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The author is govt director of the Worldwide Power Company
It is a pivotal second for Europe. The worldwide power disaster is threatening to deal a heavy blow to massive swaths of its business and severely undermine its means to compete on the worldwide stage. On the identical time, the area is having to grapple with the implications of the main 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 lots of of billions of {dollars} into constructing the power 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 unpolluted power applied sciences, whereas nations resembling 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 purpose of positioning the area’s financial system for brand new progress within the many years forward. The EU’s Match for 55 package deal and REPowerEU plan have set the trail for the bloc’s total clear power transition. However the magnitude of the actions being taken elsewhere, and the immense fallout of the power disaster in Europe, requires a daring new EU industrial technique.
Pure gasoline costs — which have soared because of the Russian invasion of Ukraine — are on the coronary heart of the present disaster and its menace to European business. Probably 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 yr and make use of nearly 8mn employees.
These areas could be the most in danger, however they’re solely the tip of the iceberg. Publicity to excessive power prices is posing broader challenges to the competitiveness of Europe’s industrial sector. Up to now, it seems to have adapted well throughout this tumultuous yr, thanks partly to emergency motion from governments. Nevertheless 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 based mostly on the supply of considerable and low cost provides of Russian power. That enterprise mannequin was shattered when Russia invaded Ukraine. And it’s not coming again.
Nor are excessive power costs only a non permanent phenomenon. Europe now faces structurally increased gasoline import costs within the absence of Russian gasoline. It is a clear sign that the area wants to seek out new sources of aggressive benefit or danger deindustrialisation.
One space the place it will 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 can solely develop in significance as nations step up efforts to succeed in their local weather objectives and the brand new power financial system expands. This implies elevated demand for clear power applied sciences — resembling 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 right now.
Within the electrical energy sector, photo voltaic and wind are already the most cost effective choices, offering robust financial incentives which might be serving to drive their deployment. However the scenario is totally different in different sectors of the financial system, resembling long-distance transport and heavy business, 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 turn into a lot stronger in areas resembling batteries, electrical autos, electrolysers for hydrogen, warmth pumps and extra. And it faces robust aggressive challenges, with China, the US, Japan and plenty of others searching for to guide the subsequent era of unpolluted industrial and manufacturing applied sciences.
Europe has its personal strengths: its massive inside market, expert workforce, broad community of analysis establishments and centres of experience, and lengthy historical past of manufacturing increased value-added manufactured merchandise. However these must 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 power disaster. It must be clear-eyed about this case and daring within the actions it takes if it desires to stay a world industrial energy.
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