U.S. climate policies, designed to yield a utopia of net-zero greenhouse gas emissions by, say, 2050, are preposterous. The costs are massive. Consumer resistance is such that important components of the policy agenda are already collapsing. The metastasizing system of financial regulations imposing penalties upon the fossil energy sector is unlikely to survive judicial scrutiny. And for what? Even if implemented fully, the entire U.S. policy framework will yield literally undetectable climate impacts by 2100.
But U.S. climate policies will never prove as perverse as those being promulgated by the European Union.
Consider the EU Corporate Sustainability Due Diligence Directive, the feel-good blather that promises to enforce “sustainable and responsible corporate behaviour for a just transition towards a sustainable economy.”
What the EU is really attempting to do with this directive is drive businesses to achieve things that the EU itself cannot:
“The core elements of this duty are identifying and addressing potential and actual adverse human rights and environmental impacts in the company’s own operations, their subsidiaries and, where related to their value chain(s), those of their business partners. In addition, the Directive sets out an obligation for large companies to adopt and put into effect, through best efforts, 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.”
Translation: Companies will have to estimate, report, and mitigate the future climate impacts of their own operations, those of their subsidiaries, and those of their business partners as components of their “value chains,” a term that has not been defined.
The EU says that the directive will apply to around 6,000 EU companies and 900 non-EU ones. Those numbers are vastly too low because of the subsidiaries and “supply chain” components. A better estimate is that about 10,000 foreign companies will be forced directly to comply, at least a third of which are likely to be American firms, and that does not count the thousands of companies that will have to adhere to the requirements in order to continue to service the companies that are forced directly to comply. In short, virtually any large multinational firm or any firm that does business with a large multinational firm will have to toe the directive line.
And when American firms are forced to comply, the American economy will be affected adversely. The structures of businesses will have to be changed radically, the productivity of capital assets and labor (and thus wages) will fall, and the allocation of capital investments will be distorted toward efficiency outcomes lower rather than greater.
This is obviously intentional: The EU bureaucrats and their ideological leadership must know that the climate directive will reduce the competitiveness of European companies significantly, and one obvious way to avoid the ensuing destruction of the European business sector is to force the same system onto as much of the international business sector as possible.
The EU’s corporate climate disclosure mandate imposes compliance burdens upon U.S. companies operating internationally so costly and unworkable that divestitures, in many cases, would be an alternative more attractive than compliance, although the enormous costs of compliance would depress the prices that could be commanded for the U.S. firms’ assets to be divested. Even the Intergovernmental Panel on Climate Change highlights enormous uncertainties in terms of the future effects of greenhouse gas emissions. That American multinational firms will be forced to conduct such analysis across their entire global supply chains, requiring applications of hundreds of climate models, yielding thousands of pages of predicted “impacts,” with tens of thousands of pages of supporting analyses, is an absurdity.
What is very real is the litigation monster that this directive would unleash. Did a company use the right climate model? Were the assumed parameters correct? What ranges of estimates should be reported? For the plaintiff attorneys, the answers are “no,” “no,” and “whichever are the most alarmist.”
The range of possible climate predictions is huge — accordingly, any prediction can be characterized as “false” or “misleading” or in conflict with such disclosures made under rules in force in other jurisdictions. Can anyone doubt that any big storm will be followed by a lawsuit alleging a failure to warn? Ad infinitum.
The climate disclosure rules are part of a larger trend in which international organizations attempt to dictate policies that undermine congressional powers to enact legislation and U.S. executive branch authority to enforce that body of law. However vociferous the applause for the EU’s directive from U.S. ideological opponents of fossil fuels, the rule fundamentally is a direct assault upon American sovereignty and, more generally, upon the principle that American governance be based upon the consent of the governed.
Both Congress and the executive branch must assert those bedrock principles. Foreign efforts to force American firms to comply with foreign regulations must be met with our own requirements that U.S. economic policies are served, as reflected in domestic law.
A recent letter from Rep. Andy Barr (R-KY), Sen. Bill Hagerty (R-TN), and more than 60 other members of Congress to Treasury Secretary Janet Yellen asks that she “and your colleagues at the relevant federal agencies” “actively and publicly engage with your counterparts in Brussels and EU member-state capitals to delay implementation of [the EU’s rule] and work with the new European Parliament to repeal or substantially modify the directive.”
In addition, the Biden administration could invoke Section 301 of the 1974 Trade Act, which allows the imposition of trade sanctions on foreign governments that promulgate laws that are “unjustifiable” or “unreasonable.” Such actions will get the EU’s attention.
With respect to new statutory law: Congress should force the issue by enacting legislation prohibiting U.S. firms from complying with the EU’s directive until intergovernmental negotiations yield a treaty receiving Senate ratification.
Given the massive damage to be caused the U.S. business sector by the EU’s climate disclosure rules, even the Biden (or a future Kamala Harris) administration would find it difficult to oppose such measures.
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Benjamin Zycher is a senior fellow at the American Enterprise Institute.
This article was originally published at www.washingtonexaminer.com
