Green Energy? Yes, but Made in EU
In 2021, the European Commission adopted the Fit for 55 climate package, which includes legislative proposals to achieve a 55% reduction in greenhouse gas emissions compared to 1990 levels by 2030, with the aim of reaching to carbon neutrality by 2050. This is certainly an acceleration compared to previous climate policies, with more or less immediate implications for all sectors of the economy.
The 2022 invasion of Ukraine has forced policymakers to review the priorities and timing of the energy and climate strategies. The resulting energy crisis of 2022 has further highlighted the vulnerability of the EU from the point of view of the security of energy supplies, starting with the dependence from Russian gas.
In response to the difficulties and disruptions in global energy markets, it introduced two important initiatives: REPowerEU in 2022 and the Green Deal Industrial Plan (GDIP) in 2023. In the first case, it is a plan with a triple objective: to enhance energy savings, accelerate the production of energy from renewables and diversify the energy supply.
GDIP, on the other hand, is a strategic program to strengthen European industrial competitiveness, while pursuing faster decarbonization. In particular, this plan aims to create a more favorable environment for increasing the EU's production capacity for the zero-emission technologies and products needed to achieve Europe's ambitious climate goals. It builds on previous initiatives and builds on the strengths of the single market, complementing actions taken under REPowerEU and the 2019 European Green Deal which detailed how the EU intended to boost investment in clean technologies at in order to continue on the path towards climate neutrality.
The GDIP should also be read from the perspective of a European response to the international initiatives on industrial protectionism that have emerged in recent years, such as the massive green transformation program in China or the Inflation Reduction Act (IRA) in the United States. The latter is a strategic plan to facilitate the energy transition of the US through investments and tax discounts for companies operating in US territory. The IRA allocates an unprecedented amount of subsidies (almost $370 billion) to convince companies to return to invest in the United States, as well as granting robust tax breaks to households to convince them to buy Made in USA technology, starting from electric cars.
The Green Deal Industrial Plan is Europe's response to the IRA and similarly aims to reduce dependence on foreign supplies of raw materials and clean technologies. It is based on four pillars: 1) a simpler regulatory environment to facilitate net zero productions; 2) accelerating access to finance; 3) upgrading the skills needed to achieve the transition, and 4) strengthening global trade cooperation on cleantech and raw materials.
Of these four pillars, the simplified regulatory context for net zero industries certainly represents a change of direction compared to the policies of the past and is enacted through three regulatory proposals: i) Electricity Market Reform, to make the electricity market more resilient to external shocks and protect consumers; ii) the Critical Raw Materials Act, to make the entire value chain of the energy transition more sustainable, starting from critical raw materials (e.g. lithium); iii) the Net-Zero Industry Act (NZIA), seeking ot internally produce at least 40% of the technologies necessary to achieve European climate objectives by 2030.
Although many details are still missing which prevent an estimate of its economic impact, it appears clear that the GDIP represents a historic step forward for Europe's green economy, which will receive significant additional public funds. Therefore, while on the one hand recent European initiatives such as Fit for 55 are pushing on the accelerator for the production of green energy, the Green Deal Industrial Plan seeks to guarantee that green energy is mostly produced with Made in EU technologies.