Brussels – A common plan for decarbonization and competitiveness, enabling the EU to lead the world in clean technologies, keeping in mind that “if we fail to coordinate our policies, there is a risk that decarbonization will be contrary to competitiveness and growth.” This is the second of the three pillars on which the industrial strategy of the Union must be based, according to Mario Draghi, along with increased efforts on innovation and to shake off dangerous dependencies on other countries.
The former ECB president’s report on the future of European competitiveness (available here in English) is a cold shower on Brussels policymakers, exposing the Union’s lagging behind the giants of the world economy, the United States and China, above all. However, it is also a confirmation that there is no turning back from the green transition undertaken in recent years. It must be followed through to the end, correcting what can be done so that environmental goals do not cripple an industry to be revitalized.
The conjuncture that has shaken the EU’s energy security on the delicate transition path is well known. With Russia’s war in Ukraine and the freezing of relations with Moscow, a “relatively cheap source of energy has now disappeared at a huge cost to Europe.” The report says the EU has lost more than a year’s GDP growth and, more importantly, “has had to redirect substantial fiscal resources to energy subsidies and the construction of new infrastructure for the import of liquefied natural gas.”
The resulting high energy costs “have affected potential growth in Europe,” the former premier continues in his analysis. Because they have affected—and continue to affect—the sentiment of European companies about investment. The output of energy-intensive industries has dropped by 10-15 per cent since 2021, and imports from countries with lower energy costs have increased. But there is more.
The EU’s decarbonization targets “are more ambitious than its competitors, creating additional short-term costs for European industry.” While Brussels has adopted binding legislation to reduce greenhouse gas emissions by at least 55 per cent by 2030 compared to 1990 levels, the United States has set a non-binding target of a 50-52 per cent reduction from (higher) 2005 levels by 2030, and even China is only aiming to peak carbon emissions by the end of the decade. “These differences create a huge short-term investment need for EU companies that their competitors do not face,” Draghi admits.
The path indicated by the report is one of “massive deployment of clean energy sources with low marginal generation costs, such as renewables and nuclear power.” It is not starting from scratch because the deployment of clean energy sources in Europe has already increased, reaching about 22 per cent of EU gross final energy consumption in 2023, compared to 14 per cent in China and 9 per cent in the United States. “Some EU regions have high potential for cost-competitive renewable energy sources: for example, solar power in southern Europe and wind power in the North and Southeast,” the Italian economist’s analysis notes.
We need to simplify and streamline administrative and permitting processes to accelerate the deployment of renewables, flexibility infrastructures, and grids; strengthen system integration, storage and demand flexibility to keep total system costs under control; accelerate the development of the “new nuclear,” and promote the role of carbon capture, utilization, and storage technologies. But more generally, we need to promote and intensify investment in innovation in the energy sector and “develop the governance necessary for a true Energy Union.”
English version by the Translation Service of Withub
