Europe Needs an Industrial Development Fund

Marcin Korolec

By Marcin Korolec

WARSAW – In 2016, former European Commission President Jacques Delorssaid that if EU policies “jeopardize cohesion and sacrifice social standards,” then “the European project has no chance of winning the support of European citizens.” In the wake of this month’s European Parliament election, Delors’s observationseems more pertinent than ever.

Following the far right’s sizable gains, the new European Parliament is expectedto prioritizeissues like immigration, security, and the ongoing cost-of-living crisis over climate change.Giventhenumber of incoming MEPs opposing the bloc’s green agenda, the European Union may also be forcedto slow its net-zero transition.

But instead of changing course, the EU should double down on its climate goals and take a page from the playbooks of China and the United States. In particular, it should emulate US President Joe Biden’s Inflation Reduction Act (IRA) bycreating a“buy green and European” program and a European Industrial Development Fund (EIDF) to supportits clean-energy transition.

One of the far right’s most popular arguments against the energy transition is that the European Green Dealrelies heavily on inputs fromChina and the US. EU imports of clean-tech productsfrom China have skyrocketed in recent years,totaling$23.3 billion for lithium-ion batteries, $19.1 billion for solar panels, and $14.5 billion for electric vehicles (EVs) in 2023 alone.

By contrast, the IRA dramatically increased America’s investment in renewable energy. In the second quarter of 2023, for example, the US invested nearly $10 billionin battery-manufacturing technology, more than double itstotal investment in batteries, solar and wind power, critical materials, and EVs in the second quarter of 2022.

In the face of greater global competition, the EU economy finds itself in a double bind. On one hand, its most dynamic companies are investing in the US rather than in Europe. On the other hand, exports from China to the EU are increasing, especially following Biden’s latest tariffs on Chinese goods.

One might expect that a more nationalist European Parliamentwouldimprove the outlook for the EU’s industrial sector. Butshare prices forleading European renewable-energy companies like Vestas, Nordex, and Orsted declined the day after the election, owingto fears that the far right’s gains could delay the green transition.

To shore up the EU’s competitive position, policymakers must act decisively to support critical industries. More than1,200 organizations, including 840 leading manufacturing companies,recently signed the Antwerp Declaration– which calls fora “European Industrial Deal”as a key partof the EU’sstrategic agenda for 2024-29.Belgian Prime Minister Alexander De Crooput it best, “How do we continue to grow our European industry? The answer is: with a European Industrial Deal at the same level as a European Green Deal.”

Four steps in particular are necessary. First, European policymakers must recognize that slowing the net-zero transition will erode the EU’s global competitiveness. Adopting zero-emission technologies isthe best way to reduce fossil-fuel imports and achieveenergy self-sufficiency.By contrast, maintaining the status quoundermines the bloc’s energy security strategy and plays into Russian President Vladimir Putin’s hands.

Second, establishing the EIDFis crucial toachieving energy independence and technological sovereignty. As the implementation of pan-European financial aid during the COVID-19crisis showed,EU institutions can make critical decisions and act on them within months when necessary.

Third, the EIDFshould be financed through common debt issuances.To boost the production of green technologies such as electric vehicles, heat pumps, and photovoltaic panels, this funding mechanism should be easily accessible to entrepreneurs without excessiveeligibilityrequirements. Crucially, the EIDFcannot succeed without adequate financing toolsfor renewable-energy companies in the EU– a benefit that UScompanies alreadyenjoy under the IRA. Butpolicymakers should make such fundingconditional on investments in production capacity and jobcreation in specific industries.

Lastly, the issuance of common debt should be accompanied by a concerted effort to identify new revenuesources. One option is to imposeadditionalimport tariffson Chinese EVs.Anotherapproach is totaxdigital platforms and plastic imports.

Historically, EU funds wereallocated according to the bloc’s cohesion policiesand member states’ GDP per capita. Butthe NextGenerationEUfund,established in 2020 to helpEuropean countries recover from the pandemic, set a new precedent by allocating €800 billion ($858 billion) in grants and loans according to the impact of COVID-19onindividual economies.

Similarly,EIDF funds should be allocated basedonthe needs of domestic industriesand the contribution of each sector to its respective member state’s GDP.Consequently,most funds should gotocountries with relatively large industrial sectors, such as Germany, Italy, Spain, France, Poland, the Netherlands, Ireland, and Belgium.

Although this approach may face resistance from other member states, it is crucial to facilitating Europe’s industrial revival. To remain competitive in today’s global economy, the EU must accelerate its net-zero transition. The EIDFis a necessary step in that direction.

Marcin Korolec, Poland’s former environment minister, is Director of the Warsaw-based Green Economy Institute and Chairman of the Foundation for the Promotion of Electric Vehicles. He is a member of the European Investment Bank’s Advisory Committee on the Environment and Climate and a board member of the Institute for Sustainable Development and International Relations (IDDRI), MevaEnergy, InnoEnergy, and Transport & Environment.

Copyright: Project Syndicate, 2024.

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