EU renews its global green leadership with Canada deal

Since the Inflation Reduction Act was passed last year in Washington, there has been strong focus on the resurgence of US green leadership. However, under the “global radar” also in North America, far less attention is, surprisingly, being paid to Canada’s credentials in this area.

Many miss Canada’s sustainability strengths, but not Europe. Brussels sees in the vast North American country a huge partnership opportunity to help “future proof” its global green leadership as it prepares for the possibility of a second presidency for Donald Trump from 2025 in the US.

No surprise, therefore, that the powers announced a new, stronger green alliance at their annual bilateral summit on Thursday and Friday. It is also no coincidence that the forum was hosted in St. John’s, the capital of Newfoundland and Labrador.

That Canadian province has big plans to establish itself as a hydrogen-producing and exporting powerhouse in the near future, with an eye on European markets, especially Germany, which are key buyers of hydrogen. At the time of writing, the province is considering four major wind hydrogen proposals through its approval process.

These discussions build from a bilateral hydrogen deal that Canadian Prime Minister Justin Trudeau signed with German Chancellor Olaf Scholz last year in Newfoundland, the core of what could become a valuable hydrogen energy partnership. Yet, Newfoundland and Labrador are only one of several areas in Atlantic Canada where companies are vying to build large wind-powered hydrogen and ammonia plants. The goal for most is to transport hydrogen, in the form of ammonia, to Europe, where there is a significant market for greener energy.

The ambitious green alliance agreement reached with Canada is based on a template that the EU has pursued with other advanced, industrialized countries, inside and outside Europe, such as Japan and Norway. It has also pushed similar initiatives with key emerging markets, including India.

As COP28 approaches, the new EU-Canadian alliance will give a boost to the climate summit, and also European green leadership. Since the pandemic and the Ukraine war, the EU has doubled down on the green economy to meet global goals, such as the 2015 Paris climate agreement. 

The new EU-Canadian alliance will give a boost to the COP28 climate summit.

Andrew Hammond

This has built growing momentum behind the European Green Deal mega-project. One example of this is the more than 50 major sustainability initiatives announced by Brussels since the signature policy agenda was announced by the European Commission led by Ursula von der Leyen. The 27-member bloc is looking to refashion itself as a global green superpower, and secure a renewed political lease of life to boot — this after several difficult decades that saw the rise of challenges such as growing euroskepticism, and multiple financial crises.

However, meeting global green goals cannot be achieved simply by announcing endless, major new political initiatives from Brussels. Growing help from the private sector, and also international allies is key in meeting this agenda too. Hence, the importance of the Canadian deal, which also helps with the wider European goal of “de-risking” from the Chinese economy.

Canada is one of the key Western allies with which the EU would like to build stronger green economy supply chains, including critical raw materials, to help ensure secure and sustainable supply of materials for European industry. This would significantly lower the dependency of the 27 member states on imports from single country suppliers, including China.

So, Canada’s attractiveness to the EU on the green front goes well beyond its hydrogen capabilities. There are wider plans, too, for greater cooperation in areas such as carbon pricing and trading.

Take the example of carbon pricing, where both Canada and the EU have a shared interest in rolling out carbon markets internationally. In 2005, Europe became the first power in the world to introduce such a system — the EU Emissions Trading System. Moreover, Brussels has welcomed Canada’s carbon pricing system. 

Both Canada and the EU have a shared interest in rolling out carbon markets.

Andrew Hammond

To be sure, the EU and Canada are not fully aligned on all elements of the green agenda, including coal and fossil fuel subsidies. Canada’s federal auditor highlighted in recent days that the nation is not on track to meet its climate targets due to delays in key measures, including methane regulations, and an oil and gas emissions cap.

However, bilateral relations are fundamentally positive, and cooperative and mutual reliance could only grow significantly in the second half of the decade, especially if Trump wins a second term as US president. Canada-EU ties in the green economy build from a series of agreements since the 1970s, and joint membership of bodies such as the G7 and G20.

Underpinning this is a landmark EU-Canada bilateral trade deal, the Comprehensive Economic and Trade Agreement. This has driven an increase in two-way commerce, including a 15 percent boost in EU exports to Canada in 2020 alone.

CETA, which covers around a fifth of the global economy, and took the best part of a decade to negotiate, was signed in October 2016. It saw about 98 percent of all tariffs on goods traded between the two powers become duty free, and was then billed as “the most ambitious trade agreement the EU has ever concluded.” Most tariffs were removed when the deal came provisionally into force in 2017.

Taken together, the new EU-Canada green alliance will provide only the latest big boost to bilateral ties. Both Brussels and Ottawa are keen to double down on relations, not only to seize the new economic opportunities on the horizon, but also to prepare for the political trauma of a potential second Trump presidency.   

• Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.