When I used to do something my parents didn't approve of, I'd get punished. Depending on how serious the offense was, I wouldn't be allowed to play outside or my allowance would be cut. The same logic worked the other way around, too: good behavior or extra effort was rewarded. As a result, I earned my swimming certificate in no time, and riding a bike without training wheels soon came naturally.
However, parenting is mainly about being consistent. If one parent says no and the other then gives in anyway, the first parent’s authority erodes. Inconsistency undermines credibility.
The same applies to governments. They influence behavior through taxes, fees, and subsidies. These are tried-and-true tools for achieving policy goals. But here, too, the following applies: if you constantly adjust rules, postpone measures, or fail to enforce announced sanctions, it undermines the reliability of the policy and the government’s credibility.
“Postponing the methane law doesn’t mean it’s off the table”
Last week, I read about the postponement of fines for oil and gas companies that violate European methane regulations. Starting in 2027, these regulations are intended to encourage producers to reduce their methane emissions. In theory, that sounds logical: the polluter pays. But while it sounds like a noble and logical plan in theory, it may turn out differently in practice.
In practice, however, the situation is more complicated. Producers who cannot meet the requirements risk losing access to the European market. As a result, the EU must purchase oil and gas from elsewhere. In a market already under pressure from geopolitical tensions and the loss of Russian gas, that is not an obvious alternative.
In addition, many suppliers are concerned about the significant administrative burden that the regulations entail. The International Energy Agency (IEA) recently warned that the methane regulations could lead to a decline in European energy imports. While the IEA has been issuing very strong warnings about a great many things lately, I believe they are right on this one. It seems these concerns have now also reached Brussels.
That is why it has been decided to temporarily postpone enforcement. No fines will be imposed over the next three years. But postponement does not mean cancellation. The law remains in effect, and with it, the uncertainty for the market. I doubt that this temporary pause will be enough to eliminate the undesirable side effects. A next step could be to fundamentally reconsider the measure, as was done previously with the national CO₂ tax.
“The consequences of policy are often predictable”
The pattern is familiar. Ambitious goals lead to ambitious policies. Then it turns out that reality is more challenging than expected, and the plans are adjusted.
That should come as no surprise. You can encourage electrification, but without sufficient grid capacity, that ambition will come to a standstill. You can aim to reduce industrial emissions, but if that makes companies unable to compete internationally, investments and jobs will disappear. You can promote recycling, but if tax rules have the opposite effect, the policy will miss its mark.
Of course, policies must be able to be adjusted when new insights call for it. That’s a healthy approach. But many of the problems that later lead to course corrections are often already apparent in advance.
In studies we conduct at EqoLibrium, we regularly find that policy proposals seem logical on paper but turn out differently in practice. After all, companies operate in an international market and are constrained by what is technologically and economically feasible. That reality can usually be analyzed quite well in advance.
“Ambition is good, but realism is better”
My former employer, ABN AMRO, once used the slogan: “It starts with ambition.” I thought that was a powerful slogan back then, and I still do. Ambition drives you to look beyond the status quo and strive for higher goals.
But ambition alone is not enough. If the bar is consistently set higher than what is achievable, there will inevitably be a need to water down, postpone, or reverse policies later on. That is understandable, but it comes at a cost.
Because every time announced measures aren’t followed through on, confidence in government policy declines. And just as with parenting, the same applies to governments: you build credibility by being consistent—not by constantly changing the rules.