing. Whether or not it will work while also ensuring needed natural gas purchasing by willing sellers, is anyone’s guess.

The price-cap mechanism is set to take effect on Feb. 15, 2023, and will apply for 20 working days once activated. The cap will be deactivated once dynamic bidding limit is below 180€/MWh for three consecutive working days.

(posted: 12-21-22)

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Key EU Taxation Changes

The European Union (EU) agreed to two significant tax measures during December 2022.

First, the EU reached an agreement (December 12) to impose a 15% minimum tax on large corporations (more than €750 million in income). This action follows an action by the United States in August 2022, with the enactment of a similar 15% minimum tax on corporations contained within the Inflation Reduction Act. The tax will have to be adopted by EU member countries within individual tax law by the end of 2023.

Second, the EU agreed (December 13) to impose a “Carbon Border Adjustment Mechanism (CBAM).” The mechanism requires that importers of certain goods, primarily those that are carbon-intensive, to purchase so-called CBAM certificates to pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU.

The EU says that the CBAM will incentivise non-EU countries “to increase their climate ambition and ensure that EU and global climate efforts are not undermined by production being relocated from the EU to countries with less ambitious policies.” The proposal has to be approved individually by member EU countries before being put into place.

(posted: 12-16-22)

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European Industrial Policy

The finance and economic ministers of both France and Germany called for (November 22) a European industrial policy in a joint statement. The statement suggests a EU industrial policy would be at least partly in response to U.S. industrial actions (e.g., grants and subsidies to industry) encompassed within the Inflation Reduction Act. 

The ministers added that the statement is the first step in a “Franco-German commitment line to advocate and advance” such an EU policy, and that the two countries will “pursue and engage in an ambitious, competitiveness-seeking future-oriented European industrial policy which aims at boosting European strategic sovereignty.”

Other key elements of the statement include that France and Germany will:

• Commit to “work jointly on providing adequate response” to vulnerable economic sectors to include “coordinating and aligning” support to companies hit by the energy crisis, “to prevent any breach to a fair level playing field within the internal market.”

• Implement joint purchases of gas through long term contracts to achieve lower prices for consumers and industry.

• Initiate new cooperation on hydrogen (e.g., set up a working group), and extend the scope of the current IPCEI batteries transnational cooperation effort.

• Build collaborative efforts on artificial intelligence and quantum computing with two new high-level working groups.

• Ensure a common strategy to ensure the free and secure flow, access and use of data, as well as trust in cloud services.

• Commit to the completion of Ariane 6 to guarantee “our independent and autonomous access to space,” and welcome European mini-launchers to foster innovation and cost-efficiency.

(posted: 11-23-22)

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European Political Community

The first meeting of a new “European Political Community” group (October 6) was held in Prague, of the Czech Republic. Participants included leaders of every European country, though Russia and Belarus were specifically excluded.

An idea advanced by French President Emanuel Macron, the stated purpose of the group is to “foster political dialogue and cooperation to address issues of common interest,” and “strengthen the security, stability and prosperity of the European continent.”

There were no specific outcomes of this meeting beyond showing solidarity against Russian aggression in Ukraine. There is some speculation that this and future meetings are intended, at least in part, to help lessen pressures on current European Union members to expand.

The group says that future European Political Community meetings will take place in Moldova, Spain and the United Kingdom, though no dates were specified.

(updated: 10-7-22)

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EU Energy Emergency Measures

The European Union is proposing a set of emergency energy measures given Russia’s likely substantial reduction of natural gas supplies for the coming winter, and the resulting significant price hikes for consumers and businesses.

The proposals are as follows:

• Reduce electricity consumption by at least 5% during selected peak price hours and “aim to reduce” overall electricity demand by at least 10% until 31 March 2023. Each member state would have to figure out individually how to do this.

• Impose a revenue cap on so-called “inframarginal electricity producers,” which include technologies such as renewables, nuclear, and lignite, as they produce lower cost energy than “marginal” producers of energy – most notably, natural gas.

• Impose a “temporary solidarity contribution” on excess profits generated from activities in the oil, gas, coal and refinery sectors not covered by the inframarginal revenue cap, to help maintain investment incentives for the green transition. The contribution would be assessed on 2022 profits which are above a 20% increase on the average profits of the previous three years.
  
  Revenues above the inframarginal revenue cap, as well as revenue from the solidarity contribution, would be redirected to consumers in member states to help offset the elevated cost of energy.

• The Commission also proposes to permit below cost regulated electricity prices, and also to expand regulated prices to cover small and medium-sized business enterprises.

European Union member states will have to approve these measures before they go into effect.

(updated: 9-16-22)

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Ukraine & EU Candidate Membership Status

The European Union (EU) granted candidate membership status (June 23rd) to Ukraine. Besides Ukraine, current nations with candidate status include Albania, the Republic of North Macedonia, Montenegro, Serbia and Turkey. Kosovo and Bosnia and Herzegovina are currently considered “potential candidates.”

Moving from being a candidate to an EU member can take years, sometimes decades; for example, Turkey has been a candidate member since 1999. While becoming a candidate is considered to be largely symbolic, it does mean that a nation is next-in-line for the approval process. Politico published a good article (June 18th) on what candidate status means, how long the approval process takes, and the considerations.

(updated: 6-24-22)

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Natural Gas Independence from Russia - Steps

A Finnish company – Gasgrid – agreed (May 20, 2022) to lease from a company in the United States – Excelerate Energy – a floating Liquified Natural Gas (LNG) terminal. Such terminals facilitate the importation of LNG by taking natural gas in a liquid form (transformed at an export location) and transforming it back to a gaseous form (i.e., regasification) for more easy distribution.The United States, among other countries, has been looking to increase LNG exports in response to Europe’s need to substantially reduce, if not eliminate, the need for Russian natural gas.

Finland uses natural gas for just 5% percent of energy needs. Other European nations have a much greater dependency on Russia, and notably Germany has so far not committed to fully breaking free from Russian natural gas. Estonia and Latvia are reportedly also considering floating LNG terminals.

Finland’s action is notable given Russian threats against the country for Finland’s refusal to pay Russia in rubles for natural gas purchases.

The International Energy Agency reported (June 30th) that as of June 2022, the EU as a whole is for the first time importing more US LNG than natural gas via piplelines from Russial.

(updated: 7-7-22)

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Ukraine Crisis - DOD Response

The Department of Defense (DOD) announced (March 24, 2002) that it is moving another 7,000 troops to the European theater, at least initially to Germany. The troops will come from the Army's 1st Armored Brigade Combat Team, 3rd Infantry Division at Fort Stewart, Georgia. The Army says that these troops will be used "to reassure NATO allies, deter Russian aggression and to be prepared to support a range of other requirements in the region."

The DOD previously announced (February 25, 2022) its activation with NATO of the NATO Defense Force. This announcement effectively means that NATO participants must be ready to provide, if called upon, personnel and equipment for the defensive protection of NATO countries.

Also in February, DOD announced additional movements of troops and equipment within the European theater. Those movements included 800 troops from Italy to the Baltic region to “reassure NATO allies, deter any potential aggression against NATO member states, and train with host-nation forces.” Equipment moves included up to eight F-35 Lightning II aircraft to NATO’s “eastern flank,” twenty AH-64 Apache attack helicopters from Germany to the Baltic region, and twelve Apache helicopters from Greece to Poland.

DOD also announced an increase to 5,000 of the troops being sent to Europe from the 82nd Airborne Division based at Fort Bragg, North Carolina. Other within-theater troop movements previously announced, and presumably completed, included movement of a 1,000-member Army Stryker squadron relocated from Germany to Romania, joining 900 U.S. service members already in that country. 

DOD says that prior to recent troop additions, the United States had already had roughly 80,000 troops in Europe. 

(updated: 3-24-22)

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FY 2022 Appropriations

In addition to supplemental appropriations, Congress took final action on regular FY 2022 funding (March 10, 2022) and included:

• $300 million for the Ukraine Security Assistance Initiative

• $180 million for the Baltic Security Initiative

• $  30 million for Poland

• $  30 million for Romania

• $  20 million for Bulgaria

• $ 40 million for Georgia

(updated: 3-14-22)

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Russia Sanctions Due to its Invasion of Ukraine

The United States, the EU, Canada, and other nations have announced, over multiple days since the Russian invasion of Ukraine, sanctions against the Russian government; Russian persons, businesses, and organizations; Belarus; and, the breakaway regions of Donetsk and Luhansk of eastern Ukraine. 

Most recently, the EU announced (May 4, 2022) that it is planning to phase out Russian oil imports by the end of 2022, and that it is proposing the removal of additional Russian banks from the SWIFT international financial transaction system. Each EU nation will have to formally approve these proposals prior to implementation. Hungary and/or Slovakia may not agree to the timeline for oil phase out.

An updated summary of all current Russia sanctions can be found HERE.

(updated: 5-7-22)

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German Suspension of Nord Stream 2

As a result of Russia's invasion of eastern Ukraine on February 22, 2022, Germany announced that it is indefinitely suspending the certification process for the Nord Stream 2 natural gas pipeline from Russia.

Germany had previously suspended (November 16, 2021) the certification process for the completed pipeline, stating that it was connected to the legality and certification of the subsidiary who will operate the German portion of the pipeline.

Germany has not indicated at this time if the certification process suspension is permanent.

(updated: 2-22-22)

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