From Energy in Energy Depth

By Nicole Jacobs

The Europeans have tried to regulate the U.S. oil and gas industry for more than a year (see Europeans Presume to Impose Their Regulations on American Gas). You probably know what we think of that. They are doing it again.

The European Union is moving forward with several climate regulations that reach across borders and penalize American energy companies, particularly LNG exporters. Chief among these incoming climate regulations is the Corporate Sustainability Due Diligence Directive, or “CS3D.”

American policymakers ranging from state attorneys general to cabinet secretaries are ringing the alarm over CS3D’s threat to energy security, American sovereignty, and economic competitiveness.

Here are some key things to be aware of with respect to CS3D:

A Bureaucratic Behemoth

CS3D creates costly burdens for companies doing business in Europe by mandating adherence to the EU’s aggressive climate policies and stringent labor standards, including requiring companies to establish and implement Paris-aligned net zero goals across scope 1, 2, and 3 emissions.

Though it was adopted by bureaucrats in Brussels, CS3D will reach well beyond the EU’s borders and impose stringent due diligence requirements on nearly 17,000 businesses around the world. This includes roughly 3,000 large U.S. companies that meet headcount and revenue thresholds in Europe.

The law even goes as far as to require companies to vet the environmental and labor standards of their suppliers and subcontractors, who are oftentimes small and medium-sized businesses, no matter where they are located around the globe. As Reuters reports:

“The directive places new requirements on companies to fully audit ‘upstream’ partners in design or manufacture, and ‘downstream’ partners who transport, store and distribute products.”

This means that an American natural gas company exporting LNG to Europe would have to comply with CS3D. Even an American oilfield services company that has no presence in Europe but does business with a large multinational corporation may face ESG “due diligence” requests due to its position it the supply chain.

The President of the Council of the European Union estimated compliance would cost companies up to $2.7 million annually. Failure to comply could lead to fines of up to 5 percent of a company’s annual global revenue, or land American businesses in European courts, as the directive allows private parties (like ENGOs) to sue for suspected noncompliance.

International Impacts

CS3D deeply threatens the operations of the American energy industry, heavily impedes on the notion of sovereignty, and threatens to bring American businesses down with the ship as Europe faces widespread deindustrialization.

Countless American energy companies would be forced to comply with CS3D, as the United States is the leading exporter of energy to the EU. The United States has provided 55 percent of Europe’s LNG supply this year and provided 17 percent of all EU oil imports last year.

Some companies have threatened to withdraw from doing business in Europe altogether. Major LNG supplier Qatar Energy warned the European Union that it would cease exports to the EU rather than risk large penalties and lawsuits for suspected noncompliance, and with the clock ticking down on Europe’s planned 2027 Russian gas exit, it can’t afford to lose additional energy suppliers.

America’s Answer

Thankfully, leaders in Washington and across the country are standing up to Brussels’s incursion in American sovereignty. Just last week, over 20 Republican state attorneys general penned a letter to President Trump, urging him to push back on CS3D.

While President Trump has yet to comment on the CS3D, major officials in his cabinet have recently taken aim at the directive.

Commerce Secretary Howard Lutnick warned that CS3D is “a significant burden on American corporations,” Secretary of Energy Chris Wright labeled the directive a non-tariff barrier that is “problematic for growing energy into Europe,” and SEC Chair Paul Atkins argued in the Financial Times that CS3D and its partner regulations “risk imposing costs that fall on American investors and customers.”

On Capitol Hill, Banking and Finance Committee heads Sen. Bill Hagerty (R-TN) and Rep. French Hill (R-AR) authored an op-ed in the Wall Street Journal, taking aim at CS3D:

“European leaders may choose to self-immolate their economies on the altar of climate and social justice, but Americans shouldn’t be dragged along without a say.”

Earlier this year, Sen. Hagerty (R-TN) turned his words into action by introducing the PROTECT USA Act of 2025 (S. 985), which would prohibit American companies in critical industries, including energy, from being forced to comply with any foreign sustainability due diligence regulation.

Bottom line: Europe’s energy security and industrial base is already at risk as it fails to keep pace with other major economies. America’s economy is booming—we should not let the EU drag us down.