How to remain competitive
Mario Draghi – former European Central Bank President – was tasked by the European Commission to prepare a report of his personal vision on the future of European competitiveness. The objective of this report is to lay out a new industrial strategy for Europe to overcome three barriers standing in our way: lacking focus, wasting common resources and not coordinating where it matters.
“We should abandon the illusion that only procrastination can preserve consensus. In fact, procrastination has only produced slower growth, and it has certainly achieved no more consensus. We have reached the point where, without action, we will have to either compromise our welfare, our environment or our freedom.”
What are the areas for action?
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Simply put, we must unlock our innovation potential. Europe is stuck in a static industrial structure.
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Decarbonization will be an opportunity. Without a plan to transfer the benefits of decarbonisation to end-users, energy prices will continue to weigh on growth
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Europe is particularly exposed. We will need a genuine EU “foreign economic policy” to retain our freedom – a so-called statecraft.
Decarbonisation and Competitiveness for Energy Intensive Industries (EIIs)
During the past years, and in particular since the energy crisis of 2022, the competitiveness of the EU’s EIIs has deteriorated sharply, chemicals being the most affected one. Nonetheless, decarbonising the four largest EIIs (chemicals, basic metals, non-metallic minerals, and paper) is projected to cost EUR 500 billion over the next 15 years. The EU is unique in having a significant CO2 price, but heavy industries have largely been shielded by free allowances under the Emissions Trading Scheme (ETS). These allowances will be phased out with the Carbon Border Adjustment Mechanism (CBAM).
Challenges and Public Support: Despite needing massive investments, there's limited public support for EIIs' transition. Most ETS resources go to residential efficiency, renewables, and lowering energy bills. EIIs in other regions face fewer decarbonisation targets and get more state support. The report suggests directing more ETS revenues to EIIs for innovation and skills development. While CBAM helps European companies stay competitive against global peers, its success remains uncertain. The EU should monitor and improve CBAM and consider delaying the phase-out of free ETS allowances if needed.
Cost-Efficient Decarbonisation: Accelerate decarbonisation using all solutions through a technology-neutral approach, including renewables, nuclear, hydrogen, bioenergy, and carbon capture. This needs massive public and private financing.
The future of European competitiveness:
Decarbonization & Policy Harmonization: Decarbonization is key for growth. Ambitious goals need harmonized industrial, climate, and trade policies. Investments in climate will pay off.
Energy Market Reform: Overreliance on Russia’s gas, neglecting nuclear, and dropping the ball in solar have been historic mistakes. The energy market should be detached from gas pricing.
Future Energy Strategy: As gas prices drop, it's crucial to use this breathing period to expand electricity and build grids. Focus on clean tech production and harmonizing critical minerals and technology manufacturing security mechanism.
Innovation & Circular Economy: Breaking dependencies through innovation and circularity is essential. In the short term, subsidies are necessary to support clean technologies and foster industry growth.
The Green Deal Industrial Plan centers on three key legislative initiatives: the Net-Zero Industry Act, the Critical Raw Materials Act, and the Electricity Market Design Reform. The aim is clear: to decarbonize and revitalize Europe's economy. While the Clean Industrial Deal focuses on broad decarbonization and reindustrialization, the Net-Zero Industry Act zeroes in on enhancing manufacturing capacity and setting regulatory frameworks. Excitingly, the new Commission is set to present this ambitious Industrial Plan within the first 100 days of their mandate.
