Omnibus Directive: a setback for the European Green Deal?

On 26^th Feb­ru­ary 2025, the Euro­pean Com­mis­sion unveiled a series of mea­sures aimed at sim­pli­fy­ing three key texts of the Euro­pean Green Deal, under the name of the “omnibus direc­tive”. The project was announced as a strate­gic response to the rise of the Unit­ed States and Chi­na, two eco­nom­ic giants invest­ing heav­i­ly in the eco­log­i­cal tran­si­tion. But this announce­ment soon pro­voked reac­tions in the media and eco­nom­ic cir­cles. Envi­ron­men­tal asso­ci­a­tions and econ­o­mists expressed con­cerns about pos­si­ble dereg­u­la­tion. On the one hand, the reform is per­ceived as a nec­es­sary strate­gic lever, on the oth­er hand, as a poten­tial weak­en­ing of the Union’s envi­ron­men­tal ambitions. 

While the Euro­pean Com­mis­sion defends this approach as a neces­si­ty for mod­ernising its reg­u­la­to­ry frame­work, many experts high­light the con­tra­dic­tions inher­ent in this approach. To dis­cuss this, we spoke to Phuc-Vinh Nguyen, head of the Ener­gy Cen­tre at the Jacques Delors Insti­tute, and Jacques Le Cacheux, asso­ciate pro­fes­sor of eco­nom­ics at the Uni­ver­si­ty of Pau and the Pays de l’Adour, two spe­cial­ists who shared their exper­tise on the sub­ject with Poly­tech­nique Insights. 

“The objec­tive of sim­pli­fi­ca­tion is a legit­i­mate one, but it calls into ques­tion many of the advances vot­ed through over the last five years,” says Phuc-Vinh Nguyen. This obser­va­tion res­onates with Euro­pean cur­rent affairs, where the ten­sion between sim­pli­fi­ca­tion and envi­ron­men­tal rigour is at the heart of the con­tro­ver­sy, illus­trat­ing the com­pro­mis­es nec­es­sary to rec­on­cile com­pet­i­tive­ness and sus­tain­abil­i­ty¹. 

“On the one hand, reg­u­la­tions such as the CSRD and the CS3D were sup­posed to steer pri­vate invest­ment towards sus­tain­able projects. How­ev­er, the EU is already suf­fer­ing from a pri­vate invest­ment deficit, and this step back­wards makes it even more dif­fi­cult to achieve eco­log­i­cal tran­si­tion objec­tives,” adds the researcher. “On the oth­er hand, polit­i­cal­ly speak­ing, this direc­tive enshrines the dereg­u­la­tion agen­da pro­mot­ed by the Mul­ti-Annu­al Ener­gy Pro­gramme (MEAP). That said, it is still only a pro­pos­al, sub­ject to amend­ment. Its out­come will prob­a­bly influ­ence the trade-offs of the next five years.” 

While con­ces­sions have been made to eco­nom­ic and indus­tri­al inter­ests, notably by eas­ing cer­tain report­ing oblig­a­tions or mod­i­fy­ing the thresh­olds for the appli­ca­tion of reg­u­la­tions, these adjust­ments do not nec­es­sar­i­ly imply a total rever­sal of pre­vi­ous poli­cies. The idea of admin­is­tra­tive sim­pli­fi­ca­tion remains com­pat­i­ble with the objec­tives of the Green Deal, and the ongo­ing dis­cus­sions still leave room for strength­en­ing cer­tain envi­ron­men­tal aspects. More­over, Euro­pean com­mit­ments to sus­tain­abil­i­ty remain a strate­gic pri­or­i­ty, influ­enc­ing cur­rent and future leg­isla­tive deci­sions, as evi­denced by the pro­gres­sive imple­men­ta­tion of the CSRD Direc­tive and the pro­posed adjust­ments to sim­pli­fy cor­po­rate report­ing, par­tic­u­lar­ly for SMEs². 

The Euro­pean Union, which has long been at the fore­front of envi­ron­men­tal reg­u­la­tion, could indeed see its influ­ence dimin­ished with less strin­gent stan­dards. At the same time, the Unit­ed States, with the Infla­tion Reduc­tion Act, and Chi­na, with mas­sive invest­ments in the tran­si­tion, con­tin­ue to con­sol­i­date their posi­tions. This move­ment high­lights a major chal­lenge: the risk of the EU los­ing its com­par­a­tive advan­tage in green regulation. 

Jacques Le Cacheux dis­cuss­es the effects of this reform and believes that “in the short term, it allows some com­pa­nies to reduce their costs by avoid­ing cer­tain invest­ments.” How­ev­er, he warns against the more long-term con­se­quences: “In the long term, these risks slow­ing down the eco­log­i­cal tran­si­tion.” He uses the auto­mo­tive indus­try as an exam­ple to illus­trate his point: “The Euro­pean Com­mis­sion has announced a ban on the sale of com­bus­tion engines from 2035. If this rule is main­tained, it sends a clear sig­nal to man­u­fac­tur­ers. But if we start relax­ing the con­straints, some com­pa­nies might think they don’t need to adapt right now, which would slow down inno­va­tion and the ener­gy transition.” 

He warns that relax­ing the rules could hold back inno­va­tion and slow down the ener­gy tran­si­tion, which would under­mine the effec­tive­ness of Euro­pean efforts to achieve envi­ron­men­tal objectives. 

The econ­o­mist Jacques Le Cacheux chal­lenges the idea that eco­log­i­cal stan­dards hold back indus­try: “This is a pre­con­ceived notion. In many cas­es, it is these stan­dards that push com­pa­nies to inno­vate. Take the exam­ple of decar­bon­i­sa­tion tech­nolo­gies: strict reg­u­la­tion can cre­ate mar­kets, encour­age inno­va­tion and offer eco­nom­ic opportunities.” 

Phuc-Vinh Nguyen agrees, point­ing out that com­pa­nies some­times under­es­ti­mate the long-term ben­e­fits of ambi­tious reg­u­la­tion: “Com­pa­nies often com­plain about the costs asso­ci­at­ed with stan­dards, but they for­get that these same reg­u­la­tions can offer long-term com­mer­cial oppor­tu­ni­ties. Too lax reg­u­la­tion could put Europe at a dis­ad­van­tage com­pared to oth­er more ambi­tious regions.” 

Among the pro­pos­als is the exemp­tion of com­pa­nies with few­er than 1,000 employ­ees from sus­tain­abil­i­ty report­ing oblig­a­tions, reduc­ing the cov­er­age of these oblig­a­tions from around 50,000 com­pa­nies to just 20% of that fig­ure. In addi­tion, the car­bon bor­der levy would be lim­it­ed to imports of more than 50 met­ric tonnes per year, thus exclud­ing approx­i­mate­ly 182,000 importers. These adjust­ments aim to reduce reg­u­la­to­ry bur­dens while main­tain­ing envi­ron­men­tal objec­tives³. 

France, along with Italy and some Cen­tral Euro­pean coun­tries, sup­port­ed this reform, par­tic­u­lar­ly in the auto­mo­tive and ener­gy sec­tors, which risk suf­fer­ing from stricter envi­ron­men­tal rules. Antoine Armand, the for­mer French Min­is­ter of the Econ­o­my (in Michel Barnier’s gov­ern­ment), had also spo­ken out in Brus­sels in Novem­ber 2024 to advo­cate a review of the sanc­tions planned for car man­u­fac­tur­ers that do not meet the CO₂ emis­sion reduc­tion tar­gets in 2025⁴. 

In the same vein, Phuc-Vinh Nguyen high­lights the dual dimen­sion of this strat­e­gy. In his view, “France, in par­tic­u­lar, has been very active on this issue. It is advo­cat­ing reg­u­la­to­ry adjust­ments so as not to harm its indus­try, par­tic­u­lar­ly the auto­mo­tive indus­try. But it is not just a ques­tion of pro­tect­ing tra­di­tion­al sec­tors. It is also about pre­serv­ing indus­tri­al com­pet­i­tive­ness in a world that is digi­tis­ing and decar­bon­is­ing at high speed.” His remarks are a reminder that the issue is not only envi­ron­men­tal, but also eco­nom­ic and strategic. 

The adjust­ments made to the Euro­pean Green Deal, such as the revi­sion of emis­sion reduc­tion tar­gets and the exten­sion of dead­lines for cer­tain sec­tors, took place in a tense polit­i­cal cli­mate in the run-up to the Euro­pean elec­tions in June 2024. In the face of grow­ing crit­i­cism, the Euro­pean Union mod­i­fied cer­tain mea­sures to allay indus­tri­al con­cerns while main­tain­ing its over­all cli­mate ambi­tions⁵. The out­come of the elec­tion led to a polit­i­cal reshuf­fle in the Euro­pean Par­lia­ment. An alliance between the right and the far-right increased pres­sure on the Com­mis­sion to relax cer­tain envi­ron­men­tal reg­u­la­tions. This dynam­ic led to the pre­sen­ta­tion of the omnibus direc­tive on 26 Feb­ru­ary 2025. 

Phuc-Vinh Nguyen explains that the EU was seek­ing “to respond to crit­i­cism before the elec­tions, and reg­u­la­to­ry adjust­ments are a way of allay­ing the con­cerns of cer­tain vot­ers and indus­tries.” Jacques Le Cacheux qual­i­fies this analy­sis, adding: “The Com­mis­sion want­ed to show that it is lis­ten­ing to indus­tri­al con­cerns. How­ev­er, this is not a pure­ly elec­tion­eer­ing manoeu­vre, but a com­pro­mise between eco­log­i­cal tran­si­tion and short-term eco­nom­ic com­pet­i­tive­ness.” In oth­er words, these adjust­ments aim to rec­on­cile eco­log­i­cal imper­a­tives with indus­tri­al needs in a con­text of dif­fi­cult tran­si­tion. Accord­ing to a study on EU cli­mate pol­i­cy by the Jacques Delors Insti­tute, there is a need to main­tain this frag­ile bal­ance to pre­serve both the com­pet­i­tive­ness of indus­tries and decar­bon­i­sa­tion objec­tives⁶. 

In the­o­ry, this reg­u­la­to­ry relief could ben­e­fit SMEs, which are often faced with bureau­crat­ic oblig­a­tions. How­ev­er, in prac­tice, it could main­ly ben­e­fit large com­pa­nies, which are bet­ter equipped to adapt to com­plex reg­u­la­tions. Phuc-Vinh Nguyen men­tions the cen­tral argu­ment of the reform: “Small busi­ness­es suf­fer from the admin­is­tra­tive bur­den, in par­tic­u­lar because they do not have the human resources to com­ply with it.” More­over, “large com­pa­nies have ded­i­cat­ed teams and would no doubt have found ways to adapt.” In oth­er words, sim­pli­fi­ca­tion could main­ly enable large organ­i­sa­tions to increase their com­pet­i­tive advan­tage, with­out solv­ing the real dif­fi­cul­ties of small­er ones. 

Jacques Le Cacheux adds anoth­er nuance: not all SMEs are affect­ed in the same way. “There are indeed mea­sures that tar­get small and medi­um-sized enter­pris­es, par­tic­u­lar­ly those with between 250 and 1,000 employ­ees, which will see their oblig­a­tions reduced. But very small busi­ness­es were not sub­ject to these reg­u­la­tions any­way, so it makes no dif­fer­ence to them.” Sim­pli­fi­ca­tion there­fore ben­e­fits inter­me­di­ate struc­tures more than the small­est ones. 

Aicha Fall