Europe urgently wants a brand new industrial grasp plan

The author is government director of the Worldwide Vitality Company

This can be a pivotal second for Europe. The worldwide power disaster is threatening to deal a heavy blow to giant swaths of its trade and severely undermine its skill to compete on the worldwide stage. On the identical time, the area is having to grapple with the implications of the most important steps different main economies are taking in their very own industrial insurance policies.

The Inflation Discount Act within the US is a game-changer, channelling a whole lot of billions of {dollars} into constructing the power and manufacturing industries of the long run. Nonetheless, the US isn’t alone in pursuing such mammoth efforts. China has been forward of the curve in creating home manufacturing of fresh power applied sciences, whereas international locations corresponding to Japan, Korea and India are additionally pushing elevated funding and help in that course.

This requires the EU to reassess its personal industrial technique with the goal of positioning the area’s financial system for brand new progress within the many years forward. The EU’s Match for 55 bundle and REPowerEU plan have set the trail for the bloc’s general clear power transition. However the magnitude of the actions being taken elsewhere, and the immense fallout of the power disaster in Europe, requires a daring new EU industrial technique.

Pure fuel costs — which have soared on account of the Russian invasion of Ukraine — are on the coronary heart of the present disaster and its menace to European trade. Probably the most energy-intensive sectors are already struggling, with a rising variety of firms halting and even completely shutting down operations. Europe’s main gas-consuming industries — together with chemical compounds, meals processing, metal and paper — generate financial worth of greater than $600bn a yr and make use of nearly 8mn employees.

These areas could be the most in danger, however they’re solely the tip of the iceberg. Publicity to excessive power prices is posing broader challenges to the competitiveness of Europe’s industrial sector. Thus far, it seems to have tailored properly throughout this tumultuous yr, thanks partly to emergency motion from governments. However it wants a grasp plan for the long run that goes past survival mode.

The inconvenient fact is that, for many years, the enterprise mannequin of many European industries was primarily based on the provision of plentiful and low-cost provides of Russian power. That enterprise mannequin was shattered when Russia invaded Ukraine. And it’s not coming again.

Nor are excessive power costs only a short-term phenomenon. Europe now faces structurally greater gas import costs within the absence of Russian fuel. This can be a clear sign that the area wants to search out new sources of aggressive benefit or threat deindustrialisation.

One space the place it could possibly discover an edge is within the subsequent technology of commercial manufacturing. Consideration is more and more turning to the potential of low-emissions manufacturing, which can solely develop in significance as international locations step up efforts to achieve their local weather objectives and the brand new power financial system expands. This implies elevated demand for clear power applied sciences — corresponding to electrical autos, photo voltaic panels and wind generators — and for key supplies like metal, aluminium and cement that may be produced with considerably decrease emissions than they’re at present.

Within the electrical energy sector, photo voltaic and wind are already the most cost effective choices, offering sturdy financial incentives which might be serving to drive their deployment. However the state of affairs is completely different in different sectors of the financial system, corresponding to long-distance transport and heavy trade, the place extra work is required to enhance the competitiveness of low-emissions choices.

With offshore wind, Europe has proven that it may be a worldwide chief in clear applied sciences. It now must turn out to be a lot stronger in areas corresponding to batteries, electrical autos, electrolysers for hydrogen, warmth pumps and extra. And it faces sturdy aggressive challenges, with China, the US, Japan and lots of others searching for to steer the subsequent technology of fresh industrial and manufacturing applied sciences.

Europe has its personal strengths: its giant inner market, expert workforce, broad community of analysis establishments and centres of experience, and lengthy historical past of manufacturing greater value-added manufactured merchandise. However these must be allied with a robust push within the type of a brand new industrial coverage from the European Fee and EU member states.

It’s clear that the EU isn’t going to return to the place it was earlier than the present power disaster. It must be clear-eyed about this case and daring within the actions it takes if it needs to stay a worldwide industrial energy.