The case for a European Green Industrial Deal

Today, the European Parliament votes on the Net-Zero Industry Act. What should have been Europe’s first real response to the American Inflation Reduction Act has ended up in disappointment. 

Bas Eickhout, Michael Bloss and Sara Matthieu are Green/EFA Members of the European Parliament from the Netherlands, Germany and Belgium respectively.

Originally intended to boost the production of clean technologies, legislators in Parliament and Council have essentially turned it into a paper tiger, which does not address the actual challenges of industry.

As conservative forces insisted on labeling just about any project as ‘strategic’, the Act fails to make strategic choices needed to reach climate neutrality in a fair, efficient and urgent way. This lack of courage to make hard choices is compounded by the lack of financial firepower in the Act to back up the urgent and colossal investment needs in Europe.

Europe needs to multiply renewable electricity production and double cross-border grid connections before 2030. Investments in carbon intensive sectors like cement, steel and chemicals should increase six-fold compared to the previous decade. Meanwhile, manufacturing industries like solar, wind, heat pumps and electrolysers will need to scale up massively to reach climate neutrality and provide sufficient new high quality jobs.

Europe can only compete in the top league with the United States and China if we step up our industrial game. For that to happen, we cannot rely only on the Net-Zero Industry Act. We will need to fundamentally change our approach to European industrial policy. 

First, we need to do away with the belief that market policies alone can respond to the challenges ahead of us. The cocktail of free and unfettered trade, carbon pricing and market liberalisation has clearly not strengthened European industrial production, nor has it brought about the necessary modernisation and shift to a circular and climate neutral model. 

Despite recent improvements, carbon costs in the market are too unpredictable to steer bold investment decisions, and they still pale in comparison with higher costs for green alternatives.

That is why we need a set of complementary regulatory policies that stimulate the demand for green products and materials. These include setting green and circular product standards and minimum requirements for key products like steel or cement, and clever use of mandatory green and circular public procurement.

Second, we have to take a fundamental look at the division of power in industrial policy. Currently, industrial policy and energy policy are national competences. Member States often compete against each other, instead of working together for a common European goal.

Crucial cross border energy connections are blocked or delayed and Member States are engaged in an accelerating subsidy race that is driving a wedge in the internal market, favouring large member states to the detriment of smaller ones.

We can only reverse the beggar-thy-neighbour situation through stronger, more tightly-knit coordination at European level. A Europe that acts boldly on unfair trade practices and makes strategic decisions on investments, priorities and infrastructure development.

This is exactly the opposite of the Net-Zero Industry Act, which instead provides more room and flexibility for national interests.

Moreover, only a true European approach can close the investment gap with China and the US, by establishing a strong European investment capacity, empowered to borrow jointly at EU level which will leverage private money.

A message now echoed by Mario Draghi and Enrico Letta in his most recent report on the single market. This has many advantages. It creates a level playing field between countries and allows for coordinated investments in European priorities. It allows for cheaper borrowing rates and reduces pressure on national budgets, which will become more constrained following the adoption of the new EU fiscal rules this week. 

Finally, for the transition to work at the speed and scale required, we need buy-in from workers and citizens. This will require massive reskilling, robust social safety nets for workers in transition and social conditionalities for public investments. It is essential that businesses receiving public money and contracts respect collective bargaining agreements and workers’ rights. Again, a clear omission in the Net-Zero Industry Act.

For all these reasons, we need much more than a quick fix to the long-term challenge of safeguarding Europe’s leadership in green technologies. We want Europe to build a robust foundation to deal with geopolitical shocks, swiftly deal with the climate and pollution crisis and ensure economic prosperity now and in the future.

This requires not less, but more European action.

It also requires more strategic, well-targeted support to industry, in a spirit of solidarity and cohesion among member states and workers alike. These are the key ingredients of our call for a European Green Industrial Deal.