17 March 2021 - Ahead of the expected mid-April revision to the EU Industrial Strategy, Chris Carroll, Programme Manager at the European Corporate Leaders Group, writes about the need to align EU Recovery Plan spending with longer term industrial policy.
Near the back end of the dismal year that was 2020, the UNFCCC 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 European Union’s biggest competitors - including China, South Korea, Japan, and an expected US in due course - are taking a stand and matching the EU’s own climate mantra.
And outside Europe, countries aren’t just grandstanding with high-level long-term goals – they are also setting out how they will go about delivering in the medium term, such as India’s new 2030 target of 450GW installed capacity of renewable energy and China’s pledge 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? Well first off it reinforces the point that decarbonisation is no longer a European fascination but a global endeavour. And secondly, it highlights that if Europe doesn’t get its plans in order, it risks losing the competitive advantage it has been developing over recent years.
Industrial strategies on steroids
And here’s where the more immediate 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 the 37% fund allocation to be spent on climate friendly measures there’s clearly big potential for them 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 then they will have the additional bonus of boosting GDP and employment to a much greater extent than more standard stimulus approaches such as reducing VAT rates alone. Indeed, putting in place policies that invest in EVs, energy efficiency, deploying renewable and low-carbon energy and clean hydrogen are more effective at increasing production and could result in 2 million more jobs across the EU by 2024.
So clean recovery plans are a win-win for tackling immediate economic woes as well enabling longer-term decarbonisation objectives.
But like with steroids, the long-lasting effect of recovery plans could fade over time. If they are not supported by way of aligning them to longer term legislative affairs then their ultimate worth from a climate perspective could be lost down the track.
Fit for 55… and for 2050 too!
This is why the EU must now ensure its legislation is fit for purpose, and not just with the new 2030 climate targets in mind. For EU industrial players, since investment cycles can last multiple decades, hitting net zero emissions by 2050 means they might only have one more crack of the whip. Having a policy framework that includes innovative and ambitious enabling measures could be the difference between a short-lived renaissance and long-term success.
The new and improved EU industrial strategy that is expected next month must ultimately morph into a Clean Industrial package and take a 360 degree take on what is needed to enable lower carbon and more competitive industrial processes.
The Strategy must set out 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 and it must set out the fundamental goal of a revised ETS 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 and the Commission should heed the Climate Law line taken by the European Parliament and set out specific climate neutral sectoral roadmaps in the near-term so all stakeholders and decision makers know what to do and expect over the coming years.
Finally, we also need a proper, robust way of measuring industrial performance that is nuanced on the basis of recognising Europe’s multiple challenges but able to 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 must lead and hold onto its lead in the years to come.
Read the CLG Europe open letter sent to the Competitiveness Council underlines support for green recovery and industrial policy aligned with EU climate targets.
Learn more about CLG Europe’s work on the European industrial strategy.
Learn more about CISL’s work on ‘competitive sustainability’ in the working paper: Developing the EU’s ‘competitive sustainability’ for a resilient recovery and dynamic growth.
A version of this blog was published by Energy Monitor on 22 February 2021.
