The future of the European Green Deal: ‘Competitive Sustainability’

The approach of ‘competitive sustainability’ is key to understanding how a measure of competitiveness is needed in the new global context marked by massive US green subsidies and an aggressive industrial strategy from China, writes Martin Porter.

Martin Porter is executive chair of the Cambridge Institute for Sustainability Leadership (CISL) in Europe.

Change is in the Brussels air as European elections loom, campaign manifestos finalise, and everyone speculates on the game of EU musical chairs that will take place over the coming months. Who gets the top jobs within each EU institution will influence how policies will be decided, but of equal if not greater significance is how the EU’s Strategic Agenda and its political priorities themselves develop regardless.

A crucial question concerns the future of the flagship initiative of the current Commission, the European Green Deal. Its success as a leading, comprehensive legislative programme, a resilient strategic compass for the EU’s sustainability transition in the face of the Covid and Ukraine crises, and an adaptive ‘growth strategy’ that has incorporated responses to growing international competitive challenges from China and the US, is widely recognised. The urgency of the Green Deal is also widely understood, given the dangerously deteriorating state of the world’s climate and natural environment.

But as recent protests by farmers bring some European cities to a standstill, it’s clear the deal is also becoming a lightning rod for wider concerns around economic insecurity and the cost of living not to mention worries about inequality and whether the rules are too onerous.

As a result, competitiveness and industrial policy have risen quickly up the political agenda, exemplified by the reports commissioned by President Von der Leyen by Mario Draghi and Enrico Letta and the current Belgian Presidency’s call for a European Industrial Deal. A summit on this topic is due to take place in Antwerp on 20 February, and we expect a Declaration may be published which seeks to set the agenda for the next five-year EU institutional cycle.

This must avoid what Commissioner Hoekstra recently called a ’false narrative’ that pits regulation on climate action as anti-competitive.

In this context, the European Commission has proposed its Communication on 2040 Climate Targets this week, which includes a section on ‘an EU deal for sustainable industry and competitiveness’. The thrust of the overall approach is a welcome continued push for relatively ambitious targets. It favours a 90% emissions target, the only one of three targets compatible with the European Scientific Advisory Board on climate change recommendations, which many scientists consider an absolute minimum.

So far, the Communication text acknowledges the breadth and depth of the agenda, highlighting that the benefits and opportunities of continued ambitious action outweigh the costs or risks involved.

This is also true of the section on an Industrial Deal, which considers the need for a pioneering strategy for competitive sustainability. It considers how to create the enabling conditions for increased investment in both new growth industries and established ones, the need for a step-change in public investment at the EU level to support this and how to address regional and social issues thrown up by the changes. It also reflects on how to extend the Single Market to remove regulatory barriers in key technologies which prevent their more rapid uptake across the EU. Clearly, a deal must involve commitments on all sides to embrace the changes and support each other. The basis for an industrial deal that could do this is offered by the Communication – if it can be seized.

This will depend on how well the deal is anchored in the imperatives that the European Green Deal correctly identified and whether it follows through on the strategy of competitive security.

‘The Antwerp declaration’ is an early litmus test of this, especially if it defaults to a knee-jerk call for deregulation. The EU’s 2040 climate target, like that for 2050, will continue to drive a profound structural transformation of the bloc and requires an equally significant change to the orthodox paradigm for its economic strategy. The approach of ‘competitive sustainability’ is key to understanding how a measure of competitiveness is needed in the new global context – i.e., the Inflation Reduction Act in the USA and China’s aggressive industrial strategy. Its renewed reference is also a welcome indication of a clear effort to build on initiatives that help us to drive it forward.

The EU should now further develop an approach rooted in the notion of competitive sustainability to ensure it can apply this to its competitiveness, Single Market reviews and new Strategic Agenda overall. In the meantime, we should also focus on how it directly informs how any EU Deal on the industrial transition is designed.

In light of this, three inter-related aspects are critical, and any deal which is set to be announced in Antwerp should be scrutinised against them:

Firstly, it is essential that an appropriately transparent and inclusive debate about this topic addresses the full range of stakeholders across industrial ecosystems – to ensure it is seen to be socially just and deliver resilience and competitiveness.  Processes are, at present, too opaque.

Secondly, a deal must consider specific interests, such as those of cleantech manufacturers or materials and energy-intensive producers, within a comprehensive industrial strategy for the whole EU economy, where choices and trade-offs are understood and addressed clearly. The EU should be wary of partial or piecemeal approaches without such a strategy.

Thirdly, it must no longer shy away from the governance, common funding, and investment implications of doing this effectively at the EU, rather than at the national level. The new international competitive landscape means the EU must better leverage its scale and full potential to succeed now. As the debate about the Net Zero Industry Act (NZIA) shows, there are clear limits to the current approach – and these must be overcome for any deal to be truly transformative and to deliver a lasting competitive advantage to the EU.

If all these boxes are ticked, it will strengthen the EU’s position as a future global competitor.

Cover photo: Energy storage Lithuania [Photo credit: European Union, 2023]