European industry has stood its ground but needs a new perspective

Haris Doukas & Vlasios Oikonomou

European industries have been severely affected by the energy crisis and are at a disadvantage against global competitors. To face the upcoming years, they will need strong support at the European and national levels, write Haris Doukas and Vlasios Oikonomou.
Haris Doukas is an Associate Professor at the School of Electrical & Computer Engineering (ECE) of the National Technical University of Athens (NTUA). Vlasios Oikonomou is Managing Director at the Institute for European Energy and Climate Policy (IEECP).

We are already in the 10th month of the Russian invasion of Ukraine. The European Union may not live the horrors of war itself, but it feels the pains of an economic and energy war, although for the moment it seems to be more resilient than many predicted at the beginning of the war.
In spite of these negative developments and the (energy) war, Eurostat’s data show a noteworthy resilience of the EU’s industrial production. In September 2022, total industrial production was 4.9% up compared to September 2021. The same was also true and at almost the same degree for August.

In addition, the industry has contributed largely to reducing fossil gas consumption in the EU. The target of fossil gas consumption reduction by 15% set by the EU in the summer has been surpassed in most member states. It is likely that the favourable climatic conditions have helped, but there have definitely been fuel savings, especially under the astronomical prices pressure.

So, is everything well with the EU industry? Far from it!

First, the overall picture hides side aspects. The high-consuming industries have taken a hard beating, with a considerable number of metal foundries and fertiliser industries shutting down in the last months.

In Eurostat’s tables the Intermediate Goods Industry category, which includes metal production, shows a continuous reduction from June onwards. Of course, in addition to the preceding months, the performance in the coming months is of great interest too.
Research carried out last October by the German Institute Ifo shows that 3 out of every 4 processing industries declared that they succeeded in the last 6 months in reducing fossil gas consumption without production reduction. However, the same research reveals that fewer than 40% said they could achieve further gas consumption reduction without production reduction.

In the projections with the current policies and market trends from the EU reference scenario in 2050, the European Industry can achieve its decarbonisation through energy savings (capturing the energy efficiency potentials) and in parallel investing in new clean energy technologies (such as green hydrogen) and electrification.

The European Commission’s REPowerEU initiative outlines a potential for electrification, energy efficiency, and uptake of renewables for the industry to save 35 billion cubic meters of natural gas by 2030. This is beyond the ‘Fit for 55’ targets outlined in the EU’s climate policy for 2030. However, this is not enough.
It is obvious that harder times lie ahead. The very high energy cost sets the European industry at a disadvantage against global competition.

In order to successfully withstand the next 1-2 years, European industry will require strong support not only at the EU level but also through coordination of national support policies, in order to avoid within the EU the phenomenon of some member states’ industries being more “equal” than others.

Now is the time to prioritise clean energy investments and shift to low-emissions manufacturing processes. The current trend in all the large developed economies is the provision of diverse support to local industries to render them pioneers in the technologies, materials, and services required by the green transformation of the global economy.

This is what the USA does, upsetting the balance in its relation with Europe, while China and Korea have announced similar programmes (which are developing own clean energy technologies).

Europe can still push for more production of batteries, electric vehicles, electrolysers, heat pumps, and others as stated by the International Energy Agency. There are already updated legal texts and policies (such as the Battery Directive) that can trigger the domesticity of the sector following the energy transition and also promote circular economy.

The European Union has been characteristically late in this area. It is hoped that the big bell that sounded with the advent of the Inflation Reduction Act by the USA will push the EU to quickly design and adopt a similar programme so that European industries are at the forefront of the green transition.

Still, how mainstreaming clean energy investments financing will be achieved remains a big question—one that the IAM COMPACT HORIZON Europe research project will attempt to address.

It is true that EU actors have more capital available than in emerging and developing economies to take bigger risks in investing in less mature technologies or provide lump sums in aggregated efficiency projects.

Debt markets are also well established in the region to finance many bankable projects. The risk remains though, whether financing goes towards the right direction for clean technology investments.

Finance becomes crucial in this regard and thus the role of the EU’s Sustainable Finance Taxonomy is more prominent than ever, to secure that Zeitgeist will work in favour of the continent that created it and not only in favour of other economies.

Finally, the proposal from the European Commission for the EU Sovereignty fund as well as other countries’ proposals for using the unspent amounts from the pandemic recovery fund to support the European industry could be the appropriate market signals.

(Αναδημοσίευση από το – 10/1/2023)