Call for a European Green Industrial Policy
We are coming to the end of this Commission’s mandate. It is time to think about the future of Eureopean Union (EU) climate action. France and Germany called for a EU Green industrial policy last year but since then have not yet show EU leadership. An EU approach needs to get 3 design elements right: Vision, Funding and Governance. In this OpEd, Stiftung KlimaWirtschaft and I4CE call for France and Germany to come together in leadership and, ahead of the EU elections, call for a European response to the great challenge of the 21st century.
United we stand, divided we fall
The US, China, Japan, and other large economies are pinning their economic futures on decarbonisation and cleantech. Their ambition is underpinned by ambitious industrial policies and public investment plans (such as the IRA). The EU is lacking this, and instead relies of a patchwork of EU and national initiatives, leading to an estimated 0.34% of EU GDP of public investments that support clean technologies every year. By contrast, the IRA alone represents yearly investment of between 0.2-0.6% of US GDP, coming on top of other US federal programmes like the Infrastructure, the Chips Act, and major US State-level initiatives.
Without greater public investment, the EU will fall behind in the global cleantech race and seeing the competitiveness of its historic industries falter. Attempts at an EU response, namely the Green Deal Industrial Plan, have so far proved insufficient to face the scale of the competitiveness challenge Europe faces. Businesses across Europe are therefore calling for far greater ambition, while threatening to relocate operations across the Atlantic.
What is required is a truly European green industrial policy, which must address three key issues:
First, creating an industrial policy that can put the Green Deal to work. The EU’s common economic policies have so far centred around maintaining a level playing field between member states, the cohesion of economic development and nurturing innovation. A common industrial policy must build on this and add another step to face the challenges of the 21st century and help Europe reach its climate goals. Climate innovation should be supported to scale and reach the market quickly, supply chains should be made more resilient to secure European energy security and existing industries should be supported to decarbonise to ensure an economy-wide transformation.
Second, find a solution to close the climate investment gap, currently estimated at €360bn a year. Amid an economic crisis and at a time when other large economies are betting big on cleantech, the European public investment options currently remain too complex, too small – or both. For a truly European response, national budgets are not sufficient. A common industrial policy must create the space for more European funds to be spent quickly, simply and strategically. In the short term, the best option is to increase public funding dedicated to the EU Innovation Fund.
Third, a more effective European governance structure is required if the EU is to match American and Chinese peer institutions’ ability to act. Ambitious policy will have little effect unless the institutions that implement it take up a spirit of courage and creativity. Long permitting timelines should be accelerated, complex funding criteria simplified. This will not be achieved overnight. Member States will need to empower the EU’s institutions to take a more entrepreneurial, less risk-averse role, in investing and transforming Europe’s clean industrial sector.
Clean industries made in Europe
Europe’s decarbonisation, and the transition from fossil power to clean, climate neutral production poses a once-in-a-generation challenge. Greening European industry and supporting EU cleantech is not a recipe for deindustrialization. Quite the opposite: as liquified natural gas prices look set to remain high, European industries need to get clean to maintain competitiveness. A green industrial policy should underpin such a new European economic model.
Businesses leaders, researchers and citizens in the EU are ready to take on the challenge of a global cleantech race. Yet without Member State support for a common industrial policy, it is unlikely that the next Commission will be able to fully play its part. The leaders of the bloc’s two largest economies, France and Germany, need to send a clear signal that a European approach to green industrial policy and climate investments must be the foundation for the prosperity of the future.
