With international competition rapidly increasing, the EU would be complacent to assume its position on green technologies is uniformly strong or leading, write Martin Porter and Annika Hedberg.
Martin Porter is the executive chair of the Cambridge Institute for Sustainability Leadership in Brussels. Annika Hedberg is a senior policy analyst at the European Policy Centre (EPC), a think tank.
Last year the European Commission advanced a new concept of ‘competitive sustainability’ as central to its growth strategy and this week the Competitiveness Council called for new performance indicators to measure the success of its industrial policy. It is now time for the EU to make sure it puts this new concept at the heart of its policy making.
The past few weeks have seen a remarkable change in the international dynamic in the transition to a climate neutral economy as agreed in the Paris Agreement.
With the prospect of the new US administration re-joining the agreement as a matter of urgency, and other major economies, including China, Japan and South Korea committing to climate neutrality, the race to the top has gained significant momentum.
While the EU has been showing the way on paper, especially with the European Green Deal and calls for a green recovery from the Covid-19 crisis – its leadership is not a given.
The EU finds itself now in a group representing more than two thirds of total GHG emissions and over half of global GDP. This makes it ever more urgent for the EU to accelerate its own efforts to turn the inevitable green transition into a source of competitiveness – in policies as well as in practice.
To fully start to build on the potential and promises of competitive sustainability in the EU’s investment and policy decisions, we need a common definition and understanding of the new concept which goes beyond the commonly used notion of ‘sustainable competitiveness’.
We understand competitive sustainability as the ability of an economy, companies and industrial ecosystems to excel relative to international competitors in their transition to sustainable economy – with climate neutrality at its core – through investment in the necessary innovation.
It benefits from mission-oriented growth, where innovation and digitalisation are turned into enablers and catalysts for a positive change.
We would suggest that success in ‘competitive sustainability’ could be measured in three dimensions:
- enterprise-level technology and business model leadership in global growth markets;
- infrastructure development enabling cross-sectoral productivity and economy-wide GDP growth;
- strength of domestic industrial ecosystems in generating increased and high-quality employment and additional value-added as a proportion of their global value chains.
So, how does the EU currently match up to this initial working definition? A new analysis paper from Cambridge Institute for Sustainability Leadership (CISL), with inputs from the European Policy Centre (EPC) and Sitra leads us to four key observations:
The EU lacks a full picture of its competitive sustainability
Despite a huge amount of analysis of the overall economic benefits of climate action in terms of jobs and growth, the evidence on competitive sustainability is far from complete. What does exist is hard to compare or aggregate. This is likely a consequence of the permanently fluid nature of competitiveness, rapid pace of recent economic change and more assertive stances taken by other economies. The new strategic focus on climate neutrality which potentially leads to new goals and indicators adds to the complexity. The picture is further muddled by new analytical approaches that underpin the latest EU industrial strategy. A good example is the new focus on industrial ecosystems as well as value chains. As a result, the EU lacks an adequate overall picture and shared understanding of performance or potential of different technologies or business models to deliver on competitive sustainability. Which of these are strategically important for achieving climate neutrality, but also for other reasons? In which of these are Europeans leading or lagging internationally and have high vs low potential to compete and prosper?
The EU is in many ways well positioned for the race…
Despite the incomplete assessments, the EU is already showing signs that it could perform well across the three identified dimensions of competitive sustainability. For example:
- Areas where European companies are having or could have high global market shares include wind energy, heat pumps, demand-side power grid management, buildings and domestic appliance efficiency, aviation biofuels, shared mobility solutions, industrial process efficiency, zero-emissions steel, and material recycling and management;
- The prospects for smart electricity grid inter-connections, e-charging and hydrogen infrastructure are expected to optimise our energy and mobility systems, for example, and contribute to improving European GDP growth;
- Buildings renovations, district heating, materials processing and management as well as battery development and recycling are examples of domestic industrial ecosystems that can offer significant employment opportunities and contribute to enhancing resilience in the face of nature-related and economic shocks.
The European success stories and potential in these and other areas provide a valuable basis to build on. The EU has a valuable toolbox with internal and external policy and financing instruments to create enabling conditions for European businesses to continue bringing on the market sustainable solutions. When coupled with the EU’s collaborative efforts to ensure international collaboration as well as competition, the EU can play a major role in also creating a real global market for needed solutions.
…but the EU should not be complacent about its strengths – or those of its competitors
With international competition rapidly increasing, the EU would be complacent to assume its position is uniformly strong or leading. In fact, in many areas across the three dimensions of competitive sustainability, other economies are very strong and well positioned to secure advantage, as they have on occasion done before. International competitors may well have an advantage in areas such as electrification of heavy transport and aviation, solar, carbon capture and storage, batteries and electric vehicles. In areas like hydrogen and batteries, an additional investment push may be needed to enhance the resilience of the European industrial ecosystem, productivity or GDP growth even if the EU’s actual chances to global technology or business model leadership may be limited.
Further analysis needs to feed into policy and investment decisions
The EU should develop a fuller analysis of competitive sustainability. With this, it can apply its logic to its economic strategy and policies across the full range of the European Semester process, including its Recovery and Resilience Plans and new industrial strategy.
If the EU does not maximise its performance and potential with competitive sustainability, it risks seeing other countries reap the lion’s share of the benefits of the EU’s policy leadership.