EU competitiveness compass signals deregulation push against Green Deal rules

A leaked draft of the European Commission's new competitiveness compass, the economic doctrine intended to guide the EU executive for the next five years, reveals a decisive shift toward deregulation that aligns closely with mounting centre-right demands to roll back core elements of the European Green Deal. The document, which has not yet been published officially, describes an "unprecedented simplification effort" and singles out the bloc's financial and corporate sustainability reporting rules as the first target. A legislative proposal to streamline those requirements is expected in February, but the compass makes clear it will be only the "first" simplification bill in a broader programme.

The compass points toward deregulation

The draft's language is striking for an institution that spent the past legislative term constructing the world's most comprehensive climate regulatory framework. "In some areas, existing policies will have to be accelerated and upgraded, in others a change of approach is needed to adapt to new realities," the document reads. It pledges that the EU will "stay the course" on its climate targets, including net zero by 2050, but the emphasis is unmistakably on reducing compliance burdens. The transition, it states, "must be competitiveness-friendly and technology neutral", a phrase that has become code for resisting technology-specific mandates such as the phase-out of combustion-engine cars or binding renewable energy targets.

That formulation mirrors almost exactly the position adopted by the European People's Party (EPP), the political family of Commission President Ursula von der Leyen. At a leaders' meeting in Berlin last weekend, the EPP produced a document calling for a two-year delay to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the Carbon Border Adjustment Mechanism (CBAM). The leaders also declared opposition to renewable energy targets, a pillar of the Green Deal that had until recently enjoyed broad consensus across the mainstream parties. The EPP insists EU climate policy should be "technology-neutral", not preferring heat pumps over boilers, renewables over nuclear, or banning combustion engines.

Tusk sharpens the political pressure

The political momentum shifted further on Wednesday when Polish Prime Minister Donald Tusk, himself an EPP politician, appeared to blame the EU's new climate legislation for the bloc's high energy prices. Speaking in Warsaw, he called for a "review of all legal acts including those under the Green Deal" and for "courage to change those rules that might result in prohibitively high energy prices." He singled out the extension of emissions trading to buildings and road transport, known as ETS2, which is scheduled to introduce a carbon price on heating fuels and petrol in 2027. Most of the legislation Tusk criticised has not yet entered into force, a point that did not prevent Czech Prime Minister Petr Fiala from welcoming his remarks.

Tusk's intervention is significant because Poland has historically been among the most sceptical member states on climate ambition, securing carve-outs and extended timelines during the last legislative cycle. His government, however, campaigned on a pro-European platform and his alignment with the EPP's deregulatory push suggests a coordinated strategy between the Commission's own political family and key national capitals. The Polish leader's focus on energy prices also reflects a genuine vulnerability: European industrial electricity and gas prices remain well above US and Chinese levels, a gap that widened after Russia's invasion of Ukraine and the loss of cheap pipeline gas.

Romania adds an eastern dimension

Another EPP voice, Romanian Energy Minister Sebastian Burduja, added a different flavour this week. He announced work on a "detailed report on the negative effects of Green Deal policies" for Romania, praising the country's natural gas reserves and coal-fired power capacity. "What can hold us back is a suffocating bureaucracy and a Green Deal that ignores the realities on the ground," he said. "That is why what is needed, as EPP leaders have said, is a robust debate about how and whether the EU will continue the Green Deal for the next few years." Romania's position matters because it holds the rotating Council presidency in the first half of 2025, giving it agenda-setting influence over the very simplification legislation the Commission plans to table in February.

The Romanian angle also highlights a structural tension within the Green Deal: the policy was designed in Brussels and Berlin with western European energy mixes in mind. Eastern member states, many of which still rely heavily on coal and have lower per-capita incomes, have long argued that the transition costs are distributed unevenly. The Just Transition Fund was meant to address this, but disbursement has been slow and the amounts, roughly €17.5 billion over seven years, are widely seen as insufficient for the scale of restructuring required in regions such as Silesia, Jiu Valley, or western Macedonia.

France joins the simplification chorus

It is not only the centre-right. Centrist-led France has asked the EU to indefinitely delay the corporate sustainability due diligence directive, which requires large companies to identify and address human rights and environmental impacts in their supply chains. Von der Leyen herself referenced the same law when promising "far-reaching simplification" in her speech at the World Economic Forum in Davos this week. The French position reflects lobbying from large French multinationals that view the due diligence requirements as disproportionately burdensome compared with competitors in jurisdictions without equivalent rules.

This convergence, EPP leaders, the Polish and Romanian governments, the French presidency, and the Commission president herself all calling for simplification of the same cluster of laws, suggests the February proposal will be far more than a technical tidying-up exercise. The Commission's own impact assessment for the CSRD estimated compliance costs for EU companies at €4.3 billion annually, with small and medium enterprises facing disproportionate administrative burdens. Business groups have argued consistently that the reporting standards, developed by the European Financial Reporting Advisory Group (EFRAG), run to hundreds of pages and require data that many suppliers outside the EU cannot or will not provide.

Commission walks a tightrope

At a press conference on Friday, Commission spokesman Stefan De Keersmaecker attempted to hold the line: "One of the important pillars of the compass is to cut red tape … the commitments that have been taken in the context of the Green Deal remain fully valid." The formulation is carefully parsed. The Commission cannot openly abandon the Green Deal, it is the signature achievement of von der Leyen's first term and the legal basis for much of the EU's international climate credibility. But the compass draft's sequencing is revealing: deregulation comes first, decarbonisation second. The document's north star is competitiveness, not carbon neutrality.

This represents a genuine strategic pivot. The previous Commission framed the Green Deal as a growth strategy, the "European Green Deal Investment Plan" aimed to mobilise €1 trillion in sustainable investments over a decade. The new compass reframes the relationship: climate policy is acceptable only insofar as it serves competitiveness. That is a philosophical shift with practical consequences. It implies that where a climate rule conflicts with industrial policy objectives, for example, state aid rules for green manufacturing, or procurement rules favouring European clean tech, the climate rule yields.

What technology neutrality really means

The phrase "technology neutral" deserves scrutiny. In EU energy law, it has a specific history. The 2009 Renewable Energy Directive was explicitly technology-neutral in the sense that it set overall targets but left member states free to choose the mix of wind, solar, biomass, hydro, or geothermal. The EPP's current usage goes further: it argues against any regulatory preference for zero-emission technologies over low-emission ones. That would mean treating natural gas, nuclear, hydrogen, and renewables as equally valid pathways to decarbonisation, effectively dismantling the taxonomy that directs private capital toward activities aligned with the Paris Agreement.

The EU taxonomy regulation, adopted in 2020 after fierce debate, classifies economic activities by their environmental sustainability. It currently labels gas-fired power and nuclear energy as "transitional" activities under strict conditions, but excludes them from the core "green" category. A technology-neutral approach would likely erase that distinction. It would also undermine the EU's 2035 phase-out date for new CO2-emitting cars, which the EPP has repeatedly attacked. The compass draft's endorsement of technology neutrality suggests the Commission is prepared to reopen these settlements.

The numbers behind the narrative

The political narrative, that Green Deal regulation is strangling European competitiveness, rests on a selective reading of the evidence. Eurostat data shows EU labour productivity growth has averaged 0.8% annually since 2015, compared with 1.2% in the US. But the divergence predates the Green Deal's major legislative wave, which only began in earnest with the 2021 "Fit for 55" package. Energy-intensive industries, chemicals, steel, cement, have indeed faced margin pressure from high gas prices, but those prices were driven primarily by the loss of Russian supply, not by carbon costs. The EU ETS carbon price averaged €80 per tonne in 2023, adding roughly €40-60 per MWh to gas-fired generation costs, significant, but smaller than the €150-200 per MWh spikes seen during the 2022 crisis.

Moreover, the European Investment Bank's 2024 investment survey found that 56% of EU firms cite regulatory uncertainty as a barrier to green investment, not the stringency of the rules themselves, but the lack of clarity on how they will be applied. The simplification agenda, if it delivers genuine clarity without lowering environmental ambition, could actually accelerate the transition. The risk is that "simplification" becomes a euphemism for delay, and that the February bill sets a precedent of weakening requirements whenever industry complains.