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EU seeks competitive boost with Green Deal Industrial Plan

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The EU has presented its ‘Green Deal Industrial Plan’, which seeks to boost investment and economic resilience in the bloc to tackle the challenges of the green transition. It is similar to plans proposed by other major economies of the world, but there is little mention of helping low-income countries with the challenges arising from the transition.

  • The European Commission has presented a plan to boost Europe’s net-zero competitiveness and accelerate the transition to net zero.
  • Dubbed the ‘Green Deal Industrial Plan’, it intends to support the industrial expansion needed to achieve the EU’s climate ambitions.
  • It is seen as a competitive response to similar strategies by major economies but, like similar plans, it fails to recognise the need to address similar transition needs in low-income countries.

European Commission President Ursula Von der Leyen introduced the Green Deal Industrial Plan at the World Economic Forum in Davos in January 2023. It coincided with a deadline set in December 2022, when the Council asked the Commission for an industrial policy for Europe that would address any gaps in innovation and growth between the bloc and its competitors. It also called for the enhancement of structural investment frameworks to facilitate industrial policy at the national and EU level. 

What is the EU’s Green Deal Industrial Plan?

The Green Deal Industrial Plan is a bid by the EU to make its net zero industry more competitive and to accelerate its transition to net zero. It intends to support the expansion of European manufacturing of technologies, goods and services needed to achieve its climate targets.

These are part of the European Green Deal, the bloc’s response to climate change by modernising its economy and making it more resource efficient. It will be financed by funds from its €1.8 trillion NextGenerationEU Recovery Plan, and part of its seven-year budget.

The new plan is fundamentally focused on four areas, or pillars: the regulatory environment, access to finance, enhancing skills, and improving supply chain resilience. It also builds on other initiatives, such as REPowerEU, as well as the strength of the single market. 

“We have a once in a generation opportunity to show the way with speed, ambition and a sense of purpose to secure the EU’s industrial lead in the fast-growing net-zero technology sector. Europe is determined to lead the clean tech revolution,”said von der Leyen. “For our companies and people, it means turning skills into quality jobs and innovation into mass production, thanks to a simpler and faster framework. Better access to finance will allow our key cleantech industries to scale up quickly.” 

How do the four pillars boost the EU’s global competitiveness?

According to the EU, establishing a simplified regulatory environment is vital to setting standards and accelerating the deployment of innovative climate action solutions. It will enact new legislation to facilitate this, in the form of the Net-Zero Industry Act, and will also introduce a Critical Raw Materials Act to ensure access to materials needed for the transition. 

For the second pillar, the EU will combine existing funding plans and mobilise public financing, to speed up investment in areas such as clean tech. It will propose a European Sovereignty Fund, designed to provide interim financial support while the bloc’s multiannual financial framework is being reviewed by the middle of 2023.

It is also to revise the approval and threshold notification processes of the General block exemption Regulation, which was intended for state aid to small and medium-sized enterprises and was limited to amounts of €500,000, and simplify the Important Project of Common European Interest framework.

The Commission is also revising its guidance on recovery and resilience plans to help member states access funds from REPowerEU, while also looking at using funds available via InvestEU, which aims to generate more than €370 billion in public and private investing by 2027, and the €38 billion Innovation Fund for innovative low-carbon technologies.

As the third pillar, the EC also recognises the need to develop skills to fill the jobs created by the green transition, and also address the resulting job loss, with an estimated 35% and 40% of all jobs potentially affected by the transition. It will propose setting up the Net-Zero Industry Academies to improve skills in strategic industries, while seeking to attract global talent on a “skills-first” approach for priority sectors. 

To address the final pillar, the EU envisages working with external partner countries to facilitate trade agreements, protecting the single market from unfair trade practices, such as foreign subsidies distorting competition in the clean-tech sector. It will also create a Critical Raw Materials Club to secure the global supply of critical minerals, by connecting consumers with suppliers from resource-rich countries through transition-focused industrial partnerships. 

The pillars identify the critical areas in which the EC believes it needs to act to match the plans that are being put forward by many of the major global industrial economies.

Responding to rising global competition to accelerate the transition

Von der Leyen said that the key motivation behind the launch of the Green Deal Industrial Plan is the response of the US, Japan, the UK and Canada to the industrial and economic shift being created by the transition to net zero by 2050.

The passage of the Inflation Reduction Act (IRA) in the US, the EU’s largest trading partner, created a $369 billion opportunity to invest in technologies to enable the green transition. Yet, von der Leyen pointed out that elements of the IRA may not be beneficial to European trading partners, and could disrupt current transatlantic trade.

While acknowledging that competition and trade could help accelerate the development of clean-tech innovations, she pointed out the need for European industry to develop its own capabilities, supported by the four pillars proposed in the plan.

Similar opportunities for collaboration and competition could arise from the plans announced by Japan’s green transformation plans, which aim to raise around €140 billion through ‘green transition’ bonds, to India’s plans to promote competitiveness in sectors such as solar photovoltaics and batteries, and the UK and Canada’s plans in clean tech.

The Commission is also mindful of not creating new dependencies in its bid to improve its competitiveness. Von de Leyen cited “aggressive attempts” by China to acquire Europe’s industrial capacities, and also the EU’s dependency on Russian energy as examples of this.  

There is recognition among most major economies to compete for their piece of a vast global market, with plans to improve their own economic resilience. Indeed, the International Energy Agency estimates that $650 billion in annual investments are needed by 2030 to fulfil the clean energy needs towards the net zero transition, which is three times the current levels of investment. 

What seems to be missing from many of these plans is how the major economies of the world plan to enable low-income countries to deal with the transition, since they face disproportionately harder challenges, and the economic wherewithal to deal with them.

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