European Carbon Prices Elicit Revolts Across The Continent

Farmers in the Netherlands blocked roads with their tractors to revolt against Europe’s increasingly stringent climate policies, and farmers in Germany and France have risen to the fight against rising diesel prices to protect their livelihoods and culture and ensure that Europeans have food on their tables. Demonstrations first broke out in the Netherlands in 2019 over government demands that livestock production be halved in order to reduce nitrogen oxide emissions. In the wake of farmers’ protests, the Farmer-citizen movement (BBB) was set up in 2019. The party stunned Dutch politics last year by winning big in the upper house of parliament after provincial elections. The BBB aims to fight government plans to slash nitrogen emissions by dramatically reducing livestock numbers and buying out thousands of farms. Now, the fight turns to other agricultural countries in Europe.

The German Situation

Farmers clogged Berlin streets with 4000 tractors, honking their horns in protest to a plan to cut tax breaks on diesel, for a demonstration at the landmark Brandenburg Gate. Convoys of tractors and trucks gathered on roads in sub-zero temperatures in nearly all 16 federal states. Farmers blocked highway entrances and slowed traffic across Germany with their protests, intent on pushing Chancellor Olaf Scholz’s government to abandon the planned cuts entirely as they have no alternative to diesel to fuel their tractors. But they are not satisfied with concessions the government announced on January 4, when it watered down its original plan, stating that a car tax exemption for farming vehicles would be retained and the cuts in the diesel tax breaks would be staggered over three years — a 40 percent cut this year, with another 30 percent cut in each of the next two years.

The cuts were part of a package agreed to by leaders of Chancellor Olaf Scholz’s three-party coalition to fill a 17 billion-euro ($18.6 billion) hole in the 2024 budget. The budget was revamped after Germany’s highest court in November annulled an earlier decision to repurpose 60 billion euros (almost $66 billion) originally meant to cushion the fallout from the COVID-19 pandemic for measures to help combat climate change and modernize the country. The measure failed due to Germany’s strict self-imposed limits on running up debt, and occurs when Germany is the worst performing major world economy, in part because of its climate and energy policies.

The farmers say that the two tax breaks currently saves them about 900 million euros ($980 million) per year, and cutting the tax breaks will unfairly burdens them and will drive them out of business. But the farmers want more than just changes to the current plans. They claim that in recent years and decades, they have been beaten endlessly with more and more requirements, tighter rules and restrictions. Further, while they have more and more requirements imposed upon them, more food is coming from abroad that is produced below German standards.

Germany’s budget deal also included an abrupt end to subsidies for buying new electric cars, which originally were due to stay in place until the end of this year. The Economy Ministry announced an end to new EV subsidy applications with less than two days’ notice. Germany also raised its levy on carbon dioxide emissions from fossil fuel by more than previously planned at the start of the year, which is expected to impact prices for gasoline, diesel, natural gas and heating oil. The carbon dioxide price increased to 45 euros (about $49) per metric ton of emissions from the previous 30 euros. The government had planned a smaller increase to 40 euros a metric ton before the budget change.  For comparison, the Biden Administration has proposed a $190 per ton “social cost of carbon” for its decision-making on climate-related programs.

The French Situation

Farmers spent weeks protesting across France with irate farmers recently blocking a major highway out of Paris. French Prime Minister Gabriel Attal announced a series of measures to ease financial and administrative pressure on farmers. The French government dropped plans to gradually reduce state subsidies and tax reductions on agricultural diesel to quell the unrest that had farmers spray manure over a public building and supermarket, dump hay bales in highways and empty the contents of trucks carrying fresh produce from neighboring countries. But angry farmers surrounding Paris still threatened to converge on the capital in their tractors because the new prime minister had not responded to all of their issues.

According to the prime minister, a plan to phase out state support on diesel would be scrapped, a planned trajectory of increasing tax on non-road diesel fuel would be stopped, red tape would be simplified and an appeal would be lodged with the European Union for a waiver on bloc-wide rules to force farmers to leave some of their land fallow. France would remain opposed to signing the Mercosur free-trade deal, which farmers say will flood the country with cheaper Latin American meat and produce. France is the European Union’s biggest agricultural producer.

EU Policies Drive the Discontent

The European Union has set measures to revamp its €55 billion Common Agricultural Policy (CAP) and make it more “ sustainable.” More than 70 percent of that money is spent on direct payments to farmers as a safety net. The revamp includes an obligation to devote at least 4 percent of arable land to non-productive features, as well as a requirement to carry out crop rotations and reduce fertilizer use by at least 20 percent. Farmers argue that these measures will make the European agricultural sector less competitive against imports. They are also worried that inflation has dramatically reduced the value of their direct payments, forcing farmers to do much more with less support.

Ukraine’s War has Made Matters Worse

Russia’s invasion of Ukraine in February 2022 all but blocked off trade routes in the Black Sea through which Ukrainian agricultural products were shipped. The EU temporarily lifted restrictions on imports from Ukraine – allowing its agricultural produce to flood European markets. Ukraine’s agricultural sector is huge: an average Ukrainian farm is about 1,000 hectares (2,471 acres); its European equivalents measure on average only 41 hectares (about 100 acres). Prices in neighboring countries such as Hungary, Poland and Romania suddenly dropped, and local farmers were left unable to sell their crops. By spring 2023, tractors were blocking the Polish roads that had been lined with volunteers welcoming Ukrainians refugees a year before.

The EU imposed trade restrictions on Ukraine’s exports to its neighbors, but only for a limited period. When the ban expired, the governments in Budapest, Warsaw and Bratislava announced their own restrictions. Ukraine filed a lawsuit, relations soured and compassion for Ukraine took a backseat. Now, Eastern European countries are demanding the EU definitively revises its trade liberalization measures with Ukraine. In Poland, farmers kicked off a nationwide protest on January 24 against Ukrainian agricultural imports saying Ukrainian grain should go to the Asian or African markets, not to Europe. Similar sentiments are being echoed in Slovakia and Hungary. Poland’s Prime Minister Donald Tusk has promised to meet Ukrainian representatives in early March to come to a deal to regulate the transit and export of products.

Conclusion

The EU and countries in Europe are making concessions after their farmers protested against EU climate policies and issues relating to agricultural products from Ukraine. But for farmers across Europe who feel forgotten, betrayed or unable to feed their families, it is unlikely to be enough. Opposition parties are gaining in European elections this year as residents feel they have had enough of policies that hurt their livelihood and well-being.

*This article was adapted from content originally published by the Institute for Energy Research.