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