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The mishap around the European Sovereignty Fund has exposed the fault lines in the EU’s approach to industrial policy. How to fill the gap – and compete on par with the US and China – will be a central theme for the 2024 European elections.
EU Commission chief Ursula von der Leyen took many by surprise when she announced last year that the EU executive would table a proposal for a European “sovereignty fund” before the summer.
“We want European industry to keep leading in the green transition. This is why I introduced the idea of a sovereignty fund,” von der Leyen said in a speech to Parliament on the eve of an EU leaders’ summit on 15 December.
“We need to galvanise our strong European industrial power in the global fight against climate change. And that calls for common European industrial policy with common European funding,” she added, saying the Commission would table a proposal “around summer” as part of a wider EU mid-term budgetary review.
The result, as many had feared, was underwhelming.
Instead of a mighty sovereignty fund, the EU executive did what it knows best and unveiled a new website with a new acronym, the Strategic Technologies for Europe Platform (STEP).
More importantly, there was no extra money on the table to rival the US Inflation Reduction Act and its $370 billion in cash for clean energy investments. Instead, the Commission chief said the money will be rehashed from existing EU funds, with a proposed €10 billion top-up coming from EU member states’ coffers.
Even if EU countries agree to the proposed budgetary top-up – which looks uncertain at best – the EU’s green industrial policy budget will look miserable compared to the hundreds of billions put forward by the US and China.
“We have limited budgets,” von der Leyen said, as if admitting defeat.
The fundamental reasons behind this are well known. While poorer EU countries want a fund allowing them to catch up with the rest of the EU, “richer member states – who might be expected to benefit most since they have more start-ups – may not see the need for such a fund,” said Zach Meyers, a research fellow at the Centre for European Reform (CER).
At the end of the day, too many countries were against the idea of holding another round of budgetary talks, which are always divisive at the EU level.
While France has backed the idea of a large fund financed by common European debt, other member states like Germany and the Netherlands argue there is still plenty of unused cash in the EU’s €800 billion COVID-19 recovery fund.
The resulting flop was all the more predictable, observers say.
“It’s clear that the initial ambition of creating a sovereignty fund at EU level to respond to the US Inflation Reduction Act has quickly vanished,” said Simone Tagliapietra, a senior fellow at the Bruegel economic think tank in Brussels.
What remains in terms of clean tech funding in Europe is mainly state aid, which is covered by national budgets and can now happen more easily thanks to the Temporary Crisis Framework adopted in March last year in response to the COVID-19 pandemic and the Ukraine war.
However, this means national spending is not counterbalanced at the EU level by an instrument ensuring cohesion and scale among the 27 EU member states, Tagliapietra warned.
“And that leaves Europe in a situation where member states with more fiscal space can spend more than others, which is problematic from an internal market perspective because it creates fragmentation,” he says.
“Looking at this proposal and the Net-Zero Industry Act – which is weak in terms of governance and focuses mostly on permitting – it’s now clear that the EU’s green industrial policy response, for now, has been pretty weak,” Tagliapietra told EURACTIV.
Yet, the need for a green industrial policy is unlikely to go away. If anything, it is going to be felt more strongly as the EU moves closer to its objective of reducing emissions to net zero, which requires a complete transformation of the European industrial landscape.
In the absence of a sufficient EU budget to counterbalance national state aid for clean tech, the European Commission will also eventually be left with no choice but to reintroduce stricter rules on state aid, which will hinder the capacity of Germany and France to support their national clean tech champions.
Resistance against a genuine European industrial policy has always tended to come from big EU member states like Germany, who think they can move faster than others to secure jobs and growth for themselves.
But even if larger eurozone economies can score a few wins, they will always lack the scale to compete against China and the US in the global clean tech race.
“There is no viable German, French, Italian or Spanish answer here; Europe can only be competitive globally with a common answer that creates an edge for European companies on global markets,” Tagliapietra said.
“Without a strong European dimension, EU countries will only end up cannibalising each other. And that certainly won’t help Europe gain a competitive edge in the global race for clean tech,” he argued.
As we get closer to the European elections in June 2024, the question will therefore inevitably return on the EU’s agenda, Tagliapietra predicted.
“It will be up to the new EU institutions after the European elections to do that. And if we don’t do that, I think Europe will face problems in the future because the EU economy is carbon-intensive.”
– Frédéric Simon
PARIS. France secures extra €2.8 billion from Commission to finance energy transition. The European Commission approved France’s reviewed Recovery and Resilience Plan on Monday, which includes an extra €2.8 billion from the REPowerEU plan to help finance France’s thermal renovation of ailing buildings. Read more.
VIENNA. Austria urges domestic suppliers to speed up Russian gas phase-out. Austrian Energy Minister Leonore Gewessler called on domestic suppliers to speed up the process of decoupling from Russian gas at a meeting with energy companies on Monday. Read more.
LJUBLJANA. Slovenia’s new nuclear plant could cost up to €11 billion. Building a second unit at the existing Krško nuclear power station would cost €7,000 per kilowatt, totalling €11 billion should Slovenia decide to build the most powerful of several possible units under consideration, a 1,600 MW unit, according to a price estimate by Prime Minister Robert Golob. Read more.
PARIS. French government dissolves environmental group that clashed with police. The French government dissolved the environmental group, Les Soulèvements de la Terre, on Wednesday, citing the group’s violent clashes with the police as the group sought to stop constructing a water reservoir in western France on 24 March. Read more.
BUCHAREST. OMV Petrom to partner with Romgaz for Neptun Deep project amid NGO criticism. OMV Petrom announced together with Romanian state-owned gas producer Romgaz that it will invest up to €4 billion in the development phase of the Neptun Deep project, which will generate approximately 100 billion cubic metres (bcm) of natural gas – highly criticised by NGOs. Read more.
STOCKHOLM. Sweden adopts ‘100% fossil-free’ energy target, easing way for nuclear. Sweden’s parliament on Tuesday adopted a new energy target, giving the right-wing government the green light to push forward with plans to build new nuclear plants in a country that voted 40 years ago to phase out atomic power. Read more.
BELGRADE | BUDAPEST. Serbia establishes joint gas company with Hungary. At the Strategic Council for Cooperation between Serbia and Hungary in Palić, an agreement was signed on the establishment of a joint venture for gas SERBHUNGAS d.o.o. between Srbijagas and the Hungarian electricity company. Read more.
EU seen moving ahead with Energy Charter Treaty exit. The European Commission is expected to push for a coordinated withdrawal of the EU from the Energy Charter Treaty (ECT) with a formal proposal expected to be presented to EU member states on 12 July.
The decision was taken after a 20 June meeting of the Council’s Working Party on Energy, according to people familiar with the matter.
Some EU member states, backed by the Swedish EU Presidency, had requested the Commission to prepare a proposal for a split withdrawal, allowing some countries to leave the treaty while others would remain party to a modernised version of the investment agreement agreed in June last year.
But the Commission rejected that option, arguing it is legally too complicated and would harm the EU’s unity.
Campaigners applauded the move. “The Commission’s decision to go for a coordinated withdrawal is the only logical way forward after eight countries already decided to leave the Energy Charter Treaty and the European Parliament also voted for such an exit,” said Paul de Clerck, economic justice campaigner at Friends of the Earth Europe. “The ECT is a climate-wrecking treaty from the past, invented to protect fossil fuel interests. The EU and member states should no longer be part of that system,” he added.
Countries in favour of a coordinated withdrawal include Germany, Spain, France, the Netherlands, Luxembourg, Slovenia, Poland and Denmark who have all said publicly they would leave the ECT because it undermines the EU’s climate goals.
The Commission’s proposal is expected to be discussed at the Energy Council on 12 July under the Spanish EU presidency. It should then be brought to a vote in the following months. The EU executive presented legal options in a “non-paper” circulated in February. (Frédéric Simon | EURACTIV.com)
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Luxembourg officially withdraws from Energy Charter Treaty. Luxembourg’s exit from the Energy Charter Treaty has been finalised and will be effective as of June 2024, according to Claude Turmes, the country’s energy minister .
“Even if the modernisation of the ECT leads to some progress, the inconsistency with the objectives of the Paris Agreement on climate remains real,” Turmes said on Twitter, adding that the treaty remains too protective of fossil and nuclear energy investments.
In November last year, Luxembourg announced its intention to withdraw from the treaty, following the precedent set by Germany, France, and other EU countries.
The 1998 Treaty was designed to secure private investments in oil and gas in the newly independent countries of the former USSR. However, the European Commission has recognised the need for a revision of the ECT, saying its protection of fossil fuels is incompatible with the goals of the Paris Agreement on climate change.
Negotiations to modernise the ECT concluded in June last year, but its future remains uncertain as several EU countries see the reform as insufficient. Read more here and here (Annita Elissaiou | EURACTIV.com)
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Solar panels mounted on EU Commission building. Solar panels have been installed on the roof of the Berlaymont building, which houses the headquarters of the European Commission in Brussels.
The works started in early June, and the panels are expected to be fully operational this summer, according to a spokesperson from the Commission. The panels are planned to cover a sizable area of the roof, and the annual solar production is calculated to reach 169 MWh/year.
The Berlaymont is the most recent Commission building to be equipped with solar panels, contributing an additional 908 square metres (m2) to the existing 340 m2 spread across five buildings.
The Commission is currently examining the possibility of increasing the number of buildings with solar panels in the future. In the next five years, the Commission plans to install solar panels wherever possible on its buildings. See more about the action here. (Annita Elissaiou | EURACTIV.com)
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Norway’s plan for deep-sea mining in the Arctic causes alarm. WWWF, the global conservation organisation, has condemned Norway’s plans to open up parts of the Arctic ocean to deep seabed mining.
According to the WWF, the area of 281,000 square kilometres is larger than the UK, and its waters contain vulnerable Arctic marine species that are already threatened by ice reduction from the impacts of the climate crisis.
“This decision goes against the government’s own environmental agency which has already declared that the recently concluded Impact Assessment, violates the country’s Seabed Minerals Act,” said Jessica Battle, Global Lead for WWF’s No Deep Seabed Mining Initiative. The move, she added, doesn’t adequately address potential transboundary impacts to other nations because of a lack of scientific data.
Norway’s decision came as world nations prepare for the International Seabed Authority (ISA) Council meeting in July in Jamaica. Last year, French President Emmanuel Macron expressed his opposition to deep-sea mining but said he was open to exploration activities. The deep seas potentially contain cobalt, nickel, zinc, copper, gold and silver deposits – all in high demand, particularly for the world’s digital and energy industries. More on the WWF’s website here. (Frédéric Simon | EURACTIV.com)
JUNE
- 28 JUNE. Joint Communication on climate change, environmental degradation, and security and defence
- 29-30 JUNE. European Council
- 30 JUNE. Deadline for European Member States to update their revised National Energy and Climate Plans (NECPs)
JULY
- 5 JULY. Commission to present Food and biodiversity package (Soil law, Regulation on plants produced by new genomic techniques, Revision of food waste and textiles aspects of the EU waste framework directive, Revision of legislation on seeds and other plant and forest reproductive material)
- 10 JULY. Foreseen plenary for vote on EU Nature Restoration Law and Ambient air quality and cleaner air for Europe
- 10-11 JULY. Informal environment council
- 11 JULY. Commission to present Greening transport package
- 11-12 JULY. Informal energy council
- 19 JULY. ITRE committee vote on electricity market design
SECOND SEMESTER
- 7 SEPTEMBER. ITRE committee vote on improving the protection against market manipulation in the wholesale energy market
- 7 SEPTEMBER. ITRE committee vote on Critical Raw Materials Act
- 20 SEPTEMBER. ENVI committee vote on Packaging and Packaging Waste Regulation
- 2 OCTOBER. Foreseen plenary for vote on Packaging and Packaging Waste Regulation and Critical Raw Materials Act
- 12 OCTOBER. ITRE committee vote on Net Zero Industry Act
- 16 OCTOBER. Environment Council
- 26-27 OCTOBER. European Council
- 30 NOVEMBER-12 DECEMBER. UN Climate Change Conference (COP 28), Dubai.
- 14-15 DECEMBER. European Council
- 18 DECEMBER. Environment Council
- 19 DECEMBER. Energy Council.
- Q4. Revision of REACH regulation
[Edited by Zoran Radosavljevic and Frédéric Simon]
