High Costs, Greenlash Hit Europe

The eyes of the world may be on the US presidential election. But another, usually sleepy campaign is underway: European Parliament elections in June 2024. Most of the action takes place in the executive and bureaucracy (the European Commission). But Parliament must approve laws. This could have interesting results for the European Union (EU) Green Deal.

The Green Deal was first implemented in 2019, with a series of environmental measures. Most notably, the EU committed to cutting CO2 emissions by 55 percent by 2030. The EU is set to push for carbon neutrality by 2050, a measure that will require approval from the newly installed parliament. But, since the summer of 2023, the Green Deal has been on regulatory pause, as the EU faces a “greenlash” against environmental policies. In the face of inflation, consumers and trade groups are starting to resent the cost of environmental regulation. Over the past few months, proposals on industrial pollution, pesticide restrictions, and conservation have all been tabled at the EU level. A ban on new combustion engines, effective 2035, still stands, but it is facing increasing resistance.

The pushback against the EU Green Deal started at the national level. Italy’s right-wing government is pushing back against the 2030 emissions goals and building efficiency regulations (although it is still willing to accept EU green subsidies to clean up its electrical grid). Dutch farmers have been protesting against nitrogen curbs. Last August, Poland filed suit against the European Commission in the European Court of Justice, claiming that the 2030 emissions goals were unconstitutional (earlier this month, the new prime minister announced that Poland would be withdrawing the suit). German voters rejected a summer 2023 law that would have mandated 65 percent renewable energy for building heating, and they are pushing back against efforts to ban cars inside the country’s biggest cities. Recently elected political parties in Finland, Luxembourg, the Netherlands, and Sweden have already bruited opposition to further environmental mandates.

In the past few months, farmers in France, the Netherlands, and Spain have used their tractors to block highways in protest of higher costs and regulations. The center-right European People’s Party (EPP), which has traditionally defended business and rural interests, has taken note. Although it initially supported the Green Deal, the EPP has started to grow less enthusiastic about it. The EPP is the largest political party in the EU Parliament; polls indicate that it, along with harder right parties and the eurosceptic European Conservatives and Reformist group (ECR) will make gains. In light of the overall mood, the future of the Green Party is uncertain; the party, which held a mere 6 percent of seats in the 2004 election, inched its way up to 10 percent in the 2019 election. Recent polls indicate the Greens will take a drubbing at the polls in June.

To an economist, it is tempting to remind voters, once again, that There Ain’t No Such Thing as a Free Lunch (fortunately, the readers of these pages, who already know this principle from the writings of Robert Heinlein or Milton Friedman, need no such reminder). Like any other good, environmental protection has an opportunity cost: in expenses, of course, but also in growth and innovation. Surveys indicate that the majority of Europeans support green laws; however, a majority is also increasingly worried about the cost. 

Despite funding pressure from governments and social shaming from civil society, the science on environmental protection is not settled – there remains serious doubt about what damage is anthropogenic, and what the cost-benefit analysis of remedies might be. But in a sense, the science doesn’t matter. Let me qualify that: the sciences does matter, of course. But in a sense, the science doesn’t matter. Economist F.A. Hayek explained that “the facts of the social sciences” are the beliefs that acting agents hold about the world; indeed, these beliefs will guide their action. If European voters equate recent heatwaves and wildfires with environmental degradation, they will tend to vote for green policies, even if there is no clear scientific link between human action and the natural disasters – or between EU regulations and curbing those disasters.

This presents an interesting twist about rationality. Economist Bryan Caplan coined the concept of “rational irrationality.”  In this phrasing, irrationality is a good like any other, with a price. If I believe that I can fly off the tenth floor of a building, I will pay a high cost; my irrationality is irrational. But if I believe that more state spending will solve perceived environmental problems, my irrationality will have no cost to me at the polls, as I can largely pass the costs on to others. I can rationally enjoy my irrational beliefs. With tight economic conditions, European voters are now confronted with the price of EU policies, and re-evaluating their cost-benefit analysis. They may be aware (or believe they are) of a link between environmental degradation and the Green Deal. But they are also aware of an EU-wide growth rate of less than 1 percent (.5 percent for 2023, and expected at .9 percent for 2024), and inflation that remains above 6 percent.

Environmental protection is still a pan-European passion, and one of the European Commission’s top policy goals. It will be interesting to see how the Green Deal plays out in the June elections and beyond.

Speaker Tip O’Neill was on to something when he proclaimed that all politics is local.