Developing a green industrial policy for the European Green Deal

Simone Tagliapietra
Senior Fellow
Brussels, Belgium

Adjunct Professor
Università Cattolica del Sacro Cuore
Milan, Italy

In 2019, Ursula von der Leyen adopted the European Green Deal as the flagship initiative of her new European Commission. With this initiative, the EU executive arm aims at making Europe the first climate-neutral continent by 2050. To get there, EU Member states committed to cut its greenhouse gas emissions by 55% by 2030 compared to 1990 levels. With the ‘Fit for 55’ package, the European Commission unveiled in July 2021 a set of legislative proposals to achieve its 2030 climate target.

As the European Green Deal seeks to unleash a major transformation in the European socio-economic structure – such as the ones from fossil fuels to renewables, or from internal combustion engine cars to electric cars – this challenge is often referred to as a revolution against a deadline. As in any major transformation, there will be winners but also losers, particularly in the short-run. A strategy only based on climate targets and instruments, such as raising the price of carbon or banning diesel cars, could miss the target, when firms and citizens fail or even simply reject to adjust. Only a policy creating a broader space for more winners than losers can sensibly face the challenge of such a vast transformation.

The necessity to meet climate and environmental targets, while at the same time ensuring economic and social sustainability requires a transformation that will generate enough benefits to compensate the losers. This brings industrial policy under the spotlight of the European Green Deal.

Today, Europe is characterised by a multitude of green industrial policy initiatives, undertaken at regional, national and EU levels. These initiatives are generally not coordinated. This is a major issue, because significantly different green industrial policies in different EU countries fragment the EU single market and could disrupt the level playing field. A fragmented EU single market for green technologies prevents innovative European cleantech companies from scaling up in the way that their United States and Chinese competitors do on their domestic markets. It is thus vital to develop a solid regulatory framework accompanied by competition policy enforcement, ensuring access to a truly single, competitive EU market with common environmental standards.

Furthermore, European countries and companies would benefit greatly from joint coordinated actions in certain green technologies, so that they can exploit synergies and economies of scale. This can be achieved through European Alliances – already established since 2017 for batteries and since 2020 for clean hydrogen – aimed at fostering cross-European public-private collaboration. These Alliances are a valuable EU green industrial policy tool, and should be expanded, also to involve emerging and innovative industrial stakeholders alongside established industrial players.

To develop a successful green industrial policy, Europe also needs to be braver in innovation because the green revolution needs breakthrough innovation. This requires significant risk-taking by public institutions. To facilitate this, the innovation component of an EU green industrial policy should be viewed as a portfolio, in which certain initiatives will inevitably fail. A portfolio with no failures entails no risks, and a portfolio with no risks is unlikely to provide breakthroughs.

Finally, the reach of EU green industrial policy should extend beyond Europe’s borders. Europe produces less than 10% of global greenhouse gas emissions. To really make a difference in terms of climate protection, the European Green Deal has to go global. The EU can leverage its external development policy and turn it into a vehicle of global sustainability. Such an approach would provide a triple benefit. First, it would help meet the EU’s climate finance obligations and thus help to achieve the conditional emission-reduction commitments made by most developing countries under the Paris Agreement. Second, it would help EU industry to enter into new, rapidly growing markets. And third, it would help economic development in the EU’s partner countries, providing an invaluable foreign policy dividend for the EU.

If it builds on these principles, the EU has a real opportunity to create a workable green industrial policy that will help deliver on the ambitious objectives of the European Green Deal. Doing so is important for the European economy, as much as for the climate.

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