Getting Europe’s cleantech act together
In proposing the Green Deal Industrial Plan to support the deployment of clean technologies across the continent, the European Commission wants the EU to become an innovation powerhouse. But to be ready to challenge the US’s supremacy in this field the EU should focus on low-hanging fruits, make funding more accessible and create a whole-of-Europe plan, argue the leaders of Cleantech for Europe.
In response to increasing global competition in clean technologies, the European Commission’s president Ursula von der Leyen recently unveiled the Green Deal Industrial Plan (GDIP), promising support for cleantech deployment across the entire EU. Earlier this year, at the World Economic Forum in January, she also stated that “The story of the clean-tech economy is still being written” and that she believes it will be written in Europe.
Such a future is certainly possible; Cleantech for Europe’s cleantech tracker shows €10.6 billion was invested in EU cleantech venture capital in 2022, the second highest year on record, after 2021. However, while the EU has become a cleantech innovation powerhouse, we still struggle to scale and industrialise these technologies, due to a lack of dedicated support for the next generation of industry, and dearth of scale-up capital. Will the GDIP address this scale-up challenge? And will it be enacted fast enough to keep the EU’s edge in the global cleantech race?
Time is not on our side. With a massive subsidy package for clean technologies, combining scale with simplicity and predictability, the USA has become a very attractive country to deploy and scale clean technologies and clean manufacturing. Some of the most promising EU cleantech companies, including in batteries, solar and low-carbon cement, are already considering projects in the US. With each extra month spent negotiating its response, the EU risks seeing its industrial leaders expand abroad as opposed to in Europe. Europe’s failure to retain a solar industry, or to lead in the digital age, could very well repeat itself.
The time has come for Europe to get its cleantech act together. The GDIP is a great start, a collection of many good ideas, and shows the determination of the EU to become the industrial leader of the next decades. But to compete on the global stage, it will need to be bolder, faster and clearer, sending clear market signals to investors and project developers.
Focusing on market signals
In the American Inflation Reduction Act (IRA), demand for clean technology is boosted by setting guaranteed 10-year tax breaks for clean technologies across clearly defined sectors and with pre-set performance requirements. This predictability enables bankability and underpins investment decisions. In short, the US is sending clear signals to investors and project developers that cleantech installations will generate strong returns.
This level of clarity on strategic sectors is missing from the European response, which does not set any new sectoral targets. It punts instead to a future law, potentially delaying the market signal by 12-18 months. By that time, we may have “lost” a number of promising cleantech companies. We believe now is the time to put stakes in the ground on critical sectors such as innovative renewables, renewable hydrogen, grid innovation, long-duration energy storage, batteries, green steel and low-carbon cement.
Given this urgency, the EU’s plan should prioritise low-hanging fruits, mobilising existing resources, but simplifying their access for cleantech innovators. On funding, for instance, we have already earmarked tens of billions of euros for the transition, including via the Innovation Fund. But this funding is far from being easily accessible to cleantech start- and scale-ups.
Unlike the US approach, where the Department of Energy mobilises hundreds of sector experts who proactively reach out to the most innovative companies to offer funding, the EU asks for months-long applications and uses ‘financial maturity’ as a screening criterion, closing the door to the most innovative companies and missing the point that public funding is there specifically to de-risk first deployments. In a recent open letter, CEOs of seven of the EU’s most promising cleantech scale-ups set out such urgent measures the EU should adopt to remain competitive.
A plan for the whole Europe
Beyond individual measures, the EU’s response should constitute a whole-of-Europe plan. If we tackle this global race through 27 fragmented approaches, we will all fail at reaching industrial cleantech leadership. Clean technologies can scale across the continent and create long-term jobs from Lisbon to Warsaw. Southern member states will have an edge in solar power production, making them ideal locations for electrolysers and the industries that will use renewable hydrogen. Central and Eastern Europe could become a powerhouse in innovative renewables, electric vehicles or cleantech upskilling.
The proposed State Aid reform is especially tricky in this regard: it risks creating an intra-European cleantech race instead of pan-European collaboration to build critical value chains. We propose to focus the State Aid reform on building up cleantech infrastructure, including via more IPCEIs for all critical cleantech sectors, channelling billions of euros into large, cross-border infrastructure or cleantech projects instead of subsidising large national champions.
This plan should sow the seeds of a cleantech skills strategy, building up the workforce we need for the transition, all across Europe. There is no better time to do so than in the European year of skills, 2023. We also need a new European Critical Materials Recovery Plan, to make sure we create the recovery and recycling capacity to replace a significant share of virgin materials.
Prioritise sustainable technologies
Clean industrial leadership means setting the highest standards of sustainability. If our sustainability standards end up being lowered, then it is not cleantech competitiveness we are building, but instead relinquishing our standard-setting power. We must focus on the most ambitious technologies and stop channelling billions of euros to less sustainable technologies. Renewable hydrogen should be prioritised, while natural gas should be acknowledged for what it has been all along: a core weakness the EU must overcome to build its true autonomy.
For the EU to succeed, we need a change of mindset. Instead of being afraid to invest in the industry of tomorrow, let’s actively build it together. There will be risks, and failures along the way. But not taking risks bears the highest risk: being industrially irrelevant for decades to come. The cleantech community is ready to write this new chapter of the European story – and is looking to its policymakers to enable it to do so.