EU's colonial attitude to the energy market will inevitably backfire

In late February 2022, Europe was in a panic. Russia had just invaded Ukraine and had been denounced in capitals across the continent. Yet Europe relied on Vladimir Putin’s country for much of its energy needs.

To make matters worse, it was still winter – warmer weather was some time away. Europe’s buildings required heating. Into the breach, lest we forget, stepped other international fuel suppliers, including those from the Middle East.

Prices spiked but nevertheless Europe managed, just. As a reminder of how vulnerable nations that pride themselves on their economic development and sophistication were to dependence on one provider, and what could happen if that flow ceased, the episode was telling and shaming.

Since then, great strides have been made to improve European energy security, with increased diversification and the addition of new sources domestically and overseas. Clearly, though, memories are short. Because the EU is in danger of rolling back the years, of forcing those foreign partners to stop sending their oil and gas to Europe.

The problem is Brussels’ new Corporate Sustainability Due Diligence Directive (CSDD). It was adopted last year and requires companies to fix human rights and environmental issues within their supply chains, or face fines of 5 per cent of global turnover.

Crucially, its reach extends beyond the EU, to any business with significant revenue in Europe. In short, the EU is applying its values to the rest of the world. In Britain, the move and its impact especially rankles, because this was not supposed to happen, not after Brexit and “taking back control”. Regardless, Britain is drawn into the fallout.

Its energy giants BP and Shell must either comply or risk losing access to the European market. More to the point, the new EU law will cause domestic gas and electricity bills to rise, as UK prices are set by European supply and demand.

Also affected will be the continuing European diplomatic attempt, of which Britain is a part, to contain and isolate Russia, as, rather than increase pressure on Moscow, the strategy is undermined.

Alive to the risks, 46 European companies have written to Emmanuel Macron and Friedrich Merz in protest. The letter to the French President and German Chancellor was sent by TotalEnergies and Siemens on their behalf and called on the EU to abolish the legislation to boost the bloc’s competitiveness.

Abandoning it would be a “clear and symbolic signal to European and international companies that the governments and the Commission are really engaged to restore competitiveness in Europe,” they wrote. Europe should be cutting red tape, not adding to it.

Anger is not confined to Europe’s corporates. There has been pushback from the US and from Qatar. The latter’s energy minister, Saad Al Kaabi, has said that without a proposed watering down (this week as well the EU moved to soften its climate change targets), they will not be able to do business in the EU. This would include supplying Europe with liquefied natural gas (LNG) to plug its energy gap. Much more radical changes must be made.

Mr Al Kaabi, who is also the chief executive of QatarEnergy, says his concern centres on the potential for those penalties of up to 5 per cent of total global revenue for companies that do not have climate change transition plans aligned with the Paris Agreement goal of preventing global warming exceeding 1.5 Celsius.

Since Russia's full-scale invasion of Ukraine, Qatar has supplied 12 to 14 per cent of Europe's LNG. “We have been seeking to constructively engage with the key players at both the European Commission and every EU member state for almost a year now,” Mr Kaabi said.

He went on: “QatarEnergy will not be able to justify doing business in the EU, be it in LNG or other products, due to the significant risk it would be exposed to due to the overreaching nature of the proposed regulations, which will ultimately harm the European end consumers.”

The choice facing Europe is stark: continue to try to impose its laws on others and stand behind the statute or weaken efforts to strengthen its competitiveness and prevent economic deterioration.

EU policymakers are viewing energy through a dangerously narrow prism. They are failing to see the wider picture, the unintended consequences of their high-handed actions.

Energy is never a simple question, of straightforwardly matching supply to demand – as Cambridge professor Helen Thompson argues, it is the basis of geopolitical power. They are not seeing its interconnectedness, the global links and flows. They cannot simply clap their hands and expect everyone else to fall into line.

The world is no longer like that – indeed, the EU’s ability to order others around has been eroding for decades. Arguably, they are not appreciating that they are the ones with the greatest need and acting accordingly.

There may be little wrong about the sentiment of much of CSDD, but this is about the application of a heavy hand. The EU is undoubtedly guilty of overreach. Imposing a penalty of up to 5 per cent on global revenue, rather than on revenue inside the EU, smacks of arrogance.

There is, it must be said, more than a whiff of old-fashioned Euro-colonialism about it. Where energy is concerned – most of all, energy – Brussels is in absolutely in no position to dictate to anyone outside its confines. They should fall on their big stick, for the sake of their households and businesses and all those fuel bills.