An automotive example: what a right-leaning European Parliament means for the power sector

The EV industry has been at the centre of discussions around EU competitiveness as the bloc ponders a potential trade war with China. Credit: Tomas Ragina / Getty Images

The 2024 European Parliament elections resulted in a new right-leaning government, one that is likely to slow green initiatives and instead emphasise economic prosperity and security ahead of environmental concerns. 

The transition away from climate-driven energy policies had already begun under the previous government. Influenced by recent geopolitical and economic challenges that left the continent questioning its approach to energy, the EU began to put its climate ambitions aside to make way for other agendas. 

Now, with the decline in representation from environmentalist parties, having been replaced by the far right, the EU’s power sector can expect energy policies to officially turn their focus to reducing reliance on imports and increasing the bloc’s competitiveness – and not to meeting climate-driven goals. 

The forecasts for the EU’s automotive industry may best exemplify the implications of the recent political shift on the power sector.

In 2022, the EU banned the sale of new gasoline and diesel vehicles, also known as internal combustion engine (ICE) vehicles, from 2035 to reduce CO₂ emissions. The move was intended to push the bloc’s automotive industry to achieve carbon neutrality by 2050 and promote electric vehicles (EVs).  

However, “the EU is not on track to phase out new fossil fuel car sales by 2035”, says Matthew Oxenford, senior analyst at the Economist Intelligence Unit. 

In March 2023, Germany reached a deal with the European Commission to allow the continued sale of ICE vehicles that run on carbon-neutral synthetic fuels, successfully watering down the climate-friendly law. In February, Germany’s centre-right CDU – European Commission President Ursula von der Leyen’s party – called for the reversal of the ban in its manifesto, further hinting at a retreat from climate priorities. 

Germany too saw its right-wing coalition emerge victorious in this year’s election, with the Greens only acquiring 15 seats, down from 25, while the centre-right EPP gained two seats, bringing them to 31, and the far-right ESN took a whopping 14. 

Germany’s shift to the right is notable, given the country’s position as the heart of the EU’s automotive industry.  

According to Oxenford, “with the Greens losing so many seats and the government becoming more right-leaning”, Germany and its alliance of car-friendly countries such as Italy, Poland, Bulgaria and the Czech Republic are “expected to take an even more cautious approach to the phase-out”. 

The movement against the ICE phase-out not only points to a trend set to continue in the next few years but also represents a broader threat to decarbonisation efforts. 

Contrary to the 2019 election, of the major parties only the Green party specified a target and plan to phase out fossil fuels in its manifesto this year. The overlooking of this priority across the political spectrum in the recent election suggests that the deprioritisation of reducing emissions will likely continue, if not decelerate further, with the new government. 

While the parliament’s shift to the right might decelerate the phase-out of fossil fuel cars, ironically, it may also signal increased support for its greener counterpart.  

The EV industry has been at the centre of discussions around EU competitiveness, as the bloc ponders a potential trade war against China.  

According to the International Energy Agency (IEA), Chinese EV manufacturers have recently experienced strong demand in the international market for their budget-friendly models, which represented more than 50% of global EV sales in 2023.  

As a result of their affordability, made possible by substantial subsidies from the Chinese Government, Chinese EVs have become increasingly preferred over local options in Europe; as reported by the IEA, European carmakers accounted for only 60% of EV sales in the bloc this past year, compared to more than 80% in 2015.  

In response to the threat to its EV industry’s competitiveness, the EU recently announced increased tariffs – ranging from 17.4% to 37.6%, on top of the 10% duty – on Chinese EVs, following in the US’ footsteps.  

As Oxenford states, phasing out fossil fuels becomes “further complicated by the EU’s investigations into Chinese EV imports”. 

On one hand, the tariff is likely to raise the cost of EVs across the bloc, disincentivising the replacement of fossil fuel options with the greener alternative. The tariff, or any further measure against China, may also affect European EV sales in China, a significant market for the bloc.  

On the other hand, some healthy competition may galvanise the EU to provide increased funding and opportunities for its own industry, which may lead to a sturdier domestic supply chain as well as the development of groundbreaking technologies that ultimately benefit the world’s energy transition in the long-term. 

EVs are not a special case in the EU’s attempt to keep China in check. In April, the bloc launched an investigation into Chinese wind turbine suppliers and solar panel manufacturers with the same reasoning in mind – to protect its domestic industry from low-cost Asian imports, behind the facade of striving to become an environmental powerhouse. 

With the new right-leaning government, such “protectionism disguised as environmentalism”, as Oxenford describes, is expected to persist.  

However, the EU must not get ahead of itself in its drive for competitiveness, as it would be foolish to discount the role that China and other countries play in the continent’s power sector. For instance, according to the consultancy Protect Blue, Europe has “almost no lithium and graphite operations” necessary for EVs, thus it is having to rely heavily on international sourcing.

As exemplified through the likely direction of the auto industry following the elections, a right-leaning government may water down existing green policies – efforts to decarbonise the power sector – as well as prevent new ones from coming to light. Meanwhile, the shift in priorities from climate to economic prosperity and competitiveness indicates that the bloc will, regardless, continue to push for the growth of its power industry – albeit driven by a different motivation from before.

Whether Europe’s hopes to be globally competitive and establish itself as a green industrial leader will translate as a net negative or positive for its power sector will depend on the nature of policies to come. However, in continuing down this path, it is critical that the EU maintains a balance between striving for energy security and preventing volatile prices, faulty diplomatic relations and decelerating decarbonisation.