Problem
The European Commission’s new Competitiveness Compass frames Europe’s future green strategy in the context of competitiveness, prioritising strategic areas in financing—for example, cross-border investment in electricity grids—and promoting innovation and skills development for clean tech jobs.
But to succeed, national governments need to financially commit towards a smooth green transition. This is especially vital for negotiations around the EU’s 2028 to 2034 multiannual financial framework (MFF), prior to which frugal member states such as the Netherlands and Sweden need to understand that the present geopolitical and security context requires more spending from the EU budget.
The compass also emphasises the ‘simplification’ of EU rules. But several business proposals—such as softening rules on including hazardous chemicals in products and delaying the phase-out of the combustion engine—could lower standards and create uncertainty among investors.
Solution
To bolster the EU’s economic security, the compass suggests reprogramming the NextGenerationEU plan—intended to cushion the negative impacts of covid-19—by, among other things, investment in green and digital transitions. The commission could utilise the plan’s allocated funds, much of which remain unspent, for priority projects such as electricity transmission grids. It could also make use of its resources beyond the 2026 deadline.
In addition, the InvestEU programme is helping small innovative companies, including clean tech companies, grow by mobilising private capital. While it is encouraging that the commission proposes to strengthen InvestEU via better guarantees for private sector investment, member states should again accelerate their research and innovation spending in general. Such initiatives lay the foundation for future generations of low-carbon technologies—but many member states are well below the current 3% GDP spending target.
The next MFF must lay down clear conditionalities on member states to increase spending on research and development. The European Investment Bank (EIB) also plays a key role for investments and, in addition to what the Competitiveness Compass promises, member states should increase EIB capital to secure its contribution to future clean-tech innovation.
Finally, evidence suggests that ambitious legislation for environmental protection contributes to technological modernisation, such as EU carbon dioxide standards for cars creating fuel-consumption solutions. On the other hand, a lack of EU regulation risks future innovation and productivity and relying too heavily on trust is precarious. This was demonstrated by the less than fruitful efforts to reduce vehicular carbon emissions through voluntary commitments.
As such, companies need leading markets to take risks when investing in new technologies. The EU introducing mandatory quotas for low-carbon steel, cement and plastics in products would help Europe to gain competitive advantages over China and the United States in these sectors, securing it as a lead exporter of low-carbon products.
Context
The Competitiveness Compass contains some strong proposals on the financing of low-carbon transitions, promoting innovation and skills development. If the EU can successfully pool different financial sources from across its member states and institutions, it might have a stronger economic position for clean technology at a time when the US is decrying its previous climate ambitions.
However, member states must also be prepared for this financial commitment. The commission must take care that any ‘simplification push’ does not discourage the future of innovative companies which currently benefit from high EU regulatory standards.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.
