EU to Refine Industrial Climate Strategy
The European Union is refining its climate strategy with new updates around regulatory policies, financing, workforce training, and trade.
The 27-member European Commission recently unveiled a “Green Deal Industrial Plan” to refine its regulatory processes, investment/financing access, workforce training, and trade relationships, aiming to meet its climate targets while competing internationally.
The new policy agenda is tailored to meet the needs of Europe’s manufacturing sector, which is scaling capacity in preparation for the EU’s 2030 target to slash greenhouse gas emissions at least 55% below 1990 levels, ultimately reaching net-zero status by 2050. According to the International Energy Agency, Europe’s growing pipeline of renewable energy projects had its CO2 emissions on track to decline in 2022 despite a temporary increase in coal-fired power generation following Russia’s invasion of Ukraine. In 2023, the EU is expected to add 50 gigawatts (GW) of renewable capacity, yielding enough electricity to offset 2022’s rise in coal generation.
Much of Europe’s energy transition centers around wind and solar production capacity, which topped 400 GW in 2022, up 25% from 2020. According to Ember, those two sources accounted for 22% of the EU’s electricity generation mix in 2022, surpassing gas’s 20% and coal’s 16% shares but falling short of the 32% claimed by hydro and nuclear power.
In 2022, the European Union’s electricity from wind and solar surpassed that of gas. Image used courtesy of Ember
The EU’s new Green Deal Industrial Plan intends to provide clarity, guidance, and financial support to speed up project development and financing, expand skills training for the renewable energy workforce, and open trade avenues for stronger supply chains.
The plan centers around four pillars, which are covered below, along with some additional context around the trends the EU aims to address.
Simpler Regulations, Fast-tracked Permitting
The first key to the plan is simplified regulations. The European Commission plans to introduce a Net-Zero Industry Act governing targets for industrial capacity and outlining more streamlined processes for bringing technologies to market, including fast-tracked permitting, standards for scaling up development, and quick deployment.
Like many other regions, the EU has a limited supply base for critical raw materials such as rare earth elements, which are essential to most renewable energy applications. The commission will create a Critical Raw Materials Act to expand access to critical materials and ensure customers receive the benefits of cheaper renewables.
This chart shows the number of minerals used in clean energy applications compared to other power generation sources. Image used courtesy of the International Energy Agency
According to a document published by the European Parliament last July, China currently dominates the world’s rare earth supply, producing about 86%, while Russia accounts for 40% of global palladium. The EU imports 98% of its rare earths from China. Furthermore, 93% of its magnesium comes from China, 98% of its borate is sourced from Turkey, and 85% of its niobium comes from Brazil. Of particular interest is cobalt, an essential ingredient in electric vehicle batteries, wind turbines, and other clean energy technologies. The Democratic Republic of the Congo—whose mining industry is mainly owned by China—currently supplies 70% of the world’s cobalt.
Speedy, Accessible Financing
The EU aims to accelerate public financing avenues for renewable energy development and deployment. The commission says it’s working with member states to amend its State Aid Temporary Crisis Framework, including new provisions for granting funding to less mature technologies such as hydrogen without competitive bidding and adding higher aid ceilings and simplified calculations to incentivize more investments. It will also revise its General Block Exemption Regulation to increase the notification thresholds for renewable investments.
Meanwhile, the EU plans to boost the use of existing funds for cleantech production. In the short term, that includes providing new guidance for helping member states access its REPowerEU funds. The REPowerEU program launched last year with up to $320 billion of commitments aimed at reducing Europe’s dependence on Russian gas while bringing its total renewable generation capacity to 1,236 GW by 2030. The commission is also looking to provide faster and more targeted support through its existing InvestEU and Innovation Fund programs, which provide a $27.9 billion EU budget guarantee and another $10.6 billion in funding opportunities, respectively.
In the medium term, the commission plans to propose a European Sovereignty Fund with additional investments by this summer.
Boosting the Clean Energy Workforce
Europe’s clean energy employment needs are growing as member states look to expand their existing environmental workforce, which stood at about 4.5 million people in 2019, according to the most recent estimates from Eurostat.
The third action item of the Green Deal Industrial Plan involves forming a Net-Zero Industry Academies program to lead up-skilling and re-skilling efforts in clean energy industries. It will also consider allowing foreign nationals to access EU job markets in priority sectors.
Free Trade Agreements, Streamlined Supply Chains
Finally, the European Commission plans to build on its free trade agreements with its partners and the World Trade Organization to support the continent’s renewable transition. Part of that effort involves the launch of a Critical Raw Materials Club, which would further team up with resource-rich countries to diversify Europe’s manufacturing base.
At yesterday’s #EUCO, EU leaders gave their green light to our Green Deal Industrial Plan.— European Commission on Twitter (@EU_Commission) February 10, 2023
For Europeans, this plan means turning skills into quality jobs and innovation into mass production.
It will allow our clean tech industries to scale up quickly.#industrynetzero pic.twitter.com/6FR155gQJM
The commission also said it would use its policies to prevent foreign subsidies from distorting competition in the European market. This is relevant because the Green Deal Industrial Plan comes as the United States is doling out historic amounts of subsidies, tax credits, grant funding, and other incentives for clean energy investments through the Inflation Reduction Act (IRA). The behemoth spending package sets aside $369 billion for domestic renewable energy production, electric vehicle manufacturing, and other programs.
The IRA is kickstarting a new wave of American manufacturing activity, to be sure. Still, its stipulations are centered around domestic buying standards, local content requirements, and other trade protection functions. The EU has been critical of the legislation, with trade commissioner Valdis Dombrovskis lamenting in a speech last November that many of its subsidies “discriminate” against EU companies in the automotive, renewables, and battery sectors.
The Green Deal Industrial Plan, which was first teased by EU President Ursula von der Leyen at the World Economic Forum, appears to offer a direct response to the U.S.’s incentives-driven clean energy transition. In the same address, von der Leyen raised concerns about the IRA’s U.S.-specific incentives while promoting European efforts to refine its industrial strategy in the lead-up to its net-zero targets.
Featured image used courtesy of Adobe Stock