A platform for EU protectionism

One of the key arguments made in our new report on the EU's climate action and renewable proposals is that because of (probably justifiable) fears about damaged international competitiveness for key heavy industries, the mammoth package is likely to provide a platform for protectionist measures.

Nicolas Sarkozy has previously focussed most of his rhetoric on 'green' tariffs that would be placed on imports from countries that do not adopt carbon reduction policies to the satisfaction of the EU (this provision is in fact written into the proposed Directive). The British and others are opposed on the basis that such carbon tariffs would open up a Pandora's box of protectionist lobbying, and would be a logistical nightmare to implement in any case (what would the carbon footprint and resultant tariff be on an ipod manufactured in several different countries?).

Now Paris is taking a slightly different tack. The line of thinking goes that if border tariffs are a non-starter, other forms of subsidy would need to be considered. Sarkozy has therefore hatched a plan to try and get the EU to loosen up state aid rules for chosen manufacturing industries, as well as an EU aid plan which would allow these sectors to get loans at preferential rates. Sarkozy will propose "to the European Commission and to our European partners a revision of the common framework on state aid ... so that it can be harmonised with the goals we are pursuing in the context of the climate-energy package."

With EU state aid rules already being twisted into all manner of different shapes and sizes in response to the financial crisis, and given that many member states are starting to get seriously cold feet about the proposal to move to full auctioning of carbon permits in the midst of economic downturn, it's quite easy to imagine Sarko getting his way on this...