What Europe needs now
Maria Mendiluce
‘Competitiveness is not just the foundation of our prosperity, but of our security, and ultimately of our democracies too,’ European President Ursula van der Leyen said recently. Right now, the route to a more competitive future for Europe is through policy stability to build modern industries and economies, built on clean electrification.
Recent events in Iran and the wider Middle East have shown us once again the risks of reliance on volatile fossil fuels. A combination of strikes on energy infrastructure in the region and the dramatic slowing of traffic through the Strait of Hormuz, a critical energy bottleneck, has resulted in spiking oil and natural gas prices, rising freight costs and concerns about inflation, household bills and supply disruptions.
Europe is particularly vulnerable given its reliance on imported gas. It may have shifted from Russian pipeline gas to global LNG markets following Russia’s invasion of Ukraine, but it remains exposed to supply disruptions: shipments from producers such as the United States and Qatar still need to be transported through vulnerable maritime routes.
Not every European country is equally exposed. Electricity prices in Spain are some of the lowest and least volatile in Europe right now – because it made a strategic decision to accelerate the scale up of renewables by incentivizing business to invest in sun, wind and – more recently – storage.
Boosting clean energy supply and infrastructure – and electrifying end uses across the economy so they can run on homegrown clean power – can build security, competitiveness and affordability across the continent.
Yet there have been inevitable calls to respond to the current crisis by slowing ‘costly’ decarbonization efforts. These calls are both factually and strategically wrong. Analysis shows a cleaner energy mix reduces the effect of both volatile fossil fuel prices and CO₂ pricing on final energy bills, highlighting how decarbonization can help reduce exposure and limit the impact for consumers and industry.Changing course would undermine investor confidence and derail efforts to build the competitiveness of European industry that’s a priority for the bloc.
Even before the escalation of events in Iran, at a recent roundtable in Brussels companies and partners highlighted how high and volatile power prices hamper investment decisions across EU. They didn’t call for rollbacks, they called for policy stability to enable them to invest confidently in the transition to a more secure, resilient clean energy economy.
Take the Emissions Trading Scheme (ETS). For two decades, this system of carbon pricing has helped drive billions of euros into clean technologies, rewarding early movers and creating market demand for European innovation. Weakening it now would risk undermining investment certainty precisely when Europe needs it most.
This was the clear message from over 100 companies who signed a statement organized by the Coalition, CLG-Europe, Business for CBAM and Clean Tech for Europe this week, calling on leaders meeting at the European Council on 19-20th March to maintain a robust ETS.
Signatories include major multinationals, new innovators and investors across Europe’s heavy industry, manufacturing, retail, energy and technology sectors, including Tata Steel, Volvo Cars, EDF, Ørsted, Heidelberg Materials, Vattenfall, Holcim, @SAB, Salzgitter AG, Ingka Group/IKEA, Nordea Asset Management, Outokumpu, VELUX and Novonesis. See the letter
The Coalition has also been working with partners to ensure the voice and experiences of business are heard around another policy package aimed at boosting Europe’s industry: the Industrial Accelerator Act (IAA).
Its ‘Made in/with Europe’ provisions have been the subject of intense debate, setting conditions on public funding and procurement to prioritize goods manufactured in Europe or with allies.
Our recent analysis of the U.S. Inflation Reduction Act (IRA) offers important lessons for European policymakers. We showed how the IRA’s “domestic content” provisions catalyzed significant investment because they were paired with strong demand-side incentives. Requirements were introduced at levels industry could realistically meet and scaled over time.
However, when incentives weakened and compliance tightened, investment slowed. The lesson for the EU is: industrial policy must include a blend of supply signals (e.g. streamlining permitting or production support) and demand signals (e.g. public procurement commitments or consumer incentives) to be in step with business realities. It’s quite simple: capital flows where returns are stable and predictable.
For Europe’s leaders the choice is clear: listen to business, help them invest confidently and hasten the transition to a cleaner, healthier world where families and business owners no longer fear fossil-fuelled economic shockwaves.