The current political debate on industrial policy lacks an honest acknowledgement of how much is already decided – from EU recovery budgets to the 2030 climate targets, write Sandrine Dixson-Declève and Janez Potočnik.
Sandrine Dixson-Declève is the president of The Club of Rome, and ambassador for Europe at the Energy Transitions Commission. Janez Potočnik is the co-chair of the International Resource Panel and partner at SYSTEMIQ.
The European Commission’s decisions on the EU’s Industrial Strategy will determine not just Europe’s strength of recovery but its competitiveness in line with European Green Deal principles for the next 20 years and beyond. Its updated strategy must show that the Green Deal and its environmental and social objectives amount to more than ambition on paper.
European leadership on industrial policy must be anchored in designing and investing in an Industry 5.0 approach – building economic, social and environmental resilience at the same time. This entails a systems approach that looks beyond merely saving certain economic activities at the expense of building future resilience.
The current political debate lacks an honest acknowledgement of how much is already decided: from EU recovery budgets to the 2030 climate targets. Instead of confusing industry and financiers with new debates, the strategy should clearly explain the implications of those decisions.
Five key approaches can help the Commission set a truly strategic and systemic direction for industry innovators and investors. These are based on the EU System Change Compass, already endorsed by the Commission’s President as a guide to implementing the Green Deal.
Face climate, biodiversity and pollution targets head on
Last year’s strategy promised to make “Europe’s businesses future-ready” and support a “globally competitive, green and digital Europe”.
To do so, it must start by explaining to industry what is non-negotiable: a 55% cut in greenhouse gas emissions by 2030, net-zero emissions by 2050, reversal of biodiversity loss, zero pollution, and converging prosperity levels. And it must be equally explicit about the deep transformations needed, and their implications for every aspect of industry.
Full decarbonisation of industry requires unprecedented investment in clean power infrastructure and clean fuels. But, beyond that, the current strategy draft hasn’t incorporated the need for large-scale reductions in material consumption, given that over 50% of global emissions are caused by the extraction and processing of materials.
Only by being explicit can the strategy mitigate the risk of inconsistent debates over implementation, by voices that do not understand the industrial transformations needed to achieve targets that are already decided.
The EU Taxonomy, which aims to set clear investment criteria in line with the Green Deal, is already facing exactly this problem: The science-based criteria proposed to match the 2030 55% GHG emissions reduction target have been watered down for forestry, bioenergy, and gas in particular.
Set industrial transformation pathways that can achieve targets, with ‘resource efficiency first’
In explaining how to achieve the targets, the old strategy presents a range of industrial ecosystems that need innovation – without explaining what their transformations to net-zero and other targets could look like.
Calling for ‘energy efficiency first’ is its main guidance, and while this is crucial, it is not enough to guide the deep, integrated changes, in production and consumption, that are required to reach our climate targets. European industrial policy needs a ‘resource efficiency first’ principle that integrates smarter, cleaner energy use with a smarter use of materials.
Starting from ‘resource efficiency first’ would provide genuine vision and direction; this strategy needs to demonstrate how industry can provide high-quality services to society, like housing and mobility, with circular value chains using fewer resources and cleaner production.
Instead of treating decarbonisation, the circular economy and digitalisation as separate objectives, this is a chance to show how systemic and digitally enabled resource efficiency can meet Europe’s socioeconomic needs while achieving climate targets, pollution and biodiversity loss.
In particular, there is a gap in understanding and driving circular innovations – as can be seen in the recovery plans so far. Clear transition principles must put these solutions on their radar, in ways that make the underlying mission clear. The strategy could use the System Change Compass to depict transformation pathways and show the potential of Europe’s future industrial champions.
Ensure that all market incentives support industrial transformation
The strategy will not have the mandate to reform all the EU’s market instruments, but it can set the direction by explaining that all EU money must serve the sustainable industrial transition – whether through direct innovation and infrastructure investments, or measures such as upskilling that support a just transition. Repurposing subsidies to fossil fuels and to nature-depleting agriculture should be top of the list.
Moreover, increased investments and innovation programmes are needed across all economic ecosystems, and at all scales; any industrial strategy must give small and medium enterprises easier access to innovation and just transition funding.
Engage with tomorrow’s leaders
The 2020 strategy pledged to engage industry, create ownership and find solutions among business leaders. But legacy industries hold ever-fewer answers. The strategy currently prioritises associations of large and long-standing industries.
To ensure real ‘future fitness’, it must have input from those small and big entrepreneurs creating the industries of tomorrow: leaders on clean hydrogen, green steel and low-carbon aviation, as well as the front-runners developing circular mobility systems, more space-efficient buildings, and circular materials.
Measure what really matters
We still treat economic growth as equalling wealth, stability and competitiveness. However, by the EU’s own analysis, it has been decades since growth in GDP has delivered the same in fairness, equity and cohesion; instead, we have witnessed the prosperity gap widening between and within member states and EU citizens.
The EU’s Industrial Strategy must reflect the need to shift away from a GDP-driven growth paradigm to adopting new indicators for prosperity across Europe that include sustainable resource use and fair, healthy prosperity.
Finally, a message to the innovators and thought leaders: the European Commission cannot do this alone, nor can governments. Help them, by providing a counterweight to opinions that are too firmly invested in the past.
To many policymakers, those voices can sound like the majority. Let them know what the business leaders of tomorrow need to become the backbone of a fair, healthy competitive Europe.