The threat of deindustrialization in the EU – and what we can do about this

Europe cannot lose global competition or become a continent of naive people and ideas. If we go bankrupt, no one cares about the natural environment on a global scale …

– Prime Minister Donald Tusk’s speech in the European Parliament

Look around you while reading this, and you will probably notice a lot of goods made by European companies. However, not all of them wear the brand “made in EU”, – Industries compete worldwide. For Politico Readers, it is difficult to miss the discussion on how to maintain the competition of the economy of Europe given the commitment to become the neutral climate by 2050.

As an association of industries in one of the largest member states, where industry represents a fifth of GDP, we see the need to express themselves on the risk of deindustrialisation – and means of preventing it.

Climate policy and competitiveness 

EU industrial policy has two characteristics. First, it is generally anti-protectionist, because it originally aimed to establish a single market covering the entire continent. Hence the emphasis on the leveling of the rules of the game between states. Second, EU’s ambition in climate policy reaches the furthest among the major international actors. The industries in the region therefore undergo a unique pressure to reduce emissions and become energy efficient. Competitors of the globalized global and increasingly interdependent economy – The costs imposed on emissions and energy prices of industries are not harmonized worldwide. The former generally depend on politics, while the latter are largely determined by a mixture of price and fuel policy.

As the Draghi report shows, carbon and energy prices paid by the EU industry are the highest in the world. These differences are likely to deepen if, for example, the new American federal administration is holding its electoral promises. The sectors most affected by the above are the industries with high energy intensity, in particular those identified as difficulty in cutting off – where production processes are not easily decarbonized.

EU law includes measures to counter relocation, mainly carbon The flight, that is to say at this moment that the industries continue to issue the same quantities of greenhouse gases but to move it elsewhere. These remuneration measures – For example, free emission allowances (EUAS) as part of the emission trading system (ETS) The increase in energy costs caused by carbon prices – are however designed to ultimately reduce the litter and depth over time. To remain eligible for support, industries must increase their efficiency and reduce emissions in an almost linear manner, while real support often depends on the capacities of each Member State. In addition to this, new mechanisms are added, increasing regulatory pressure – in particular the carbon border adjustment mechanism (CBAM). We do not know if this so-called carbon border tax will strengthen the EU industry on a global scale, but we know that, in the state of the law, its introduction is associated with the withdrawal of free EUAs. This is necessarily to have a measurable effect on the costs of industrial production.

What do the treaties say?

Under the Treaty on the functioning of the EU, intra-union competition and climate protection are not independent objectives to be achieved at all costs. In fact, article 173 requires that industrial policy “ensures that the conditions necessary for the competitiveness of the union industry exist” and that other policies should contribute to it. The union is, according to title IX, also engaged in “a high level of employment, which should be taken into account in … union policies ”. Carbon flight also means job leaks, and certain social movements have recently highlighted a crisis of confidence in the EU and the Member States in this regard.

missing the security of the union

Given the serious disruptions of the global economy caused by the Pandemic of COVID-19, then the Russian aggression against Ukraine, the citizens of the EU are also concerned about security. Although we often pay less for the goods of the EU products products outside the EU, in the long term, the cost is not all. Many industrial products are so important for the way our companies work that we should think twice before allowing them to move – the pandemic has shown the importance of the place where the pharmaceutical supply chains are located and the ‘Russian invasion of Ukraine reminded us of the sinister reality that the EU needs weapons to protect its existence. The same goes for fertilizers and chemical compounds that many of us have not even heard as long as the supply chains have been disrupted and the prices have skyrocketed.

These contexts go beyond strict economic considerations. But the development of policies is not accounting. In the medium and long term, the EU will better keep the factories inside its borders.

Our letter to the new commission

We welcome the animated discussion on industrial competitiveness and its reconciliation with the EU climate ambitions. We also note and also welcome the deregulation reader, as the simplification of compliance could also reduce costs.

In this context, the European Commission works on the rationalization of several EU funds in the European Competitiveness Fund (ECF). We consider that ECF can be an important tool to counter the deindustrialisation of Europe, but other aspects must also be treated.

In our opinion, the industrial policy of the new commission should:

1. Focus on the global image rather than on the internal market – among others by giving an EU financing priority on state aid and gradually harmonizing remuneration measures;

2. Ensure adequate funding not only for research and development in reduction technologies, but also investment and operating costs for innovative solutions – low -emission production processes are likely to be always more expensive than Those applied in continents without ambitions to become neutral in the climate;

3. be neutral of technology instead of promoting solutions that are not achievable for all sectors or areas of the EU (such as carbon capture and storage); And

4. Revisit the regulatory toolbox – Abolish measures with the highest administrative burden but questionable efficiency.

Finally and above all, we ask the Commission to act quickly. The industries make investment decisions based on the applicable regulatory framework – but there are a number of challenges such as the CBAM, the linear reduction of free EUAs, the reduction in eligibility for remuneration and still victims. A strong signal of Berlaymont on the campaign towards global competitiveness can brighten up their perspectives.

Politices