The EU can set off billions in clear funding, construct competitiveness and safe its industrial future through insurance policies to create lead markets for clear supplies, in response to a brand new report from coverage and thinktank teams the Industrial Transition Accelerator (ITA) and E3G.
The report, Constructing the EU’s Clear Industrial Future: Unlocking Funding By way of Lead Markets, makes the case that Europe’s aggressive edge lies not solely in know-how or capital, however in creating market certainty. As different areas achieve floor – China alone accounts for 25% of dedicated investments in clear trade globally, whereas rising economies with considerable photo voltaic sources make up a 3rd of introduced tasks – EU coverage makers have a slim window during which to behave.
Key findings reported:
- Fossil-based manufacturing is unsustainable not solely environmentally, but in addition financially: Europe’s fossil-based metal, aluminium, and ammonia are already costlier than world averages. These commodities are additionally extra uncovered to unstable power markets as a result of the bloc imports many of the fossil fuels it makes use of in manufacturing. Persevering with to deal with fossil fuel-intensive manufacturing additionally dangers leaving European trade behind within the world race for clear manufacturing.
- Focused interventions can allow lead markets for clear supplies: the EU’s Clear Industrial Deal (CID), introduced earlier this yr, recognises the significance of lead markets in supporting clear trade, counsel the authors. Delivering particular coverage interventions to allow these clear markets will generate important extra demand in strategic downstream sectors reminiscent of automotive, buildings, infrastructure, and fertilisers. As these sectors account for a big share of commodity use in Europe, implementing these insurance policies may set off funding at scale.
- Clear manufacturing is inexpensive: the so-called “inexperienced premium” for clear commodities – lengthy perceived as a barrier – has solely a marginal impact on end-product costs, say the authors of the report. For instance, totally switching to scrub metal and aluminium would improve the price of manufacturing a automotive by simply 1%, whereas utilizing low-carbon cement in buildings would add 2% to development prices. These will increase can be gradual over a few years as a result of clear manufacturing can be slowly phased in, and their extra prices will cut back over time. Against this, dependence on fossil fuels has confirmed a far better inflation danger: in 2022, power costs added round six share factors to EU headline inflation in a single yr.1 The regular, predictable prices of cleaner supplies over a few years pale subsequent to the volatility of fossil-fuel-driven inflation.
- Europe dangers falling behind: whereas Europe at the moment has a big pipeline of fresh industrial tasks, many are stalled because of an absence of market demand, and different nations are quickly catching up. In accordance with Mission Attainable Partnership’s World Challenge Tracker information in June, China alone accounted for 25% of dedicated investments, whereas rising economies with considerable photo voltaic sources made up a 3rd of introduced tasks. International locations with considerable low-cost renewables will develop into more and more aggressive at clear manufacturing, and European policymakers ought to contemplate the best way to leverage clear commerce partnerships to spice up the competitiveness of downstream EU trade.
Faustine Delasalle, Govt Director of the ITA and CEO of MPP, stated: “The message is obvious: European policymakers have a option to make between unlocking investments that can strengthen their aggressive benefit in clear trade, or clinging to a weak and struggling fossil-based trade and falling additional behind.
“Our analysis exhibits that the subsequent industrial transition is already underway and early movers stand to achieve probably the most. Europe has established an early lead in new tasks, however is now struggling to advance tasks to development. By establishing lead markets, Europe can place itself on the forefront of fresh trade, decarbonise its economic system, and unlock funding. The time to behave is now – hesitation will imply being left behind.”
Decarbonising heavy trade sectors, particularly ammonia, aluminium, cement, and metal, is crucial to assembly the EU’s local weather objectives, with the bloc aiming to cut back web Greenhouse Fuel (GHG) emissions by 90% by 2040, and obtain local weather neutrality by 2050. Solely two commercial-scale deep decarbonisation tasks within the EU have reached Ultimate Funding Choice (FID) since 2024.
Johanna Lehne, Affiliate Director, Clear Financial system from E3G stated: “Europe has the talents, know-how and capital to steer the worldwide clear trade race – however provided that we create the best markets. This report exhibits that the prices of going inexperienced are far decrease than the prices of standing nonetheless. By unlocking demand for clear metal, cement, aluminium and ammonia, Europe can safe its industrial future, shield jobs, and construct resilience within the face of unstable fossil gasoline markets.”
The report argues that the most important barrier to delivering clear industrial tasks just isn’t know-how or capital, however an absence of sturdy markets for clear industrial merchandise. It highlights 5 key coverage instruments to unlock Europe’s industrial transition:
- Product mandates in sectors the place the personal sector represents most demand like automotive and fertilisers.
- Focused subsidies the place increased prices related to storage and transport for commodities (mid-stream prices) may have social impacts. Ammonia, for instance, is a necessary ingredient in fertilisers that play a significant function in our meals methods.
- Measures to mitigate aggressive dangers the place downstream merchandise are uncovered to worldwide competitors, reminiscent of guaranteeing equal requirements are utilized to imports or, the place applicable, native content material necessities.
- Public procurement in sectors the place authorities works symbolize a excessive share of total demand, like development (buildings and infrastructure) and defence.
Voluntary labels also can play an underpinning function by serving to differentiate clear merchandise and construct shopper and market consciousness, however they’re unlikely to create demand at scale with out binding necessities or financial incentives.
Collectively, these measures would supply the long-term certainty that buyers and builders require to scale up funding and construct tasks. In step with the CID, such progress would speed up decarbonisation, reindustrialisation and innovation.
Further findings from the report embrace:
- A “pincer motion” method to coverage may drive extra demand. That might see policymakers goal a small share of the market at formidable efficiency ranges whereas concurrently making use of progressively extra stringent low-emission thresholds throughout a bigger share of it.
- Though lead markets can advance the EU’s pipeline of fresh industrial tasks, nations with considerable low-cost renewable provide potential, reminiscent of India and Brazil, will develop into more and more aggressive in electricity-intensive sectors. This may current a trade-off for Europe, balancing price and strategic autonomy, for instance, defending home trade through ‘made in’ standards or sourcing inexperienced inputs from the most affordable elements of the world by means of partnerships.
The report follows the launch of the ITA’s “Construct Clear Now” marketing campaign, which makes an attempt to unite nations, corporates, and capital to speed up the financing and development of fresh industrial crops.
Notes
[1] This was roughly 60% of the overall improve, with gasoline value shocks alone contributing as much as 2 factors
