EU industrial and recovery plans can boost climate action and competitiveness
EU Recovery Plan spending must align with longer-term industrial policies if Europe is to meet its climate goals and be competitive globally, argues Chris Carroll, programme manager at the European Corporate Leaders Group.
Near the back end of the dismal year that was 2020, the United Nations Framework Convention on Climate Change announced that countries representing almost 65% of global CO2 emissions and 70% of the world’s economy will have made a commitment to reach carbon neutrality by the first half of this year.
This positive, if under-reported, synthesis of global commitments highlights how many of the EU’s biggest competitors – including China, South Korea, Japan and most likely, in due course, the US – are taking a stand and matching the EU’s own climate mantra.
Outside Europe, countries are not just grandstanding with high-level, long-term goals – they are also setting out how they will deliver in the medium term. India has set a new 2030 target of 450GW installed capacity of renewable energy, while China has pledged to increase the share of non-fossil fuels in primary energy consumption to around 25%, again by 2030.
What does all of this mean for the EU? First, it reinforces the point that decarbonisation is no longer a European fascination but a global endeavour. Second, it highlights that if Europe does not get its plans in order, it risks losing the competitive advantage it has been developing in recent years.
Industrial strategies on steroids
This is where the EU recovery plans and industrial policy comes in. As described by one European Commission official, the recovery plans are in essence industrial strategies on steroids – and with 37% of recovery funds to be spent on climate-friendly measures, there is clearly big potential to inject a shot of life into Europe’s shift to a climate-neutral economy.
Research published by the We Mean Business Coalition and CLG Europe last year also shows that if the recovery plans are aligned with EU climate targets, they will have the bonus of boosting GDP and employment to a much greater extent than more standard stimulus approaches, such as reducing VAT rates.
Indeed, putting in place policies that drive investment in electric vehicles, energy efficiency, renewables and low-carbon energy deployment, and clean hydrogen are more effective at increasing production, and could result in two million more jobs across the EU by 2024.
In short, clean recovery plans are a win-win for tackling immediate economic woes and enabling longer-term decarbonisation objectives.
However, like with steroids, the long-lasting effect of recovery plans could fade over time. If they are not aligned with longer-term legislative plans, their ultimate worth from a climate perspective could be lost down the track.
Fit for 55… and for 2050 too
This is why EU legislation must be fit for industrial and climate purpose and not just with respect to the new 2030 target to reduce greenhouse gas emissions by at least 55%.
Since investment cycles can last multiple decades, hitting net-zero emissions by 2050 means EU industrial players might only have one more crack of the whip to invest in major industrial redevelopment. Having a policy framework that includes innovative and ambitious enabling measures could be the difference between a short-lived renaissance and long-term success.
When Europe’s industry ministers meet later this week, they must recognise the urgency and why the new EU industrial strategy that is expected from the Commission next month needs to morph into a clean industrial package. This package should take a 360-degree look at what is needed to lower carbon emissions and create more competitive industrial processes.
The new EU industrial strategy that is expected from the Commission next month needs to morph into a clean industrial package.
The strategy must set a clear framework for how EU legislation can drive down emissions and create competitive, ultra-low-carbon lead markets for hard-to-abate sectors like cement, steel and chemicals.
It should set out an approach to enable greater deployment of innovative financial support schemes such as Carbon Contracts for Difference. It should also set the fundamental goal of a revised Emissions Trading System that locks in a more effective and predictable carbon price that is in tandem with EU climate goals.
Deploying more affordable renewable and low-carbon energy will also need to become a central plank of any new industrial planning. The Commission should also heed the line taken by the European Parliament on the new EU climate law and set out specific climate-neutral sectoral road maps in the near term so all stakeholders and decision makers know what to do and expect over the coming years.
Finally, there needs to be a proper, robust way of measuring industrial performance. This metric should recognise Europe’s multiple challenges, but capture the economic, jobs, health and environmental benefits related to a more self-sufficient, low-carbon and circular economy.
Ultimately, the cost of weak climate ambition and poor alignment in the development of recovery plans and industrial policies is likely to have negative consequences for the competitiveness of European industry in the transition to a climate-neutral world. Europe should lead and hold onto its lead in the years to come.