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EU Contradictions on Energy Transition: Protectionism or Climate Goals?
Tensions between the European Commission’s climate goals and national governments' economic protectionism complicate the energy transition effort. Western Europe asks to focus more ressources on innovation, while Eastern Europe prioritizes security due to regional conflicts.
The European Union aims to lead the global energy transition by promoting clean energy use, especially in transport and heating, to reduce emissions. However, its increase in customs duties on imported vehicles and technologies from third countries raises questions about the true intentions behind this policy. While the European Commission advocates for a rapid transition and open markets, national governments represented in the EU Council adopt a more cautious stance. They fear the economic impact of strong foreign competition on local industries, leading to underlying tensions between the Commission's climate goals and the governments' protectionist measures.
Furthermore, there's an internal division within Europe. Western industrialized countries seek to invest in research, training, and innovation to boost their scientific and industrial capacities for the energy transition. In contrast, Eastern European countries ask security and military spending due to conflicts like the one in Ukraine. The EU and its member states have committed significant financial resources to support Ukraine, which, while necessary for continental stability, risks diverting crucial funds away from investments in the energy transition.
The article suggests that the real, albeit delayed, solution is for Europe to invest heavily in research, innovation, and human capital—much like China has done. By enhancing its own capabilities in green technologies, Europe can reduce reliance on protectionist measures and better balance its climate objectives with economic interests.
Furthermore, there's an internal division within Europe. Western industrialized countries seek to invest in research, training, and innovation to boost their scientific and industrial capacities for the energy transition. In contrast, Eastern European countries ask security and military spending due to conflicts like the one in Ukraine. The EU and its member states have committed significant financial resources to support Ukraine, which, while necessary for continental stability, risks diverting crucial funds away from investments in the energy transition.
The article suggests that the real, albeit delayed, solution is for Europe to invest heavily in research, innovation, and human capital—much like China has done. By enhancing its own capabilities in green technologies, Europe can reduce reliance on protectionist measures and better balance its climate objectives with economic interests.
By Paolo Licandro
Brussels, 24 September 2024 - 4 MINUTES READ
Brussels, 24 September 2024 - 4 MINUTES READ
The European Union is striving to lead the global energy transition, aiming to reduce emissions and promote the use of clean energy, especially in the transport and heating sectors. Central to this ambition is the European Green Deal, which pushes for rapid decarbonization, incentivizes electric vehicles (EVs), and supports technological innovation. This requires massive investments.
However, this ambitious energy transition is increasingly under threat due to growing concerns among national governments about its impact on the industrial and economic stability of Europe. 298 automobile factories operate across Europe. Some are worried that the automotive sector crisis, is a warning sign. For instance, in August 2024, sales of petrol cars fell by 17.1%, with all four major markets experiencing notable declines: France (-36.6%), Italy (-18.8%), Spain (-17.4%), and Germany (-7.4%). Rregistrations of battery-electric (BEV) cars dropped by 43.9% to 92,627 units (compared to 165,204 the same period last year), with their total market share slipping to 14.4% from 21% a year before. This was driven by the spectacular drop in the two biggest markets for BEV cars: Germany (-68.8%) and France (-33.1%). From January to August, 902,011 new battery-electric cars were registered, representing 12.6% of the market.
The diesel car market also suffered, declining by 26.4%, which left it with an 11.2% share last August. Most European markets saw double-digit decreases in diesel car sales.
The logical solution, as suggested by Draghi in his 2024 Report on European competitiveness, would be to make large-scale investments in research and innovation. Draghi calls on the EU to mobilize significant financial resources, including raising capital in the market, to reindustrialize Europe and strengthen its competitiveness. Unfortunately, this approach has been met with resistance from the 'frugal' countries, which oppose creating European public debt and fear competition in their own capital raising.
Instead, governments have taken a shortcut by increasing tariffs on Chinese vehicles—a protectionist measure that the European Commission does not totally share. While this may offer some immediate relief to domestic industries, it is a short-sighted solution.
Protectionism risks isolating Europe from technological progress, as the real path forward lies in innovation, not in erecting trade barriers. Long-term success will depend on Europe's ability to invest in cutting-edge technologies and align with the global pace of innovation, rather than shielding itself from competition.
However, this ambitious energy transition is increasingly under threat due to growing concerns among national governments about its impact on the industrial and economic stability of Europe. 298 automobile factories operate across Europe. Some are worried that the automotive sector crisis, is a warning sign. For instance, in August 2024, sales of petrol cars fell by 17.1%, with all four major markets experiencing notable declines: France (-36.6%), Italy (-18.8%), Spain (-17.4%), and Germany (-7.4%). Rregistrations of battery-electric (BEV) cars dropped by 43.9% to 92,627 units (compared to 165,204 the same period last year), with their total market share slipping to 14.4% from 21% a year before. This was driven by the spectacular drop in the two biggest markets for BEV cars: Germany (-68.8%) and France (-33.1%). From January to August, 902,011 new battery-electric cars were registered, representing 12.6% of the market.
The diesel car market also suffered, declining by 26.4%, which left it with an 11.2% share last August. Most European markets saw double-digit decreases in diesel car sales.
The logical solution, as suggested by Draghi in his 2024 Report on European competitiveness, would be to make large-scale investments in research and innovation. Draghi calls on the EU to mobilize significant financial resources, including raising capital in the market, to reindustrialize Europe and strengthen its competitiveness. Unfortunately, this approach has been met with resistance from the 'frugal' countries, which oppose creating European public debt and fear competition in their own capital raising.
Instead, governments have taken a shortcut by increasing tariffs on Chinese vehicles—a protectionist measure that the European Commission does not totally share. While this may offer some immediate relief to domestic industries, it is a short-sighted solution.
Protectionism risks isolating Europe from technological progress, as the real path forward lies in innovation, not in erecting trade barriers. Long-term success will depend on Europe's ability to invest in cutting-edge technologies and align with the global pace of innovation, rather than shielding itself from competition.
The Tension Between the European Commission and National Governments
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The European Commission, with strong support from the European Parliament, has taken a proactive stance toward the energy transition. Its ambitious targets for CO₂ reduction and renewable energy adoption position Europe as a global leader in green innovation. However, the pace of this transition has sparked tensions between the Commission and national governments represented in the EU Council. Many countries, particularly those with robust industrial sectors like Germany and France, have expressed concerns about the potential impact of rapid changes on their economies.
One key area of concern is the influx of foreign competition, particularly from China, which has rapidly become a major player in the electric vehicle (EV) market.
In response, several EU countries have pushed for protectionist measures, such as increased tariffs on Chinese EVs. This move highlights a fundamental tension: while the Commission seeks a swift transition to green technologies, national governments are more cautious, fearing the destabilization of local industries and the loss of jobs.
One key area of concern is the influx of foreign competition, particularly from China, which has rapidly become a major player in the electric vehicle (EV) market.
In response, several EU countries have pushed for protectionist measures, such as increased tariffs on Chinese EVs. This move highlights a fundamental tension: while the Commission seeks a swift transition to green technologies, national governments are more cautious, fearing the destabilization of local industries and the loss of jobs.
Protecting National Industries vs. Embracing Global Competition
The recent increase in tariffs on Chinese EVs underscores the delicate balance European governments must strike. On the one hand, these protectionist measures aim to shield domestic industries from foreign competition, which could erode market share and threaten employment in traditional sectors. On the other hand, these measures risk isolating Europe from global innovation, particularly as countries like China, Japan, South Korea, and India continue to invest heavily in research and development (R&D) for green technologies.
For Europe to remain globally competitive, it must go beyond short-term protectionism and focus on innovation. This includes developing advanced battery technologies, expanding EV production capabilities, and building rapid-charging infrastructure. While protectionist policies may offer temporary relief, long-term success will depend on international cooperation and strategic investments in the automotive sector.
The Role of External Players
China leads the global EV market, with 38% of its new car sales in 2023 being electric. This dominance is fueled by government incentives and a strong focus on battery technology. Meanwhile, Japan, South Korea, and India are also investing in EV infrastructure and technology. The United States is making strides through companies like Tesla, which continues to dominate both U.S. and international markets.
These countries pose a significant challenge to Europe. To stay competitive, Europe must not only match but exceed the innovations coming from these global players. This requires substantial investments in R&D and technological advancements to ensure that European companies can compete on a global scale.
The Future of the European Automotive Industry: Electric Vehicles?
Europe's automotive industry faces a pivotal moment. The transition to electric vehicles (EVs) offers both significant opportunities and challenges. In 2023, BEV sales surpassed diesel for the first time, representing 14.6% of new car registrations.
However, Europe is not alone in this transition, and countries like China are leading the global charge. BEV sales are expected to reach 20% of the global market by 2024, with Europe projected to sell 3.4 million units in the same year.
To remain competitive, the European automotive sector must focus on three key areas:
- Advanced Technologies: Europe must continue to innovate in areas like battery efficiency, vehicle range, and charging infrastructure.
- Digitalization: Integrating digital technologies like artificial intelligence (AI) and the Internet of Things (IoT) will be essential to improve production efficiency and offer new services to consumers.
- Sustainability: A successful transition depends on adopting eco-friendly production practices and promoting the circular economy, ensuring that the life cycle of vehicles—from manufacturing to disposal—is environmentally responsible.
Investment in Skills and Talent
As the energy transition accelerates, Europe will need a skilled workforce capable of driving the industry forward.
This requires:
- Educational Programs: Updating school and university curricula to focus on electrical engineering, software development, and sustainability.
- Professional Retraining: Offering continuous training programs to help workers in the traditional automotive sector adapt to new technologies.
- Attracting Talent: Creating a work environment that attracts the best talent globally in green and digital technologies.
The Role of the European Union
The European Union has a crucial role to play in shaping the future of its automotive industry:
- European Funds: Instruments like Next Generation EU can finance innovative projects in green mobility and advanced technologies.
- Balanced Regulation: It’s essential to strike a balance between ambitious climate goals and the need to ensure that companies remain competitive in a global market.
- Stakeholder Dialogue: Engaging industries, governments, and civil society in the decision-making process will ensure that the transition is both economically and environmentally sustainable.
Some conclusion
The European automotive industry stands at a crossroads. While protectionist policies may offer short-term relief, Europe must focus on long-term strategies that combine innovation with international cooperation.
By investing in R&D, upskilling the workforce, and creating the right regulatory framework, Europe can emerge as a global leader in the automotive industry—both in terms of economic growth and environmental sustainability. The challenges are significant, but so are the opportunities. Europe’s success will depend on its ability to adapt to global competition while staying true to its ambitious climate goals.
Protectionist policies, however, will not save the European automotive industry. On the contrary, such measures risk slowing down the energy transition and isolating Europe from the technological progress driven by countries that invest more heavily in research and innovation. These countries will set the pace for advancements in green technologies, leaving Europe at a disadvantage if it does not align its strategies with a global, forward-looking perspective. Instead of building barriers, Europe must foster openness and cooperation to remain at the forefront of the automotive revolution.
Some countries are critically assessing the EU's environmental strategy, which was decided by past governments and the outgoing European Commission. Some say that Ursula von der Leyen has also sensed the change in direction, but the selection of the new European Commissioners for Climate and Environment suggests that the Commission will defend its previous decisions and the directions already expressed by the European Parliament.
The political landscape of the new European Parliament does not suggest any drastic changes in policy direction. However, tensions within and with the European Council could rise, as its political makeup and priorities may shift in the next five years, questioning the current goals and timeline of the energy transition.
