The Impact of the European Green Deal on International Trade

The European Union (EU) has positioned itself as a leading global actor in the fight against climate change and has developed environmental policies, particularly strategies based on energy transition. These strategies, shaped by fundamental elements such as ensuring energy supply security, reducing external dependence, and combating climate change, prioritize increasing the use of renewable energy sources and improving energy efficiency. The European Green Deal, presented by the European Commission in 2019, sets out the EU's roadmap for achieving its sustainable development goals. This agreement aims for the EU economy to achieve net-zero carbon emissions by 2050 and to reverse environmental degradation. Renewable energy is central to this agreement, considered a strategic tool for both ensuring environmental sustainability and supporting economic growth. The Green Deal aims to reduce reliance on fossil fuels, increase investment in renewable energy technologies, and reshape the EU's trade policies in the process. Under the Green Deal, steps such as increasing energy efficiency, promoting electric transport, and modernizing energy infrastructure aim to offer both environmental and economic benefits (European Commission, 2019). This transformation in the EU's energy policies is also impacting global energy markets, opening the door to a process that brings new opportunities and challenges.

The EU's investments in renewable energy are not only achieving environmental goals but are also leading to fundamental changes in global supply chains. For example, increased production capacity in the wind and solar energy sectors has enabled the EU to become a global supply hub for electric vehicle batteries and solar panel technologies. This development is increasing the EU's energy technology exports while also reshaping its trade balances with Asian and African countries. Furthermore, the EU's investments in renewable energy-based "green hydrogen" production are accelerating decarbonization in the industrial sector and are influential in setting international standards in this field. The increasing use of green hydrogen, particularly in the steel and chemical industries, is reducing the EU's reliance on high-carbon imported products, thereby supporting local production and employment. This process is also pushing the EU's trading partners to transition to low-carbon production models, contributing to the evolution of global trade towards a sustainability-focused paradigm.

The impact of investments in renewable energy on trade relations is of great importance for the EU's global trade strategy. In this context, the interactions between the energy and trade dimensions of the Green Deal directly affect the future of both the EU's internal and external trade policies (Kettunen et al., 2020, p. 26). The changes that the transition to renewable energy will create in energy security and the trade balance will play a significant role in the EU's relations with its trading partners. In particular, the EU's Carbon Border Adjustment Mechanism (CBM), which regulates imports from carbon-intensive sectors, will reshape trade dynamics. The CBM and other carbon regulations increase costs for high-carbon emission products, leading to a transformation in the EU's relations with its trading partners (Cosbey et al., 2019, p. 7). Countries that primarily rely on fossil fuels for energy production are forced to adapt to these new regulations in their trade with the EU, and this process directly impacts their trade policies. In addition, countries investing in renewable energy become more compliant with the EU's green trade policies, which provides them with a competitive advantage in trade relations with the EU (Brennan et al., 2024).

The transformation in the EU's energy policies has also changed the intensity of energy resource use. Wind, solar, biomass, and hydroelectric energy are leading the way among renewable energy sources. Countries such as Sweden, Finland, Denmark, Germany, and Latvia, in particular, are leaders in wind and solar energy, and are pioneering the growth of these sectors through their investments in renewable energy technologies (EEA, 2024). At the same time, hydrogen energy constitutes an important pillar of the European Union's Green Deal approach to renewable energy sources. Green hydrogen, in particular, has gained a strategic place among fossil fuel-independent, low-carbon, and sustainable energy solutions (Yıldırım et al., 2023, p. 33). The European Commission's "European Hydrogen Strategy," published in 2020, aims to accelerate the energy transition by increasing green hydrogen production capacity. The inclusion of hydrogen in the energy mix strengthens the EU's energy supply security, reduces energy dependence, and increases economic competitiveness. Furthermore, hydrogen energy offers significant advantages in energy-intensive industries, transportation, and energy storage, facilitating the EU's achievement of its carbon neutrality targets (Khanayev, 2023, p. 38). This process also creates new trade opportunities at the international level and increases the potential for cooperation with other countries on hydrogen production within the framework of the EU's energy diplomacy. Countries such as Germany, France, and the Netherlands are increasing investments in hydrogen as part of their strategies, encouraging the spread of innovative technologies across the EU. As a result, the development of hydrogen energy supports the EU's carbon neutrality goals and has become a key element of economic growth and sustainable trade policies.

These fundamental principles reflect the comprehensive and holistic approach of the European Green Deal. The agreement aims to increase economic growth and social well-being while combating climate change. In this regard, cooperation among member states and all sectors of society is of paramount importance.

Implications for Trade Practices

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is emerging as a crucial policy tool in the global effort to combat climate change, while simultaneously reshaping international trade dynamics and power relations. These adjustments are driven not only by environmental concerns but are also intricately linked to economic interests, geopolitical strategies, and the balance of global power. Carbon regulations are directly connected to states’ economic interests, international competitiveness, and power projection. Through CBAM, the EU aims not only to assume a leading role in addressing climate change but also to protect the competitiveness of its industries (Mehling et al., 2019, p. 434).

As part of the EU’s efforts to achieve its climate targets, the CBAM aims to impose additional financial obligations on certain imported products based on their carbon content (European Commission, 2019, p. 4). This mechanism has profound and multifaceted effects on international trade relations, particularly impacting trade with countries exhibiting high carbon emissions. By making the import of energy-intensive and high-carbon products into the EU more costly, the CBAM particularly affects sectors such as steel, aluminum, cement, fertilizers, and electricity, which were the first product groups covered by the CBAM (European Commission, 2019, p. 20). Imports from countries operating in these high-carbon intensive sectors will face additional costs, potentially reducing their competitive advantage in the EU market and shifting trade flows towards countries engaged in low-carbon production.

The primary objective of CBAM is to reduce the risk of carbon leakage, defined as the relocation of production activities from countries with strict climate policies to those with more lenient regulations (Branger and Quirion, 2014, p. 55). Through CBAM, the EU aims to encourage other countries to reduce carbon emissions while protecting the competitiveness of domestic producers. However, debates continue regarding the effectiveness and fairness of the mechanism. CBAM could accelerate significant transformations in global supply chains. Companies could restructure their supply chains and shift towards low-carbon sources to overcome rising costs. This change could lead to restructuring within global trade networks and potentially result in the economic marginalization of some countries. In terms of climate diplomacy and international cooperation, CBAM has significant implications. Through CBAM, the EU is striving to motivate other countries to adopt more ambitious climate policies (Mehling et al., 2019, p. 42). However, this approach may be perceived as coercive or interventionist by some countries. Addressing CBAM within a multilateral framework and through international cooperation is crucial for effective and equitable global climate action.

The investments in renewable energy, highlighted by the Green Deal, reflect not only economic and environmental goals but also the EU's effort to project its normative power through international trade policies. As a result of these EU policies, a new paradigm has emerged in global trade dynamics, where the concept of "green trade" has gained strength, and environmentally friendly products and low-emission technologies have come to the forefront. The EU has played a pioneering role in this transformation, particularly with its leadership in solar and wind energy technologies; it has integrated its investments in these areas into its foreign policy through technology transfer, green finance, and energy diplomacy. In this context, the EU's exports of renewable energy technologies have increased, new collaborations have been developed, and energy-based foreign trade relations have diversified, particularly with African, Asian, and Latin American countries. However, some challenges arising from the implementation of the Green Deal should not be overlooked. Carbon regulations, in particular, create significant adjustment pressures for developing countries, causing them to face serious obstacles in terms of both technological transformation and financing. Reassessing the balance in global climate governance highlights the importance of addressing it with a holistic approach, encompassing both economic and social dimensions.

These steps taken by the EU in line with its sustainable development goals have the potential to contribute to making global trade more environmentally conscious, competitive and fair. The effectiveness of these practices depends on the integration of inclusive and supportive mechanisms.

References

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