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 vitality disaster is threatening to deal a heavy blow to giant swaths of its trade and severely undermine its capacity to compete on the worldwide stage. On the identical time, the area is having to grapple with the implications of the foremost 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 bunch of billions of {dollars} into constructing the vitality and manufacturing industries of the longer term. Nonetheless, the US is just not alone in pursuing such mammoth efforts. China has been forward of the curve in growing home manufacturing of fresh vitality applied sciences, whereas international locations similar to Japan, Korea and India are additionally pushing elevated funding and help in that route.

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

Pure fuel costs — which have soared because of the Russian invasion of Ukraine — are on the coronary heart of the present disaster and its risk to European trade. Essentially the most energy-intensive sectors are already struggling, with a rising variety of corporations halting and even completely shutting down operations. Europe’s main gas-consuming industries — together with chemical substances, meals processing, metal and paper — generate financial worth of greater than $600bn a 12 months and make use of nearly 8mn employees.

These areas often is the most in danger, however they’re solely the tip of the iceberg. Publicity to excessive vitality prices is posing broader challenges to the competitiveness of Europe’s industrial sector. To this point, it seems to have tailored properly throughout this tumultuous 12 months, thanks partially to emergency motion from governments. However it wants a grasp plan for the longer term that goes past survival mode.

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

Nor are excessive vitality costs only a momentary phenomenon. Europe now faces structurally larger gas import costs within the absence of Russian fuel. This can be a clear sign that the area wants to seek out new sources of aggressive benefit or danger deindustrialisation.

One space the place it might probably discover an edge is within the subsequent era of commercial manufacturing. Consideration is more and more turning to the potential of low-emissions manufacturing, which is able to solely develop in significance as international locations step up efforts to achieve their local weather targets and the brand new vitality economic system expands. This implies elevated demand for clear vitality applied sciences — similar 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 in the present day.

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 scenario is completely different in different sectors of the economic system, similar 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 world chief in clear applied sciences. It now must grow to be a lot stronger in areas similar 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 following era 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 larger value-added manufactured merchandise. However these have to be allied with a powerful push within the type of a brand new industrial coverage from the European Fee and EU member states.

It’s clear that the EU is just not going to return to the place it was earlier than the present vitality disaster. It must be clear-eyed about this example and daring within the actions it takes if it needs to stay a world industrial energy.