The EU: Regulating Its Rescuers Away (and Other Follies)

By Andrew Stuttaford

Monday, December 23, 2024

 

When the flow of “cheap” Russian gas to the EU dried up after the full-scale invasion of Ukraine, liquified natural gas (LNG) from the U.S. and Qatar played an important part in making up the shortfall.

 

Now, the EU is turning on Qatar (and not just Qatar).

 

The Financial Times:

 

Qatar has threatened to stop vital gas shipments to the EU if member states strictly enforce new legislation that will penalise companies which fail to meet set criteria on carbon emissions, human and labour rights.

 

Qatari energy minister Saad al-Kaabi told the Financial Times that if any EU state imposed non-compliance penalties on a scale referenced in the corporate due diligence directive Doha would stop exporting its liquefied natural gas to the bloc.

 

The law requires EU countries to introduce powers to impose fines for non-compliance with an upper limit of at least 5 per cent of the company’s annual global revenue.

 

Note how the fines are calculated by reference not to the percentage of a company’s sales in the EU, but to its sales worldwide. This is in keeping with the EU’s image of itself as a “regulatory superpower,” a global regulator and so on. It’s also in keeping with the way that the bloc is now operating as a kind of genteel pirate cartel, robbing successful companies (particularly, up to now, if they are American and high tech) caught within Brussels’ legal web. And finally, this law (which is due to come into effect in 2027) is a protectionist device, designed to force up costs for certain non-EU companies that have the effrontery to do too much business in the bloc. To repeat a point I have made before with reference to the EU’s looting of American tech companies, the U.S. should retaliate with sanctions if any American enterprises are hit by this law. Beyond that, it should consider whether this legislation amounts to a non-tariff barrier requiring a commensurate response.

 

The FT:

 

The EU adopted the corporate due diligence rules in May this year. They are part of a broader set of reporting requirements aimed at aligning companies with the EU’s ambitious goal of reaching net zero emissions by 2050.

 

These rules apply to any non-EU company with sales of €450 million or more in the bloc and — EU rulemaking being what it is — are extremely onerous. Al-Kaabi complained that they would include carrying out due diligence on the labor practices of all the group’s suppliers, “with a global supply chain that involves “100,000” companies.”

 

Al-Kaabi also said that it would be:

 

impossible for an energy producer like QatarEnergy to align with the EU’s net zero target as the directive stipulates because of the amount of hydrocarbons it produces.

 

The EU directive includes an obligation for large companies to adopt a transition plan for climate change mitigation aligned with the 2050 climate neutrality objective of the Paris Agreement, as well as intermediate targets under the European Climate Law.

 

Kaabi said the legislation would impact all Qatari exports to Europe, including fertilisers and petrochemicals, and could also affect the investment decisions of the Qatar Investment Authority, the sovereign wealth fund.

 

Putin must be laughing.

 

The EU Commission now appears to be getting ready to backtrack, although how far this will (or can) go remains unclear. For their part, U.S. companies should watch this law carefully and prepare themselves to limit the business they do in the EU to less than €450 million.