Ewan McGaughey, Reader in Law, King’s College London

Photo credit: Geopolitical Intelligence Services, via Wikicommons

Russia’s invasion of Ukraine has prompted initiatives like RePowerEU and similar UK programs, aiming to eliminate reliance on Russian fossil fuels. President Biden has even called for a complete end to fossil fuel use, arguing that dependence on any authoritarian regime for energy is no longer acceptable. This shift recognizes the need to transition to renewable energy sources rapidly, acknowledging everyone’s fundamental right to benefit from scientific advancements. However, existing proposals like the Sustainability and Due Diligence Directive face criticism for being insufficient, especially in light of the current geopolitical climate. This post explores how corporate law and regulations can be leveraged to achieve 100% clean energy in Europe. Drawing on analysis from the book Principles of Enterprise Law: the Economic Constitution and Human Rights, it argues for swift legislative action focusing on specific sectors and addressing cross-sectoral issues through corporate and financial laws.

1. The Urgent Need to Transition Away from Fossil Fuels

The conflict in Ukraine highlights the crucial need to transition from coal, oil, and gas for both environmental and geopolitical reasons. Firstly, nations heavily reliant on fossil fuel exports are often ruled by dictatorships due to the “resource curse.” This phenomenon arises from the limited access to these resources, leading to concentrated power and wealth among a select elite who often suppress their populations and instigate conflicts. In contrast, clean energy promotes democratization and a more competitive market, as natural resources like sunlight, wind, and water are abundant and accessible.

Secondly, fossil fuels release harmful pollutants, negatively impacting public health and driving climate change. This environmental damage, a severe negative externality, carries enormous costs that fossil fuel companies often shift onto the public while downplaying their role.

Thirdly, history demonstrates that bans, rather than taxes or regulations, are often the most effective means of curbing harmful practices. While taxes can play a role, bans offer a clearer moral stance and have historically been successful in tackling issues like slavery and nuclear testing. The Montreal Protocol, which successfully addressed the ozone layer depletion, serves as a prime example. Fortunately, the sectors where transitioning from fossil fuels is most challenging are limited and solutions are already being developed. With sufficient investment in research and development, driven by the urgency of impending bans, clean alternatives will emerge.

2. Powering Europe with Clean Energy

Achieving 100% clean energy in Europe necessitates a multifaceted approach. Focusing on high-emission sectors like energy, transportation, agriculture, and buildings is crucial. Additionally, corporate and financial laws need to be reformed for broader impact.

Energy Production and Consumption

The RePowerEU initiative acknowledges the EU’s significant reliance on Russian gas, oil, and coal. While the plan proposes diversifying import sources and investing in renewables, progress can be accelerated by active participation from all Member States and energy companies. The misconception that fossil fuels are more cost-effective than clean energy needs to be dispelled.

Several reforms are necessary. The Electricity Directive should mandate a transition to 100% clean energy sources for all electricity providers within a specific timeframe. The Gas Directive should aim for the fastest possible phase-out of gas, repurposing existing infrastructure for renewable energy storage. The Hydrocarbons Directive should be revised to mandate the elimination of fossil fuels entirely and potentially initiate public insolvency procedures for non-compliant companies.

Vehicles and the Auto Industry

With the shift to clean energy underway, the transportation sector must follow suit. Focusing on commercial vehicles, including delivery trucks, taxis, buses, and trains, is key due to their constant use. Mandating the electrification of bus and rail fleets through revised regulations is essential. Additionally, subsidies should be redirected exclusively to electric vehicles, while tax breaks for fossil fuel-powered vehicles should be eliminated. These measures would incentivize the adoption of electric vehicles, which offer lower long-term operating costs.

Furthermore, European automakers need to expedite their transition to 100% electric vehicle production. Regulatory measures, such as amending the Vehicle Emissions Regulation and Emission Performance Regulation, are necessary to enforce this transition. Delaying action not only harms the environment but also risks the competitiveness of European automakers in the global market.

Agriculture and Buildings

Agriculture and housing represent other major areas for decarbonization. The Common Agricultural Policy, with its substantial budget, presents an opportunity to promote environmentally friendly practices. Regulations should be revised to incentivize tree planting, biodiversity enhancement, reduced reliance on machinery, and adoption of sustainable farming methods.

Similarly, the Energy Performance of Buildings Directive needs to be more ambitious. It should promote “negative energy buildings” that generate more energy than they consume. Bans on gas heaters and mandates to replace existing heaters with eco-friendly alternatives in public, commercial, and residential buildings are crucial.

Corporate Practices, Banking, and Trade

Finally, cross-sectoral reforms are crucial. Recent court rulings like Urgenda v Netherlands, Klimaschutz, and Milieudefensie v Shell highlight the growing legal and moral imperative to address climate change. These cases establish that inaction on climate change violates fundamental human rights.

Codifying these legal principles into EU law and amending the Accounting Directive to mandate accounting for climate damage costs is crucial. Companies should be required to set aside reserves for climate liability, incentivizing them to either transition to cleaner practices or cease operations.

Additionally, the European Central Bank should prioritize climate stability alongside price stability. Economic indicators like Gross Domestic Product should be replaced with more holistic measures that account for environmental and social well-being.

Addressing Shortcomings in Existing Proposals

Current proposals like the Sustainability and Due Diligence Directive (SDDD), while representing a step forward, require significant improvements. The proposal’s vague language, potentially influenced by lobbying efforts, allows for continued harm under the guise of mitigating “adverse impacts.” Instead of preventing harm, the SDDD allows for continued environmental damage and human rights violations while placing the burden of proof on those affected.

The SDDD needs to be strengthened with clear directives for companies to transition to clean energy, divest from fossil fuels, and prioritize product durability. Directors should be held accountable for achieving these goals, and enforcement mechanisms for investors, employees, and stakeholders should be established.

Urgent Action Over Distant Targets

The current situation demands immediate action. The historical pattern of denial and inaction by fossil fuel companies and governments cannot continue. Setting distant targets creates the illusion of progress while delaying crucial actions needed today. Science underscores the urgency of the situation, emphasizing that every instance of fossil fuel use exacerbates the problem. Transitioning to a clean energy economy offers numerous benefits, including cleaner air, a more democratic and equitable society, and a peaceful future. We must act now and prioritize rapid decarbonization above all else.