International: The EU Green Deal and its implications for Asia Pacific and Thailand

In brief

In this article, we will discuss the underpinnings of the European Union's ambitious plan, the "European Union Green Deal", an agenda to advance the sustainability of member economies and have far-reaching implications for Asia Pacific and Thailand in particular.

Given the stringent environmental, sustainability, and other regulatory standards in the EU Green Deal's Sustainable Products Initiative, it is essential that businesses in Asia Pacific monitor the targets and ambitions of the EU Green Deal to be prepared to comply with higher standards for imports into the EU.


What is the European Union Green Deal?

To overcome the existential threat of climate change while achieving economic growth, the European Commission launched the European Union (EU) Green Deal on 11 December 2019, championing a vision to become the world's first climate neutral continent by 2050.

The European Climate Law codifies the objectives of the EU Green Deal to make the EU's climate, energy, transport and taxation policies capable of reducing net greenhouse gas emissions to at least 55% of 1990 emissions by 2030.

The key elements of the EU Green Deal are:

  1. A higher EU climate objective on its key milestones for 2030 and 2050
  2. Eliminate emission of pollutants or toxic substances
  3. A safe, cost-effective, and renewable energy supply
  4. Protect and reinstate ecosystems and biodiversity
  5. The Circular Economy Action Plan (CEAP), intended to stimulate a green and sustainable EU economy
  6. The Farm to Fork Strategy, intended to achieve an environmentally friendly food system
  7. Efficient use of energy and resources in building and refurbishment
  8. Advance the transition to sustainable and smart transportation.

The stringent environmental, sustainability, and regulation standards within the EU Green Deal framework will affect imports into the EU. Consequently, it is essential that businesses monitor the targets and ambitions of the EU Green Deal and prepare now to comply with these higher sustainability standards for their products.

Sustainable Products Initiative

The Sustainable Products Initiative (SPI), which is a part of the CEAP, will put forward additional legislation to ensure that products in the EU market are more durable, reusable, repairable, and energy efficient, while simultaneously possessing the capacity to reduce waste and release harmful chemicals into the environment.

The CEAP, along with the SPI, will introduce new eco-design requirements, ultimately creating a new standard for sustainable products in the EU that will require: incorporating recycled material instead of primary raw material in production; limiting single use; and, banning the destruction of unsold durable goods. Moreover, the SPI will extend the producer's responsibility for the product throughout its life cycle (from manufacture through disposal of the product). Hence, products that are not recyclable or that are difficult to recycle may be subject to additional costs, such as higher taxes for collection and sorting, whereas products that are easily recyclable, repairable, or reusable could benefit from financial incentives.

The SPI will empower consumers to consider sustainable choices and the environmental and social impacts of products and, furthermore, will contribute in combatting greenwashing (misleading sustainability claims made by companies). Businesses will be required to be more transparent with consumers regarding a product's lifespan and carbon footprint as well as the availability of repair services, spare parts, and repair manuals for the product. This information will be required to be easily accessible via a quick response (QR) code.

It is expected that the first stage of the eco-design requirements will be applicable to products such as textiles, furniture, detergents, paints, lubricants, iron, steel, and aluminum because of their high environmental footprint and potential for circularity. Later stages are expected to include product-specific or well-defined product group specific legislation on compliance with certain eco-design requirements.

Implications of the European Green Deal for Asia Pacific and Thailand

The EU has become a vital trade partner for the Asia Pacific region. As trade agreements between Asia and the EU have flourished over the past few years, Asia's exports to the EU have substantially increased. According to the European Commission's Statistics (Eurostat), in 2021, approximately 44% of EU imports came from Asia. More specifically, in 2021, the EU imported over USD 153 billion worth of goods from ASEAN, an increase of 19.11% in imports compared to the previous year. Statistics show ASEAN is the EU's third largest trade partner after the United States and China.

According to data from Thailand's Ministry of Commerce, in 2021, Thailand exported over USD 25 billion worth of goods to the EU representing 9.26% of total exports from Thailand in that year.

Thailand and the EU have the common goal of transitioning to a circular economy and already advanced cooperation on the CEAP by sharing know how, best practices, policies, regulations, and actions. In addition, to encourage sustainable development, Thailand and the EU are in the process of negotiating a Partnership and Cooperation Agreement to enhance cooperation between the nations in the areas of circular economy, plastic waste management, and international bio-economy cooperation.

As a whole, the EU Green Deal may increase costs and responsibilities for Thai and other Asia Pacific businesses exporting into the EU. In the coming years, the EU will be imposing specific requirements on businesses to provide information on their social and environmental standards for sustainable production under the EU Product Environmental Footprint method (PEF). Businesses will have to justify how environmentally sustainable their products are throughout their value chain. In the near future, there is potential for other legal mechanisms to come into play, such as new laws on human rights and environmental due diligence to complement the EU Green Deal.

The SPI, in particular, may also cause businesses exporting into the EU to invest in transitioning to new models of sustainable production. For instance, businesses may have to start researching and investing in the procurement of recycled materials instead of primary raw materials, or adjust to higher standards of sustainability to ensure products are more durable, reusable, repairable, and energy efficient, while producing minimum waste and harmful chemicals.

Furthermore, under the SPI, businesses may have to disclose more information about the level of sustainability of the inputs into their product supply chains, such as recyclability potential, carbon footprint, reparability, resource use, so that consumers can compare sustainability levels of products as well as to strengthen market surveillance to tackle greenwashing by companies.

Consequently, these developments will increase costs and competition for businesses to meet the sustainability requirements in the global market. On the other hand, such a transition will provide opportunities and a competitive advantage to businesses already producing goods and services with high sustainability standards.

Conclusion

To overcome climate change, the EU Green Deal is encouraging Thailand and other EU trading partners in the Asia Pacific region to transition to more environmentally sustainable economies by imposing a variety of regulatory standards over the coming years. It is important for businesses exporting to the EU to be well-informed of such changes and to begin preparing now to comply with these higher standards in the near future.

We expect that the EC will be providing additional information on the EU Green Deal in the coming months, and we will keep you updated on the latest developments in future articles.

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