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On the 26th of February, the European Commission will unveil the much-debated Omnibus Package, an initiative aimed at simplifying the CSRD, CSDDD, and Taxonomy framework to boost European competitiveness. While the focus has rightly been around watering down, deregulation, and the narrowing of these regulations' scope, one aspect has received less attention in the current geopolitical scenario: what will become of the so-called “Brussels effect”—the EU’s capacity to shape standards and policies beyond its borders? We spoke about this with Andrei Marcu, founder and executive director of the think tank European Roundtable on Climate Change and Sustainable Transition (ERCST), which is among those advocating for a temporary pause of the coming into force of the CSDDD and a simplification of CSRD requirements.

Marcu, in your policy paper on the Omnibus Package, published on the 7th of February, you pointed out that simplification could be “technical”, “political”, or “cosmetic”. Given the first drafts now circulating, do you believe the proposed changes align with any of these categories?

The changes are mostly a technical matter. However, the term "cosmetic" is not ideal—it can describe certain changes, but it might also be viewed as pejorative. Still, in the absence of a better term, it is the one we use. I would also argue that while these changes are real, they do not fundamentally alter the requirements you still have to meet. For example, one of the main points on CSDDD leaked proposal was that you only had to work with your direct suppliers. This is likely an important aspect. But overall, the directive is still in place, and the actions you were required to take have not been modified. There are, however, some changes that will simplify things. Despite these, the core principle of extraterritoriality remains, and that is a significant factor for us.

You write “EU directives that extend these responsibilities to enterprises effectively apply EU regulations extraterritorially, a practice that diverges from the EU’s commitment to addressing climate change through multilateral cooperation”. Could you explain this aspect?

One point that stands out is the continued focus on the 1.5°C target of the Paris Agreement. The idea behind the Agreement was that each country would contribute what it could, according to its own capabilities, which is the principle behind Nationally Determined Contributions (NDCs). Now, the EU has taken this target and applied it to individual companies, and I am not sure about that approach. I understand the intention, and we all support the goal of carbon neutrality and the need for action. However, we already have a variety of tools in place, such as regulations, climate laws, the Emissions Trading System (ETS), and more. So, introducing separate plans for 1.5°C suggests that the existing measures are not working as intended.

Still with regard to extraterritoriality and considering the current geopolitical context, what will become of the effectiveness of the so-called “Brussels effect”, i.e. the process of spreading EU regulations beyond its borders?

The ancient Romans would say, "Civis Romanus sum”—"I am a Roman citizen"—meaning they were protected wherever they went. This protection relied on the power behind the claim: in ancient times, it was the legions; today, it is economic strength. The real question, though, is whether the EU has enough power to enforce its own vision of sustainable development. For those of us who were at the UN Conference on Environment and Development in Rio de Janeiro in 1992, it was clear that the definition of sustainable development was the prerogative of individual countries, and that was seen as axiomatic. Now, the EU seems to be denying that idea. The changes we are seeing don’t address this issue; they don’t reconcile what we once understood as an agreement or common understanding. The EU is imposing its own vision of sustainable development, and while there is nothing wrong with the EU having its own priorities, such as energy security, this approach doesn’t fit everyone. Take China, for example. Regardless of my respect for the People's Republic of China, their primary motivation for electrification is energy security. That is why they are pursuing solutions that they feel are appropriate for their country. Europe, the United States, and Latin America are all in different situations, and imposing an extraterritorial approach to sustainable development does not take these differences into account. I think it is short-sighted. You may win the battle, but you might lose the war for sustainability. By doing this, you are confirming the fears of developing countries—that sustainability and green initiatives are just ways to impose Western views and technologies.

What approach do you propose, then?

I don’t believe it is the EU’s role to act as the world’s policeman when it comes to sustainable development practices. We already have international standards and agreements in place for that. If this is going to happen, it should be done through a multilateral approach. The EU itself advocates for multilateralism as the solution, both in this area and more broadly. So, if something like this is to be implemented, it would be more appropriate to do so through international agreements, rather than through what some might call unilateral trade measures.

However, does this not risk reducing the need to accelerate the transition?

The question is how far the state's involvement should go, especially when it comes to setting up the expectation that businesses must report on and take responsibility for everything. At some point, this becomes too much. The business of business is business, and the risks to businesses are logical, but there are limits. In the end, businesses must follow the legislation and regulations in their jurisdiction, and they also need to consider different regulations across other jurisdictions. There will always be some State interference. The question is how far is too far? In my view, the case we are making isn’t about doing nothing—there are responsibilities that must be met. But the industry is ready to take on these responsibilities, and the measures in place have simply gone too far. If you want to put it this way, you can see a correction in this omnibus bill and what is happening in the United States is a much harder correction.

Do you agree on the need for harmonisation between the CSRD, CSDDD, and Taxonomy?

This is European legislation, and I think harmonisation—whether it is terminology, obligations, or other aspects—makes perfect sense. The changes are primarily focused on this kind of harmonisation. It is not incorrect because the proposal is presented as a simplification bill. If that is the goal, then we should stick to simplification. If we want bigger, more significant changes, that should be handled in a different context, and we should call it what it is. We should revisit what we have done and perhaps reconsider things, but this is a simplification bill, and it is not wrong to approach it this way. If the intention is to go further, to 1.5 or whatever the reality may be, that should be done transparently. People should know exactly what is at stake, and both proponents and opponents should have the opportunity to participate in a democratic process.

There have been complaints about the transparency—and the duration—of the consultations regarding the Omnibus.

If there are major changes, I think you are looking at a piece of legislation that was passed under extreme circumstances. Many of the "Fit for 55" energy regulations, in my opinion, were not passed in the right way. They were rushed through with minimal consultation and interaction with stakeholders, civil society, and others, largely due to the COVID-19 situation. To push through such significant structural changes with that level of consultation, I would argue, was not as transparent as one would expect. I would also agree that if the goal is to repeal or make structural changes, these should be acknowledged as significant. The weight of these changes is considerable, and they should be approached carefully. This is why I think the changes being proposed now are mostly technical simplifications. From what I have seen, the consultation around these changes has been extensive, with a strong and vocal presence from civil society. I have been involved in some of those meetings, and there was substantial participation from civil society. I agree with those who say that discussing these major pieces of legislation all at once is a huge task. We were also unhappy with how we were given such a limited amount of time to express our views—just 30 seconds—and then it was over.

What is your recipe—if there is indeed a recipe—for revitalising the competitiveness of the Old Continent?

Well, look, this is a very difficult question, and I will explain why. I had a few discussions at the end of last week with several people from different sectors in Brussels, and we asked each other, "What do you want? If you had godlike power and could tell everyone what to do, what would you say?" Of course, everyone had their own requests. They wanted this or that because, as I often say in trade, everyone is speaking from their own perspective.

The reason I bring this up is because the situation has become so complicated, like a "spaghetti bowl." It is hard at this point to clearly see what needs to be done because everything is interconnected. You can’t just ask for a little change here and a little change there. If you ask me, I will look at the entire situation. I mean, we have created something that has made everything incredibly complex. Whether we like it or not, European industry has become uncompetitive for a variety of reasons, including energy. It is not that I want it to be this way, but the fact that we are falling behind in terms of economic growth indicates that something is wrong. I don’t think this is a small issue. Some of the small and some of the larger factors have now led to a cultural shift.

One last question, this time on the Carbon Border Adjustment Mechanism (CBAM), a regulation likely to be subject to revision. In recent weeks, you attended an event organised in Paris at the French Ministry of Economy and Finance on this topic. Could you update us on the outcomes?

At least, I did not detect any intention to reach a conclusion. I think the goal was to send a strong message: many stakeholders, including France, are committed to the continuation and implementation of the CBAM as a tool for dealing with carbon leakage. However, the CBAM does need some corrections. These seemed to be of a nature focused on simplifications rather than dramatic changes to the overall structure. One thing that stood out to me was the de minimis change, which was introduced when the measure passed, setting the threshold at 150 euros [per consignment]. How can this make sense? Clearly, this is going to have to be modified. Another issue, perhaps, might be how the footprint is calculated. Whether to use an average or an individual intensity could introduce more significant changes. But it is clear that the important discussions will continue in July.

Cover: Andrei Marcu