From the DG's Desk: Getting European industry to net zero
18 January 2023
European Commission President Ursula von der Leyen announced the EU’s keenly awaited new industrial strategy (the third in as many years) to respond to the US clean tech subsidy bonanza under the Inflation Reduction Act, and to get European industry to net zero.
Much in this "Green Deal Industrial Plan" remains vague for now. But – representing European high-tech and clean-tech manufacturers – here are some things we can already say:
So far so good
Start with the good. There is plenty. The European Commission recognises that Europe’s future prosperity and ability to reach net zero depend on a radical transformation of manufacturing, that the US and China have already understood this and are moving fast, and that Europe cannot afford to fall behind. This is what we at Orgalim have argued for years, and I welcome the fact that our political leadership is now fully mobilised.
The Commission also now recognises the vast scale of the challenge of the net zero industrial transformation, and that "more of the same" policies will fail to get us there. This means accepting that the EU needs to course-correct on some things. Take EU trade policy and the EU-Mercosur free trade agreement: this FTA holds huge potential in improving access to supply chains for clean tech made in Europe, and bringing these goods to new markets. And yet implementation of this FTA has been stuck since 2019, as local political disagreements got in the way of the EU’s shared strategic interests. We applaud the Commission’s commitment to change this, even if the politics are not easy – Europe cannot afford to lose more time.
It is also good to see the Commission pinpointing some regulatory obstacles which are holding back clean tech in Europe, such as permitting rules, and making it clear that our success in the required industrial transformation ultimately comes down to money – which is not yet flowing in anywhere near sufficient quantities. So far, so very good.
From the perspective of Europe’s clean tech manufacturers, I’d like to outline three priorities for a faster and cheaper path to a competitive European net zero industry than what has been announced. First, clean tech is understood too narrowly, essentially as renewables and a few related energy technologies like hydrogen and storage. While these are of course vital, that narrow scope misses the radical industrial transformation required. We will not achieve net zero by 2050 if we only bet on replacing fossil energy with renewables. A far bigger focus is needed on electrification and advanced manufacturing technologies, which allow industry to use massively less energy and resources. These efficiency gains are not only vital for a realistic path to net zero, but will at the same time also unlock new growth opportunities across industrial sectors.
We will not achieve net zero by 2050 if we only bet on replacing fossil energy with renewables. A far bigger focus is needed on electrification and advanced manufacturing technologies, which allow industry to use massively less energy and resources.
Second, there is a disproportionate emphasis in the current plan on public subsidies for a few chosen technologies, and too little focus on how to generate conditions for private investment based on long-term value creation in Europe. There is clearly a role for state aid to incentivise the market and address market failures, and the ambition to make better and faster use of existing public funds is welcome. But there are also big risks of a wasteful and unproductive subsidy race. For hundreds of thousands of smaller companies in our industries – the backbone of Europe’s clean tech industry – the worry is that a few political favourites from a few big states would benefit disproportionately, creating deep artificial imbalances in the internal market and undermining the long-term competitiveness of European industry. In fairness, the Commission recognises this risk, but there is still far too little clarity on how it will address this and avoid unleashing a dangerous spiral to ever more subsidies.
Finally, the plan does not seem to recognise that burdensome legislation is often the biggest obstacle to unlocking investments in clean tech manufacturing in Europe, especially for smaller companies. In recent years, a lack of regulatory certainty, sky-high new compliance burdens and a shift away from innovation-friendly legislation have become a reality for countless European clean tech manufacturers. As President von der Leyen said in her speech: "We need to create a regulatory environment that allows us to scale up fast and to create conducive conditions for sectors crucial to reaching net zero." I could not agree more. This has to go far beyond improving permitting conditions for renewable energy, and must include a more honest look at the full regulatory environment that determines the investment conditions and competitiveness of clean tech manufacturing in Europe. We understand the politics are not easy – but this is often the first thing European clean tech manufacturers say they need to invest and remain competitive here in Europe.
More to come
Much more can be done on these three priorities, to reinforce what was already announced, with the potential for tangible and rapid progress. The EU’s Industrial Forum will soon provide a timely policy blueprint for how this can be achieved, bringing together the views of clean tech manufacturers and multiple industrial sectors, social partners, research and innovation organisations, and others. I hope its recommendations will get all the attention they deserve as the Green Deal Industrial Plan takes shape.