Innovation is the core driver of European competitiveness – why is it missing from the Net Zero Industry Act?
09.03.2023
Industrial planning is back. The urgency of climate change, covid-era supply disruptions and rising geopolitical tensions have triggered a renewed governmental push to shape future economies and keep clean energy industries within national borders. Brussels is at the forefront of these efforts, with a new ‘Green Deal Industrial Plan’ announced in February and the accompanying ‘Net Zero Industry Act’ expected next week. Europe’s recent ocean energy experiences make clear that innovation and tech scale-up must be central to these plans.
In spite of this, a leaked draft of the Act gives short shrift to innovation. Instead, the draft law is firmly focused on protecting the manufacture of a small number of ‘commercially available’ energy technologies. All proposed new public funding is reserved only for technologies with a ‘Technological Readiness Level’ (TRL) of 9 – i.e. fully mature technologies.
The draft does establish ‘Regulatory Sandboxes’, which offer targeted exemptions from national or European laws for technologies with TRLs of 5-7. However, this only applies to the commercially-available technologies listed in the Act.
Why does all of this matter?
Innovation is the fundamental driver of competitiveness
It matters because innovation is THE fundamental driver of European competitiveness – particularly in technologically-complex clean energy sectors.
When it comes to innovative new Net Zero technologies, Europe has a ready-made competitive edge based on quality, technical expertise and proprietary technology.
As the Green Deal Industrial Plan rightly acknowledges, our current position as a cleantech pioneer is thanks to the creation of a well-functioning Single Market, combined with public support to help innovative new technologies to commercialise and tap into that market. This in turn draws in more private financing & opens up new opportunities – exactly what’s needed to keep Europe permanently ahead in the Net Zero race.
Europe must not lose sight of these unique strengths and end up in a race to the bottom. We should continue to develop and export the most performant, the most efficient and the most reliable technologies – not necessarily the cheapest. Competing purely on price is the quickest and simplest way to cut company margins, curb innovation, squeeze workers’ pay and deplete public funds.
And from a return-on-investment perspective, propelling next-generation technologies towards industrialisation will give Europe a more powerful, enduring advantage than can ever be achieved by more support for already-viable manufacturing activities.
European innovation must be nurtured
Mature clean energy technologies have rightly earned their place as a cornerstone of European industry – but Europe must invest in what’s coming up next. The Net Zero Industry Act is landing just at the moment when European cleantech innovation needs a boost.
Total EU investment in clean energy innovation as a percentage of GDP has slipped, and is now below that of Japan, China and South Korea. The European Commission’s latest State of the Energy Union report calls for more investment into clean energy Research & Innovation (R&I), but also scaling up and deployment activities. A stronger R&I framework will ‘bridge the gap between research and innovation and market uptake…and reinforce EU competitiveness.’
The European Commission’s assessment of governments’ National Energy & Climate Plans is particularly damning: ‘There is an overall decrease in national budgets devoted to R&I in clean energy technologies and a severe lack of national objectives and funding targets that show concrete and relevant pathways to 2030 and 2050.’
The European Parliament, realising what we stand to lose, recently voted for a legal target that at least 5% of future renewable deployments should be ‘innovative’.
Ocean energy – the canary in the coalmine
Europe’s faltering ocean energy ambitions are a clear sign of just how much the Net Zero Industry Act is needed to scale-up innovative new technologies.
Back in 2020, the European Commission put global leadership in wave & tidal energy high on its priority list, with ambitious deployment targets included in the EU Offshore Renewable Energy Strategy. Wave & tidal energy are the last untapped global renewable energy sources. They offer energy independence, high social acceptance and industrial growth opportunities – and Europe has the most sophisticated ocean energy technology in the world.
But fast-forward two years, and these good intentions have not been realised. Industry data released last week shows that fewer ocean energy projects hit European waters in 2022 than in any year since 2010. Last year’s tidal stream installations in Europe were limited to small-scale projects, and were dwarfed by a single state-funded, large-scale Chinese device. In wave energy, 2022 was the fifth year in a row where the rest of the world installed more capacity than Europe.
Elsewhere, the US is pumping circa US$110m of innovation support into the sector each year and is building the world’s largest wave energy demonstration site. China’s 14th ‘5 Year Development Plan’ targets the deployment of a fleet of wave & tidal demonstration farms, and in the UK and Canada, revenue support schemes are effectively creating a market for tidal energy.
The EU is countering with dedicated grants for ocean energy in its Horizon Europe programme. This is very welcome, but Horizon Europe has a very broad scope – it cannot be used to establish new European industries in isolation.
The European ocean energy sector is ready, and the Net Zero Industry Act can give the European Commission the firepower it needs to deliver on its ocean energy ambitions.
How the Net Zero Industry Act can nurture innovation
With a few targeted changes, the Net Zero Industry Act can reverse the slowdown in deployments and reinforce the fundamental drivers of European competitiveness:
- – The Act should list Ocean Energy as a Strategic Net Zero Technology (SNZT);
- – Manufacturing for demonstration projects of SNZTs with Technology Readiness Level 5-7 should be considered as ‘Net Zero Resilience Projects’; and
- – Any Articles in the Act concerning public/private investments should apply to such projects.
If the EU is determined to come out on top in this new era of global clean energy competition, it needs to put innovation and technology scale-up at the heart of its efforts.
The safeguarding of Europe’s wave & tidal energy leadership should be priority number one. This will be a key sign of whether Europe’s wider Green Deal industrial vision will come to pass.