Opinion - 24/January/2019

Accelerating the transformation to a climate neutral economy

Businesses should take full advantage of the EU’s place as an energy transition leader, write Sami Andoura and Philipp Offenberg from the European Political Strategy Centre, the European Commission’s think-tank

Europe is at the forefront of the transition to a clean energy economy and businesses should make the most of opportunities to accelerate this change, argue Sami Andoura and Philipp Offenberg from the European Political Strategy Centre, the European Commission’s in-house think-tank

 

Not so long ago, sustainability was little more than a side-note in the corporate social responsibility chapter of businesses’ annual reports. Investments were driven by public sector incentives and financing, while the private sector viewed climate investment as a burden rather than an opportunity. But today, global markets for climate-friendly businesses and technologies have grown to close to €1 trillion annually. The European battery market alone is projected to be worth €250 billion a year by 2025. This trend is expected to accelerate, driven by, in particular, strong growth in emerging economies — financial experts estimate climate-smart investment opportunities of over €23 trillion in these countries between now and 2030. Europe is at the forefront of this change.

 

The global climate agenda and EU policies have started a clean tech revolution

Persistent European diplomatic efforts and coalition building over decades to advance the cause of climate change mitigation at an international level have helped create today’s global clean tech markets. These efforts culminated in the 2015 Paris climate agreement that shifts action from the few to the many. The EU’s rapid ratification of this agreement triggered its entry into force, making it legally, politically and economically irreversible.

The EU has adopted a series of regulatory packages in recent years to transform this moral and diplomatic leadership into economic opportunities for companies and to create technological leadership. The “Clean Energy for all Europeans” package is designed to put energy efficiency first and meet Europe’s stated ambition of being a world leader in renewables. Likewise, the clean mobility packages encourage Europe’s car industry to defend its technological leadership and accelerate the switch to new technologies. The European Commission and the European Investment Bank have also contributed through a multi-billion euro investment plan to de-risking clean tech business models and attracting private investors.

 

The “Clean Planet for all” strategy, a plan for technological leadership

On 28 November 2018, the Commission released its “Clean Planet for all” strategy, which lays out a vision of how to reposition the European economy to become climate neutral by 2050. Technology and innovation are the central challenges in modernising the economy. The strategy lays out seven technological building blocks to achieve climate neutrality:

(1) energy efficiency, including zero emission buildings
(2) renewables and the use of electricity to fully decarbonise Europe’s energy supply
(3) clean, safe and connected mobility
(4) circular economy
(5) smart network infrastructure and interconnections
(6) bio-economy and carbon sinks
(7) carbon capture and storage

 

The global climate agenda has turned into a technological and innovation race

To deliver on this technology and innovation agenda, the Commission proposal for the EU budget for the period 2021 to 2027 suggests that 25% of spending should be relevant for the climate agenda and that spending on innovation should be increased. The implementation of the “Clean Planet for all” strategy needs also to be used to reindustrialise Europe in its regions, along the lines of the Commission’s smart specialisation strategies. These require local authorities, academia, businesses and civil society to work together to identify local competitive advantages, and projects that make the most of them, before applying for funding.

But competition in the clean tech sector is fierce. China and India are set to stand for almost half (46%) of the projected growth in renewable energy markets between 2015 and 2021. China has become the world’s largest destination of investment in the energy sector, accounting for one-fifth of global energy investment in 2017. Combined with an ambitious — sometimes aggressive — government-supported industrial strategy, this has enabled the country to rapidly transform itself into a leading global centre for clean tech manufacturing. China has already taken over the solar photovoltaic sector. It leads by far on electric vehicles sales and is set to dominate global battery cell manufacturing, feeding about 70% of the global lithium-ion batteries market by 2020.

 

Sector integration and a value chain approach can be Europe’s advantage

Europe will not be able to compete in mass manufacturing. But given that the EU continues to lead the penetration of renewables, with renewable energy sources now representing at least 17% of final energy consumption in Europe, it has the potential to lead the next stage of the energy transition. The integration of additional renewables into the existing energy system is the main barrier to their large-scale deployment. While still in its infancy, battery storage is happening and set to play a key part in the future of the renewable energy industry. With its Battery Alliance, the EU is bringing together industry stakeholders to help stimulate a battery value chain and compete for the next generation of technologies.

Batteries will not be the only technological option to integrate different energy systems. Similar approaches could be rolled out by the next Commission, which will be in place by the end of 2019, for the hydrogen sector and along the construction sector value chain to foster European leadership in integrating the energy transition into buildings through innovative designs, construction materials and automation. The challenge is enormous, as achieving climate neutrality requires a tripling of the annual renovation rate from 1% to 3% in Europe. But this comes with large benefits in terms of environment, quality of life and job creation.

2050 is only 31 years away. The transition to a prosperous and climate neutral economy needs to start now. The implementation of the “Clean Planet for all” strategy is a good opportunity for businesses to accelerate the transition, while the future of Europe debate will profoundly reshape the next European political cycle, including the way in which Europe can support its businesses. The transformation to a climate neutral economy can be a win-win solution for the future of Europe and the planet.

 


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