Exit Poles? A bold challenge to the EU

Hey, Ryan Reynolds here for Mint Mobile. You know one of the perks about having four kids that you know about is actually getting a direct line to the big man up north. And this year he wants you to know the best gift that you can give someone is the gift of Mint Mobile's unlimited wireless for $15 a month. Now you don't even need to wrap it. Give it a try@mintmobile.com Switch upfront payment.

Of $45 for a three month plan equivalent to $15 per month. Required new customer offer for first three months only. Speed slow after 35 gigabytes if network's busy. Taxes and fees extra.

See mintmobile.com.

Hello and welcome to the Intelligence from the Economist. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. For decades, hydrogen has been touted as a potentially transformative green fuel. Yet it remains in a tiny market niche that looks set to change as long as the waves that it's harvested get a little greener too. And the word unicorn usually conjures up images of shiny Silicon Valley companies, but startups are reaching that billion dollar valuation all over the world. We look into the herd of unicorns that's popped up in Mexico. First up though, Over the weekend, protesters thronged in Warsaw, an estimated hundred thousand of them. Poland is a member of the European Union and the demonstrators wanted to keep it that way. Last week, one of the country's top courts defied the EU ruling that Polish law should take precedence in the country over European law. EU Justice Commissioner Didier Reynders vowed to defend the bloc's jurisdiction.

Our position is very clear about the.

Primacy of the AU law.

You know that over the past months.

We have consistently recalled a number of fundamental principles of AU law.

Principles that have been governing the union from the very beginning is at the core of the union. Poland's Prime Minister Mateusz Morawiecki and his populist Law and Justice Party have long been trying to establish control over the country's courts. Now, as he pushes for those courts to supersede those of the eu, he's setting up a conflict that could pull Poland out of the Union, a so called pol exit and shake the core of what remains.

This ruling is the most direct and open challenge that's ever been made. The principle of the primacy of EU law over national law.

Matt Steinglass is the Economist's Europe Correspondent.

It's an underlying principle of the EU that the EU's treaties and the EU's law take precedence over national law whenever they come into conflict.

So how exactly did we get here?

Poland's Constitutional Court issued a ruling that part of the EU's founding treaty is incompatible with Poland. Poland's constitution, it's mostly parts that say that the European Court of Justice and the EU have a say over how individual countries organize their judicial systems to make sure that countries have independent judiciaries. Poland denied that the EU has the right to do this. Its Constitutional Court explicitly said it. And not the European Court of Justice has the right to dictate what happens when there is a conflict between the EU's treaties and the Polish constitution.

And so why is it that Prime Minister Morawiecki brought the challenge in the first place?

The Law and Justice Party, which is the ruling party in Poland and Mr. Morawiecki's party, has been trying ever since they came in power in 2015 to reorganize the court system so that they get control over who gets appointed as judges. It's set up a disciplinary body as part of the Supreme Court that can punish judges if they make rulings which it considers unfavorable. And particularly as the system for appointing judges has become more and more politically influenced, the European Court of Justice has been issuing rulings that say that Poland's courts are no longer judicially independent and that those judges were not appropriately appointed and can't be considered real judges under EU law. And the Polish government rejects that movement.

So this ruling from Poland's Constitutional Court really raises the stakes for the eu. I mean, how do you think the bloc will respond?

Well, the body that has to enforce European treaties is the European Commission in Brussels. And up to this point, they have been very slow to get tough on Poland. It's been taking years for the European Commission to do anything about this, but they are gradually ramping up their response. And it looks as though this ruling may have changed the mood because it is such a direct challenge to the fundamental nature of the EU that the Commission has to respond. One thing they can do is they can level fines against Poland per day until they take actions that the ECJ has dictated. The other thing that it can do, which is much easier, is the EU has a huge new budgetary instrument called the NGU. It's a recovery fund from COVID 19. The entire pot is worth about 800 billion euros over six years, and Poland has asked for 36 billion euros out of that pot. In order to get the money, the European Commission has to certify that recipient countries are in compliance with the rule of law, and Poland is not in compliance with the rule of law. Now, Poland needs that money because the government has promised what it calls a Polish New Deal, which is a huge set of social programs and investments that they plan to execute. It's already included the money as part of its budget for the next few years. That'll be politically humiliating. It'll be bad for the economy.

And do you think that could actually happen? That huge pot of money would be.

Withheld at the moment. The commission simply hasn't certified the Polish request. It could come out with an actual declaration that Poland is not in compliance with the rule of law, so it can't get the money. That would be extremely confrontational. It would be a sort of a nuclear option, but it would signal a very strong resolve to bring wayward members of the EU into line.

And what if the Polish government just simply is itching for this fight and refuses to back down even with all that money on the table?

The political situation they've created for themselves makes it extremely difficult for them to back off. And it appears that they're really committed to taking over their courts. They've been pressing this mission for six years, single mindedly in the face of all kinds of pushback from the EU. But the political risks for them are huge. Because EU membership is extremely popular in Poland, something like 80% of Poland, polls are in favor of remaining members of the eu, which is high by European standards. There's a survey that indicates that a majority of Poles favor the European Court of Justice's side in this dispute. And the huge protests on the street show that polls are very worried about the idea that this move would lead to a withdrawal from the eu. Part of the issue, though, is that by declaring that EU writ does not hold over Polish writ in Poland, Poland is effectively separating itself from the EU order. Gradually, EU courts are doing things like refusing to extradite subjects to Poland because they don't trust that Polish courts are properly appointed. What we'll start to see is that the Polish legal system gradually extricates itself from the eu, even without ever having voted to leave, and it would get essentially polexit by default.

What message do you think that sends more widely, though? What about other states where maybe EU membership isn't even all that popular?

There are populist governments all across Central and Eastern Europe which would love to have control over their own courts. If the EU backs down in this fight, it will send a message to countries like that Hungary, which is already in that sort of situation, Bulgaria, which is in a very similar situation. There are challenges to the rule of law in places like Slovenia and elsewhere across the block that nothing bad will happen to them if they interfere with the makeup of their courts. That would be a huge threat to the integrity of the EU and a huge threat to the EU's struggle against corruption in those countries, which is one of the most important fights that's happening in Europe today.

Matt, thanks very much for joining us.

Thank you. J.

90 million tons of hydrogen are produced each year, sold for more than $150 billion. It's used to process oil, to make plastics, and most crucially, in making quite a lot of the world's fertilizer, linking it to the well being of hundreds of millions of people. But because burning it releases only energy and water, it could have far wider application as a fuel with serious green credentials.

Hydrogen has a very promising future in helping the world achieve deep decarbonization, something we need to do in the next few decades if we're going to keep the extremes of climate change from ravaging the planet.

Vijay Vaithiswaran is the Economist's Global Energy and Climate Innovation Editor and the host of our new podcast on climate change.

To a lesser degree, it doesn't mean it's going to replace all fossil fuels or be the holy grail of energy we. But it does mean in a number of limited but very important niches, it will play a powerful role that no other fuel can play at present. And it could be a trillion dollar industry.

How so?

Hydrogen can play a role in decarbonization because it can be made in a way that's low to zero carbon from renewables or nuclear, for example, and ultimately substitute for dirty ways that we do things in industries like steel making, which accounts for about 8% of the world's greenhouse gas emissions. You can't just substitute blast furnaces with green electricity. It doesn't work. Introducing hydrogen can actually create really green steel. In fact, the first batch of genuinely low carbon steel was made by a Swedish consortium and delivered to a commercial customer just a few weeks ago. Diesel fuel for long distance trains. What's going to substitute for that? It turns out that clean hydrogen is probably cheaper for locomotives than in the electric alternative. And already we have some hydrogen locos running on German rails very effectively. When it comes to trucking, we could introduce battery trucks like Tesla is trying to do. But when you actually look at how much space batteries need and the time to recharge, what you find is that for long trips with heavy Loads. Hydrogen actually provides you very quick refueling. It allows you not to be dependent on the power grid, which may get overloaded in the future. And it lets you carry more cargo with a lot less downtime when batteries need to be recharged. And that translates into dollars and lower total cost of ownership for fleet operators.

I mean, when you put it like that, it sounds as if hydrogen can solve all of our emissions problems. Why isn't everything running on it already?

There have been numerous waves of euphoria around hydrogen. I mean, the first combustion engine that used hydrogen was over 200 years ago. And we've seen manias after the 1970s, oil shocks, for example, where governments tried to invest in hydrogen as a way of getting off of reliance on opec, the oil cartel. Now those other reasons to get into hydrogen didn't have the compelling case that now climate change presents us.

Okay, but how to put it to use? How is it currently made?

Hydrogen is not today's fuel or substitute. Today we make hydrogen mostly from fossil fuels in a dirty way. But in future we could make it from renewable energy. We're talking 10, 20, 30 years as a plan for being part of a decarbonization effort. But this industry is growing very quickly and the cost of hydrogen is falling dramatically. The reason for that, the cost of renewable energy, which is the main input into making green hydrogen, is falling very quickly. And the other reason is that governments around the world now have serious efforts to support hydrogen. They have long term plans. European Union is leading the world, but Japan, Korea, the US has announced a major hydrogen initiative. And so you see countries that are both giving a long term view in terms of policy and regulation support, but also direct subsidies in some cases to encourage companies to bring in private capital and to kickstart the market.

You mentioned a long term view. I mean, what is the timeline here?

If you look out to 2050, which is when most climate planners look in energy scenarios, I think it's quite plausible that we might see a tenth of energy use at the point of the consumer. What's called end use of energy could be replaced by hydrogen as an energy carrier. And so that's not 90%. It's not as big a role as, let's say, renewable electricity on the grid, but it's a significant chunk and more importantly, it's something that is very unlikely to be replaced by other things. Windmills and Teslas ain't going to get the world to deep decarbonization in order to tackle climate change seriously. And because it can reach the parts of the global economy that electricity can, cannot or cannot do easily. That's the opportunity for hydrogen. Now, what happens is once you get an industry going, we can't predict future innovations. So it could be that in some parts of the world, we may see different solutions emerge and maybe even some breakthrough innovations.

That's the opportunity, as you say. But what are the potential stumbling blocks?

I think the number one obstacle is if the world stops getting serious or doesn't continue its intent to be serious about climate change. Unless we see policies with teeth that in effect penalize dirty energies and dirty fuels and reward or give incentives for alternatives that are low carbon, we're not going to see hydrogen go very far. But that's probably true for lots of other forms of low carbon innovations as well. The other kind of obstacle is really a coordination problem. We have a chicken and egg problem. With hydrogen, there isn't much supply and there isn't much demand. Today, it's a relatively small industry. Primarily, the main use is to make fertilizers. Broadly speaking, you need to overcome both the supply and demand problem. And we have done it. As with solar energy, for example, 20 years ago, there wasn't a lot of demand for solar panels. They were very expensive and government subsidized the manufacture and adoption of solar panel manufacturing. And what we saw was a revolution that shook the world. Now we have extremely cheap renewable energy available and the prices are forecast to fall even more dramatically. I think we need to see that sort of concerted effort that would encourage both consumption and supply. And I think that's what we're beginning to see for hydrogen.

Vijay, thanks very much for joining us.

Thank you, Jason.

There's more from Vijay and the rest of our climate reporting team on to a lesser degree, a new podcast from the Economist that takes a closer at the technologies and the politics needed to limit extreme climate change. The latest episode looks at ways to suck carbon from the atmosphere. Iceland just fired up the world's largest facility for injecting carbon dioxide into the ground. And my colleagues were there.

Music, music, music in our ears.

So what does it feel like? Yeah, awesome.

Makes the heartbeat. Yeah.

Look for, to a lesser degree, available at net zero cost from your preferred podcast purveyor. You've probably heard of ByteDance, Klarna and SpaceX 4 launches as the first all.

Civilian mission to space.

And during the pandemic, you might have ordered groceries from Instacart in America or get here in Europe. But what about Kavak? Last year the company joined those firms in an elite Club, it became a unicorn, a private company valued at over a billion dollars. It was Mexico's first unicorn, but now they're coming thick and fast.

In Mexico, there's a big used car market, but it's actually pretty hard to buy or sell one. It's often done just by, by classifieds or meeting someone at a corner store and seeing how it goes.

Sarah Burke is the Economist's Mexico City bureau chief.

Cava came along and is changing this process. On their app, people can buy and they can sell their cars and the company checks them over and deals with the money and offers financing too. And Cavac became Mexico's first unicorn last year, but now there are three others. And even those without unicorn status, there are lots and lots of startups in Mexico.

Like what else, for example?

I mean, lots of them are doing a bit like Kavak. They're looking at pain points in Mexico of which there are many, and trying to solve them. Others about inconvenience. You know, like everywhere in the world people want food delivered to their door or supermarket delivery. So there are lots of apps working in that area. But Fintech is probably the biggest area in Mexico and they're disrupting banking. Lots of the apps. So only a third of Mexicans actually have a bank account. And, and it's very hard to get loans here. And so many businesses have been cash only. So along come these apps and they're doing things like, you know, a Neo bank that it's very easy to open an account with and everything can be done online. Clip, which is you attach it to your smartphone and it will take card payments so businesses can use that.

And so why do you think Mexico is undergoing this boom now?

The bigger question is why it hasn't undergone it earlier. It seems to me it's an obvious market. I mean, it's a huge market. There's 126 million people. The GDP per capita is pretty good. Good. It's around $10,000 per year. It's. Young people adopt technology and other things very quickly. The big drawback has been funding. It's been very hard to get. But that changed in 2019 when SoftBank came in with a huge Latin America fund. And Marcelo Clau, who heads that fund and I talk to, you know, describes Mexico as the land of opportunity. There's just so much under every, every rock you look under, there's something you can do and now there's money. So that's really making the difference.

And apart from SoftBank and other venture capitalists, who else is Investing. Is this something the Mexican government is getting involved in supporting?

I mean, it's not getting super involved. You know, it's not obstructing them. There's not the crackdown on the likes of Uber or Airbnb that we've seen in other places. But, you know, it could probably do a bit more to help them. I mean, it's got a very, very good fintech law, which was enacted in 2018, 18, and has actually been sort of touted as an international model. But, you know, bureaucracy and paperwork and other things that even these apps like Kavak actually have to use. You know, like if they want to do a legal transaction, obviously the government has a role to play in that, and that can take time. In Mexico, for example, Kavak told me that in Brazil, where they also work, a customer can buy and finance a car and they can do the whole transaction in 40 minutes. Mexico, that will take a lot longer.

And do you see in all of this any lessons for other countries looking to emulate Mexico's booming scene?

I mean, one of the things that's interesting is a lot of people say that what works in Mexico might work in other emerging markets that are not yet seeing this boom necessarily. So lots of these startups actually want to expand, not just in the region, but outside. So CAVAC has already expanded to Argentina and Brazil, but is also talking about going across the Pacific and the Atlantic. And I think it will be the same for other ones.

And.

And if it's not them expanding, it will be emerging markets looking and saying, oh, hey, this worked in Mexico. Maybe we can do this here as well.

Thanks very much for your time, Sarah.

Thanks, Jason.

That's all for this episode of the Intelligence. If you like us, leave us a rating and a review and you can subscribe to the economist. Economist.com intelligenceoffer the link is in the show Notes. See you back here tomorrow.