The EU has gone far beyond what was agreed to in Paris.
Policies that emerge in the European Union tend not to stay there because the EU policymakers and bureaucrats, determined to pursue a heavily dirigiste and leftist agenda, are much more aware than their leadership lets on that such policies make EU businesses uncompetitive, EU economic growth slower, and EU citizens poorer. Living comfortable lives in Brussels, the EU officials are insulated from the economically destructive effects of much of their agenda, but, beyond a certain point, they do care about the adverse political implications — the political rise of the “far right” — and the attendant increased difficulty of building their “ever-closer union,” that is, expanding ever-more powerful and destructive government.
One “solution,” at least in the immediate term, is to shift such costs away from the governments and onto the EU private sector directly. But there remains that problem of competitiveness: Many governments outside the EU are not driven to cooperate by imposing similarly destructive rules on their own private sectors. For the EU officials, the answer is to impose EU rules on non-EU (in practice, primarily American) firms doing business in the bloc, rules that go far beyond what might be expected of a company doing business in a foreign jurisdiction.
One recent example is the EU Corporate Sustainability Due Diligence Directive. At its core, it is an attempt to impose climate mandates on the EU business sector; the directive “sets out an obligation for large companies to adopt and put into effect, through best efforts, a transition plan for climate change mitigation aligned with the 2050 climate-neutrality objective of the Paris Agreement.”
And those large companies will include many outside the EU. Brussels claims that the CSDDD will apply to about 900 large non-EU companies, but that figure is vastly too low: About 10,000 foreign companies will be forced directly to comply. At least a third of those will be American firms, and even that does not count the thousands of companies — “subsidiaries and . . . their business partners” — that will have to adhere to the requirements in order to continue to work with the firms to which the CSDDD applies directly.
In short, virtually any large multinational firm or any firms that do business with them will have to comply with the CSDDD. The EU announced earlier this month an agreement to delay the implementation of the CSDDD, ostensibly to reduce “the sustainability reporting and regulatory burden on companies . . . [and] to provide companies with regulatory certainty.” So new regulations will have to be written, and — who knows? — it’s possible that some compliance burdens will be reduced.
President Trump on January 20 issued an executive order pulling the U.S. out of the Paris agreement; that pullout formally will take effect a year later, but the Trump administration already is reversing many regulations aimed at reducing U.S. GHG emissions. But that does not change the EU requirement that the firms implement transition plans consistent with the Paris agreement “climate neutrality” mandate for 2050.
There is no need to recite all the absurdities of the Paris climate agreement. The CSDDD is the result of the EU’s determination to go beyond Paris’s requirements, no great challenge, at least legally. To take one example, under the terms of the Paris deal, the “Nationally Determined Contributions” — the promises for reductions in GHG emissions made by the individual countries — are voluntary and therefore unenforceable. For many major economies, the NDCs are ill-defined; for example, the “commitment” by China is for a “peak” in GHG emissions “around 2030.” How high will that peak be? No one knows. What will Chinese emissions be after the peak? No one knows. What will happen if Chinese emissions fail to peak “around 2030?” That we do know: absolutely nothing. For most other countries, the promised GHG cuts are relative to “business as usual” baselines, which are very easy to manipulate so that the promises are kept without any change at all in underlying emissions behavior.
But the EU has gone far beyond what was agreed to in Paris: Legally binding net-zero targets are now in place for all its member states. The enormous costs of this are becoming all too apparent, but Europe’s leadership seems unwilling to recognize how trivial the climate effects of meeting these targets will be. If we apply the EPA climate model, achievement of net-zero GHG emissions by the entire EU27 (6.1 percent of all global GHG emissions) by 2050 would reduce global temperatures in 2100 by 0.087°C. Because of normal variation in surface temperatures, that effect would not be detectable.
The EU and the U.K. (which has put in place its own binding net-zero target) claim that the example they set will inspire the rest of the world to follow suit, something for which the evidence is rather limited, to put it mildly. EU policymakers are aware of this and are thus using the CSDDD to achieve two ends. The first is to ensure that companies within the EU will not be put at a disadvantage because they are subject to the effects of its net-zero targets when their international competitors are not (the EU is also introducing other measures such as its Carbon Border Adjustment Mechanism to the same effect). The second is to conscript private capital on a global basis in pursuit of the EU’s climate goals.
Because the CSDDD is so egregious, there now is proposed legislation in Congress: the Prevent Regulatory Overreach from Turning Essential Companies into Targets (PROTECT USA Act of 2025), introduced by Senator Bill Hagerty (R., Tenn.). The legislation would prohibit many U.S. companies from being forced to comply with any foreign “sustainability due diligence regulation,” prohibit the taking of any adverse action against such firms for actions or inactions related to such regulations, and establish a private right of action for such entities to bring civil actions when aggrieved, but, as discussed below, even if passed, such legislation may prove to be more about messaging than anything else. To make it work will require action by the executive branch.
The CSDDD is a classic example of the EU using the clout yielded by the size of its market to establish itself as, to use its term, a “regulatory superpower.” It’s made all the more egregious by its use of such incoherent concepts as “sustainability,” for which an objective definition is impossible to find. This incoherence provides a great deal of discretionary power to officials charged with interpreting and enforcing these rules, something that no U.S. company doing (or seeking to do) business within the EU will find favorable.
Moreover, it is inevitable that the EU regulations will require the targeted firms to provide estimates of the climate “risks” that their GHG emissions and those of their subsidiaries and business partners purportedly will create. This would be similar to a Securities and Exchange Commission regulation issued late in the Biden administration, which the SEC now is in the process of reversing. Will the EU instruct the firms on which climate models to apply, which assumptions to incorporate, which conflicting predictions to emphasize, etc.? Or will the firms be forced to use consultants approved by the EU?
The legislation proposed by Senator Hagerty is worthwhile. But that still would leave us with a classic conflict-of-laws problem: U.S. legislation can say what it wants, but that will make no difference to any European court charged with ruling on alleged breaches of EU law. Any U.S. company found guilty of noncompliance would have to pay up. On the other hand, if the U.S. company complies with the EU law, it would, if Senator Hagerty’s bill passes, be in breach of American law, exposing it to punishment here. That fundamental conflict is something that the Trump administration will have to address in direct negotiations with Brussels. The idea that tariffs will work in the way the administration claims is absurd, but, as a way of applying pressure, they might be useful in the context of the CSDDD.