Green Industry: From Zero to Hero

The long-term goal of decarbonizing Europe’s energy supply across sectors has brought a handful of new key technologies into the focus of industrial policy: lithium batteries, PV modules, fuel cells and other devices for the conversion and distribution of green energy. So far, European producers have largely played only a minor role on the growing global markets for these technologies. The massive expansion of government subsidies in the USA under the Inflation Reduction Act is putting additional pressure on European production. The Net Zero Industry Act was supposed to be Brussels‘ determined response but the proposed bill is not as ambitious as it first seems.

Net-Zero Industry Act: Great Ambition, Weak Execution

So-called strategic net-zero technologies are identified and linked by an ambitious political target (40% domestic generation by 2030). However, the levers envisaged to drive industrial projects in these areas are weak. For example, one-stop-shops are to be set up in the Member States for such projects and maximum approval deadlines are to apply. Yet, no automatic approval mechanism will apply to the final stage of the process, even if the deadline has expired. Net-Zero Strategic Projects must be assigned the highest national priority level in spatial planning processes and environmental assessments. However, the degree of prioritization is not specified in any way and no European minimum standards exist. The controversial passage on the introduction of resilience criteria in public procurement decisions has also been toned down compared to an earlier leaked version: only the fact that a supplier comes from a third country that is a dominant supplier will be considered as a resilience criterion, without any detailed specifications as to what such consideration will involve. Moreover, a central platform will be created for the governance of the future Net Zero Industry Policy, with delegates from the Commission and the Member States. But this Net-Zero Europe Platform has no sanctioning or decision-making authority: its function is exclusively to provide a forum for discussion and to give advice to Member States.

Once again, it is all up to Paris and Berlin

Rightly, therefore, the focal point of the public discussion is not the Net Zero Industry Act, but the relaxation of state aid rules for Member States, announced by the Commission in the Green Deal Industrial Plan. Brussels is thus passing the ball back to national level. In the future, the location of new industrial hubs for green technologies in Europe could depend even more than before on financial strength and industrial policy concepts in Paris, Berlin and Warsaw. In view of the disagreement at European level, the delegation of European industrial strategy is to some extent unavoidable. But it also poses risks for the long-term competitiveness of Europe as a whole. An intra-EU subsidy race could create cost-inefficient structures and place high burdens on national budgets. Increasing political tensions and bloc formation among the Member States could also be exacerbated in the course of a locational competition distorted by fiscal policy means.

Streamlining Policies for Emission Abatement is Key

It is therefore important to link any relaxation of subsidy rules to a basic political consensus on the prioritization of government support. A key aspect is the congruence of industrial and climate policy: All efforts should be aligned with the overall objective of reducing greenhouse gas emissions in Europe at the lowest possible cost. Initially, the focus of additional subsidies should therefore be on decarbonizing the established industries in Europe. Not only is the preservation of a large part of value creation at stake here, technology decisions made by industries such as chemicals, steel and cement also determine the speed at which climate neutrality is reached.

Strengthen Investment Incentives for Low-emission Technologies

Support instruments should be linked as closely as possible to the emissions-based incentives of the existing CO₂ emissions trading system, for example by temporarily eliminating uncertainty in the CO₂ price signal or by creating new markets for low-emission products through the certification of achieved emissions reductions. In addition, policymakers must above all set the right framework conditions for ensuring sufficient availability and especially affordability of the renewable energy sources necessary for transforming industries. Here, too, undistorted market signals are needed to provide the right investment incentives for producers.

Autonomy is not Self-sufficiency

At the end of this path, a new global economic scenario could emerge in which Europe retains its industrial core competencies in downstream industries, while the clean technologies needed for energy supply are largely imported from third countries. This is not a nightmare scenario but is referred to as the international division of labour. Through cooperation with strategic partners and smart diversification, Europe has every chance of being strategically autonomous in such a world without having to turn the clock back to mercantilism.