Rolling Back Climate Policies Won’t Solve Industrial Struggles, and Better Solutions Exist

Climate policy has become a powerful force shaping industrial regulations. Climate objectives foster governments to introduce industrial regulations that effectively accelerate innovation in cleaner industries while phasing out outdated, high-emission sectors at the same time. Beyond reducing carbon emissions, these policies also drive transformation and advancements in next-generation industries. However, recent trends show that when industries face fierce global competition, most governments unfortunately choose to roll back climate regulations rather than pursue solutions to improve industrial competitiveness within a low-carbon framework—slowing down both climate progress and industrial adaptation. Instead of reversing course, governments should stick with their climate commitments and explore proven strategies such as targeted policy incentives, international cooperation to adopt advanced technologies, and structural adjustments—to meet climate goals while overcoming economic challenges, ensuring that industrial policies remain aligned with long-term sustainability objectives.

One of the clearest benefits of climate-driven industrial regulations is their ability to push for cleaner upgrades across industries. Regulations that mandate lower emissions and stricter sustainability requirements stimulate companies to invest in cleaner technologies and production processes to meet long-term environmental obligations. For example, the European Union’s (EU) initial ban on internal combustion engine (ICE) vehicles by 2035 has been at the forefront of this transition. By setting a clear deadline for phasing out gasoline and diesel cars, the policy creates a clear regulatory pathway for the auto industry to shift toward electric and hydrogen-powered alternatives.

This shift is also more than just replacing combustion engines with electric motors; it drives broader innovations in areas such as battery efficiency, charging infrastructure, and alternative fuel sources. For example, the EU Battery Regulation not only enforces stricter carbon footprint disclosures and ethical sourcing requirements but also drives technological advancements in battery performance, durability, and recycling efficiency. Together, these policies do not just reduce emissions from transportation—one of the largest sources of carbon pollution—but also reshape the entire electric vehicle (EV) supply chain, influencing production standards both within and beyond the EU.

Beyond promoting cleaner industries, climate-oriented industrial regulations also contribute to the gradual elimination of outdated, high-emission sectors, particularly those industries struggling with overcapacity and inefficiency such as steel, cement, and aluminum. One of the most significant ways this happens is through carbon pricing mechanisms such as emissions trading systems and carbon taxes. Policies like the EU Emissions Trading System (EU ETS) set a cap on total emissions and require companies to pay for their carbon output, making carbon-intensive operations increasingly expensive. This disproportionately impacts industries that rely on outdated, high-emission production methods, forcing companies to either modernize or close unprofitable facilities. 

Nevertheless, despite the clear benefits of climate-oriented industrial regulations, their implementation has not been without challenges. Some industries, particularly those facing strong global competition, have struggled to keep pace with stricter climate mandates. Rather than addressing these industrial difficulties through innovation and policy support, some governments have responded by loosening regulations—delaying decarbonization efforts in the process.

The EU’s recent loosening of climate-related regulations for automakers is a clear example of how climate-oriented regulations can be rolled back amid increasingly intensified industrial competition. Originally, the emission targets required automakers to reduce fleet emissions by 15% by 2025, but amid declining EV sales and growing pressure from foreign competitions, the EU extended the compliance period to 2027, allowing manufacturers more time to transition without incurring substantial fines. While this move is framed as necessary to prevent economic disruption, it raises concerns about its long-term consequences, as it delays industrial adaptation and slows the global transition to cleaner mobility.

Critics argue that the new regulation only “rewards laggards and does little for Europe’s car industry except to leave it further behind China on electric vehicles.” Indeed, while the EU might give its domestic industry a temporary competitive edge, it is definitely delaying the overall progress on transportation decarbonization, risking slowing global advancements in cleaner mobility at this critical moment of climate change. Instead of helping the industry compete, such policy reversals risk making European automakers even less prepared for the inevitable shift to electrification. This is also a signal to the world that regulatory flexibility is acceptable when domestic industries face difficulties. 

Therefore, rather than rolling back climate-oriented rules, governments should focus on measures that strengthen their industries’ competitiveness in a decarbonized economy—whether through investment in research and development, targeted policy incentives, public-private partnership, or international collaboration to advance technology. The experience of countries like China, which has successfully expanded its EV sector while maintaining ambitious emissions policies, demonstrates that industrial competitiveness and strong climate regulations are not mutually exclusive. The Chinese government has consistently facilitated EV development through measures such as tax breaks and infrastructure investments, enabling automakers like BYD and Li Auto to achieve domestic success while also emerging as global leaders. Similarly, the United States’ Inflation Reduction Act (IRA), though highly controversial given its subsidiary nature, exemplifies the potential of public-private partnership in leveraging market force to drive green investments. It has already catalyzed significant private-sector investments in renewable energy by offering substantial tax credits and rebates, effectively reducing the financial burden on consumers and businesses adopting clean energy solutions. 

Thus, instead of reversing course, the EU should also look to successful models and strengthen their industries within the emission reduction framework. One key approach is to expand policy incentives that stimulate both consumer and corporate adoption of EV. The European Commission’s plan to phase out tax breaks for fossil fuel-powered corporate cars is a positive step, considering that corporate fleets make up around 60% of new car registrations in the EU. Additionally, discussions around pan-European subsidies to boost EV demand signal a growing recognition of the need for streamlined incentives across member states. Another critical strategy is strengthening international partnerships, particularly with established EV industry leaders. Given Europe’s current gaps in technology and production capacity, closer collaboration with China’s advanced EV sector could help accelerate industrial development. Some European companies have already recognized this potential—such as France’s Orano partnering with China’s XTC New Energy Materials to produce EV battery components, a €1.5 billion joint investment expected to create 1,700 jobs and strengthen Europe’s EV supply chain. This is a positive step, and more joint initiatives should follow—not only in battery production but also in the development and manufacturing of finished EVs. Expanding cooperation between European and Chinese automakers would allow both sides to leverage their strengths—Europe’s automotive expertise and demand for climate-friendly vehicles and China’s leadership in cost-effective EV production—to create competitive, high-quality electric vehicles for the global market.