European Industrial Decarbonisation Under Scrutiny: The Risks of Over-Regulation and Carbon Leakage
Josu Jon Imaz, CEO of Repsol, has raised significant concerns regarding the impact of new regulation aimed at reducing carbon emissions within the European industrial sector. He considers the implementation of high CO2 rights payments to be a misstep, arguing that it could hinder, rather than help, global emissions reductions. Imaz emphasised that current mechanisms risk weakening Europe's industrial fabric without achieving meaningful environmental outcomes.
During a business forum, the executive stressed the importance of aligning decarbonisation efforts with industrial competitiveness. He pointed out that Europe must avoid policies that increase production costs for its companies when competing with international players operating under less stringent environmental standards. This balance, he argued, is crucial for sustaining economic vitality.
He described the introduction of new levies or supercharges linked to CO2 emission rights for certain industries as a disparate approach. According to Imaz, such measures do not necessarily reduce emissions on a global scale but might simply shift activity to regions with more relaxed environmental policies. This phenomenon, known as carbon leakage, could result in the relocation of manufacturing outside Europe, especially to parts of Asia where standards are more lenient.
In this scenario, European consumers would still demand these products, but with an even larger carbon footprint owing to increased transportation and energy-intensive manufacturing processes in outsourced locations. Imaz cautioned that this would undermine the environmental intent behind the policies and could exacerbate global emissions rather than alleviate them.
He clarified that the core issue lies in the approach, not the objective. Imaz underlined that the energy transition should be pragmatic and account for the global market context. Excessive taxation or regulation on European industry might lead to job losses, reduced investments, and diminished production capacity without delivering substantial environmental benefits.
Repsols CEO also highlighted the strategic importance of the industrial sector to Europe's economy. Sectors like refining, chemicals, and basic materials are vital for maintaining energy independence and technological autonomy across the continent. Supporting these industries through a stable and predictable regulatory framework is essential for long-term growth and innovation.
He further called on European and national authorities to establish clear policies that enable long-term planning. Regulatory uncertainty and rising compliance costs could delay industrial projects and hinder the deployment of low-carbon technologies. Imaz advocated for measures that consider the carbon footprint of imported goods, ensuring fair competition and preventing EU firms from being at a disadvantage against international producers.
Overall, Imaz stressed that reducing emissions should target the actual sources within Europe, regardless of where the products are ultimately produced. This approach aligns with the company's previous stance on incorporating the entire lifecycle footprint of goods into decarbonisation strategies.
The CEO concluded that Europe faces a complex balancing act: decarbonising without damaging its industrial base. As the European Union tightens climate policies and enhances its emission trading system with higher CO2 prices, careful evaluation of these measures' global effects is vital. If production relocates overseas, the real outcome might be a decline in actual emissions reduction, counteracting the policy's initial intent.