Crédit Mutuel AM: Industrial competitiveness and European energy security
While the Omnibus Regulation, which seeks to simplify the regulatory framework with regards to sustainability requirements in Europe, is at the forefront of the debate on 'simplification or deregulation', another initiative from the European Commission, aimed at boosting the competitiveness of the European industry, deserves attention. The Clean Industrial Act draws its proposals from the conclusions of the Draghi Report, which was ordered by the European Commission last September. The conclusions of this report highlight three possible courses of action:
- Tackling the innovation gap with other global powers. This gap is evident in various ways: Europe’s low investment in Research and Development in comparison to other countries and the absence of European companies created in the last 50 years with a market capitalization exceeding €100 billion, while the United States has seen the creation of six companies worth over €1000 billion during the same period.
- Accelerating decarbonization and increasing competitiveness: European companies are confronted with electricity prices that are two to three times higher than those in the United States. The price of natural gas in Europe is four to five times higher than in the United States. This disparity is not only due to the lack of natural resources in Europe, but also stems from taxation and fees in place in the energy market.
- Increasing the security and sovereignty of our industrial supply, therefore reducing our dependency on critical materials and technologies, particularly in light of rising geopolitical tensions. Today, Europe is heavily reliant on a few suppliers for raw materials. For instance, China provides 100% of the European Union's (EU) rare earths supply, Turkey provides 99% of the EU's supply of boron and South Africa supplies 71% of the EU's needs for platinum.
The Clean Industrial Deal therefore outlines concrete measures aimed at providing quick relief to both energy-intensive industries (e.g. steel, metals, etc.) which need to decarbonize and electrify without unfair competition or regulatory complexity, and to the clean-tech sector (e.g. clean energy, electric vehicles, etc.) which is central to future competitiveness and essential for industrial transformation, circularity and decarbonization.
The Clean Industrial Deal is therefore structured around several pillars, namely affordable energy and circularity:
Affordable energy, which is the first pillar, includes measures aimed at reducing energy bills for industries, businesses and households in the short term, while increasing the electrification rate of the global economy with a target of 32% by 2030 compared to 21.3% today.
The reduction of energy bills may involve supporting the adoption of long-term Power Purchase Agreements (PPAs & Contracts for Difference - CFDs) with guarantees for SMEs and energy-intensive industries. Additionally, tax measures are mentioned to allow the possibility to reduce taxation of electricity to zero for energy-intensive industries.
Efforts to reduce energy costs must also be accompanied by i) an acceleration of clean energy deployment and electrification in Europe, while reducing authorization periods for the implementation of projects; ii) ensuring the proper functioning of gas markets by eliminating current taxes and fees.
The focus on circularity (the second pillar of the Clean Industrial Deal) is in line with the EU's ambition to become the global leader in the circular economy by 2030. The proposal on critical raw materials includes a recycling target rate of 25% by 2030.
This objective will be supported by measures aimed at promoting recycling and limiting the export of waste to decrease the EU’s dependence on raw materials. These materials will be reused, refurbished, recycled and revalorized in the economy. The circular potential of European remanufacturing market is expected to increase from its present value of €31 billion to €100 billion by 2030, creating 500,000 new jobs.
At this stage, the only downside of the Clean Industrial Deal is its level of ambition. Indeed, the European Commission has mentioned 480 billion euros in investment to be mobilized while the Draghi Report recommended 750 to 800 billion euros to tackle the situation. As is often the case with European proposals, the intention is good, but its potential for action cannot be fully realized without coordination and consistent efforts at the national level.