Has the EU’s “better regulation” agenda been resurrected?

EU Commission President Ursula von der Leyen (Copyright: "CC-BY-4.0:© European Union 2022 – Source: EP")

In her “State of the Union” address, European Commission President Ursula von der Leyen announced to “make the first legislative proposals towards reducing reporting obligations at the European level by 25%.” This is a welcome announcement, and the first time the European Commission talks about “better regulation” again since this agenda largely failed to materialize after its was promoted by Dutch EU Commissioner Frans Timmermans during the previous mandate, between 2014 and 2020.

Ironically, chiefly responsible for the failure was Timmermans himself, who neatlessly morphed into a true regulation fanatic, with his zeal for ever more green regulation in the context of the “European Green Deal”, launched by the von der Leyen Commission from 2020 on. With Timmermans gone, as he is running in the Dutch election in November, von der Leyen is now taking back some steam here. That’s despite the fact, as Dave Keating puts it, that “although he was in charge of implementing the European Green Deal, Timmermans was not its creator – nor was he forcing it down von der Leyen’s throat. This is her baby, and for her party to suggest that little old Ursula was helpless in the face of big burly beardy Timmermans is frankly just insulting.”

Then, as they say, “more joy shall be in Heaven over one sinner that repenteth, than over ninety and nine just persons who need no repentance.” It’s welcome to see von der Leyen changing her tune somewhat.

Importantly, this is also the result of pressure from EU member states. Back in March 2023, the leaders of France, Germany, Belgium and the European Liberal Party (EPP) have called for a “regulatory pause” on the Green Deal. At the end of August, the French and German governments issued a joint call to reduce European reporting obligations, also following ever more complaints from German and French business federations. Another hopeful sign is perhaps that Slovak EU Commissioner Šefčovič, who’s more of a pragmatic than Timmermans will be responsible for the European Green Deal. He already pledged to put “a strong focus on business” while implementing the European Green deal.

A green regulatory avalanche

The situation is dire, in any case. Over the last five years, 850 new EU obligations, representing more than 5,000 pages of legislation, have been introduced. This “regulatory inflation” deeply worries European manufacturers, as it comes on top of the sharply increased European energy cost.

Also SMEs have complained that that these obligations create considerable compliance costs on them. In particular, they are concerned about reporting obligations that should apply to SMEs under the CSRD (Corporate Sustainability Reporting Directive) and the CSDD (Corporate Sustainability Due Diligence Directive).

Commenting on the news of Greenpeace accusing Rabobank of having caused billions of euros of damage to nature in Brazil, as a result of its financing of certain companies,  Dutch economics professor Lex Hoogduin warns that “We may be flooded with cases like this, as a result of the new CSRD reporting requirements. What are we doing? Destroying our economy and prosperity, I fear.”

No such thing like a regulatory free lunch

It’s not just European SMEs that are suffering from EU regulatory inflation, however. Over the years, the EU has come to insert ever more regulation into its trade policy, thereby angering non-European producers. This is in particular the case as a result of the EU’s new deforestation rules, which imposes a whole range of new bureaucracy on Indonesian and Malaysian palm oil producers, despite the fact that great progress has been made in reducing deforestation over there, according to Global Forest Watch.

This is not only due to new policies to counter illegal logging but also due to domestic certification schemes, like the Malaysia Sustainable Palm Oil (MSPO) Board. The EU however refuses to recognise this scheme and is attempting to impose its own bureaucratic requirements, unlike the UK, which has understood that trade is all about trust. The episode has led to both South East Asian nations freezing trade talks with the EU. There is no such thing like a regulatory free lunch.

Pamela Coke-Hamilton, executive director of the ITC, a joint agency of the UN and World Trade Organization, has even warned that the EU’s new deforestation rules risk a ‘catastrophic’ impact on global trade, as smaller suppliers in particular risk to be “cut off” from trade flows.

My former think tank, Open Europe, estimated in the past that the cumulative cost of EU regulation introduced between 1998 and 2018 for all 27 EU member states amount to a whopping €928 billion. The key finding was that the EU policy level was responsible for 66% of the €1.4 trillion cost of all national and EU regulation that was introduced during that period.

There are already new estimates about the new developments since 2019, which include the EU’s new round of green regulation under von der Leyen. The German Regulatory Control Council has concluded that new EU regulations issued during the pandemic alone added an annual compliance burden of €550mn on companies.

Earlier this year, a survey for BusinessEurope, conducted in 35 countries among global firms, concluded that 90 percent of them believe that the European Union has become a less attractive place to invest than three years ago. They therefore blame high energy prices and increased regulation.

In an ideal world, the European Commission would focus on challenging national trade barriers and stimulating EU member states to recognize each other’s standards, not come up with ever more harmonized EU “one size fits none” regulations. Such a light-touch approach would however not be reconcilable with the eurocracy’s urge for ever more control, and even less with Ursula von der Leyen’s left-green world view.

For now, it looks like von der Leyen’s pledge to reduce EU reporting obligations 25% is merely meant to pay lip service to increased dissatisfaction with the course of the EU Commission. No concrete commitments have been made to simply drop certain regulatory proposals. Perhaps this will be the case with the EU’s proposed mandatory renovation for buildings, but the proof of the pudding is in the eating.