Issue #06
14 JANUARY 2025
2025 will be a key year in terms of drawing Europe’s competitive future. A Europe beginning a new von der Leyen-led legislature, in which the implementation of the Green Deal must be delivered in a new international context, characterized by geopolitical fragmentation and tensions related to issues of energy security and competitiveness.
As shown by different public investment plans, not least the IRA and the Green Deal Industrial Plan, climate protection goals have, in fact, started a global driver of innovation and profound industrial transformation, opening a competitive challenge on so-called clean technologies – such as solar panels, wind turbines, heat pumps, electrolyzers, batteries and electric vehicles.
On this, Europe has a competitive and innovation gap to fill compared to China and the United States, burdened by higher costs and energy addicts than its competitors and partners and an industrial structure less inclined to translate innovation into development and markets.
This calls for, a change of step, one that cannot afford backward marches, even more detrimental to the competitiveness and security of the Continent, and one that allows for the reconciliation of industrial development policies from the perspective of decarbonisation, so that the benefits arising are to the benefit of businesses and consumers.
The year 2025 will be marked by the policy proposals, and related European and national deadlines, that are to translate these intentions, as reflected in the policy guidelines of Ursula von der Leyen’s new term.
A run of stages, then, that kicks off next week, on January 22, when the European Commission will present a report, called: “Competitiveness Compass”. An appointment, this, which President von der Leyen describes as a pillar of the next five years of work. That Report, based on the Draghi Report, will have three objectives:
This will be followed by the presentation of the Clean Industrial Deal on February 26. This will be the instrument that, like it has already done with the Green Deal in 2019, will set priorities and ways to translate into reality the need to balance the prospects for industrial development with decarbonisation, creating the conditions for greater investment in ‘clean tech’ by addressing sectoral and supply chain issues head-on. At the heart of such an ambitious Plan should be a clear vision of energy as a key to industry competitiveness that includes:
In fact, the Electrification Action Plan is also scheduled to be published in 2025 as part of the strategy to stop gas imports from Russia. Developing an energy system that is resilient to external shocks and cost-effective will be a key element of the European strategy for the next five years.
It is hoped, then, that the Clean Industrial Deal could open up the necessary sectoral insights, especially for hard-to-abate sectors where solutions are not yet available or affordable. For these sectors, in particular, it would be important to provide:
An important lever for the creation of such markets is public demand, which, in Europe, is worth more than 14 percent of GDP each year, or about 2 trillion euros, spent by the more than 250,000 public authorities to purchase services, works and goods. For this reason, a revision of the Green Public Procurement (GPP) directives is also expected in 2025, the consultation on which is open until next March 7.
A strong strategy for industry should take up and expand on what has already been set with the Net Zero Industry Act and include a plan for the development of strategic supply chains for decarbonization. To this end, also in 2025, the Industrial Decarbonization Accelerator Act will be published – probably beyond the first hundred days of the mandate-which should focus exactly on the development of lead markets for the production and deployment of clean technologies in industry, accelerating planning, competitive bidding, and permitting, particularly for energy-intensive sectors.
Another element identified in the Draghi report, among those responsible for the ‘static’ nature of the EU industry system, are the complex non-financial reporting requirements of the CSRD, CSDD and EU Taxonomy directives. To address this issue, an Omnibus simplification package, also due February 26, is expected to streamline reporting requirements and make systems interoperable.
Regarding electric mobility, the Commission rejected pressure from European conservatives and the ultra-right to bring forward a review of the regulation to 2025. Brussels confirmed that it would stick to the timetable prescribed by the current legislation, that is, to proceed with a review of the effectiveness and impacts of the regulation in 2026, after verifying the response of the European market to the entry into force – as of January 1, 2025 – of emission targets for new registrations over the next five years. In fact, predictions of tens of billions of euros in penalties for manufacturers, circulated in recent months, were based on market projections that were not updated to 2024 and, therefore, may be scaled back or disproven by 2025 sales.
With the transition to all-electric mobility by 2035, the European automotive sector faces one of the most radical and impactful transformations of the energy transition, confronting markets that are more advanced and competitive to date, supported by massive public subsidy schemes. The European industrial plan to support the continent’s automotive sector, will be one of the central aspects of the Clean Industrial Deal, the drafting of which involves close collaboration between Teresa Ribeira (Just and Competitive Transition), Stéphane Séjourné (Prosperity and Industrial Strategy) and Wope Hoekstra (Climate, Net Zero and Clean Growth), with strategic coordination by President von der Leyen.
The new Commission, starting this 2025, must unhesitatingly commit to the effective implementation of the Green Deal with the Clean Industrial Deal appearing among the 14 key cross-cutting themes for which von der Layen has established as many working groups. A new vision for continental industry, a much-needed acceleration to keep pace with an ongoing transformation, the driving forces of which find their power in global markets and, in spite of the complex geopolitical situation, will not slow down so easily
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Last 16 October the Ministry of Enterprises and Made in Italy (MIMIT) published a Green Book on the new Italian industrial strategy, with the aim of providing Italian industry with a pathway to tackle technological transformation and the challenge of decarbonisation in a new and changing geopolitical context.
This document comes in the wake of the commitment by the new European Commission to create an EU-wide industrial strategy which links competitiveness and decarbonisation, while recognising the importance of simultaneously reaching technological and green transition goals. The text views the green transition as an inevitable transformation it needs to adapt to: ‘new drivers (exogenous systemic challenges) of industrial policy to which Italy (…) must respond’, rather than an opportunity for economic growth. The Green Book sees the decarbonisation process as a policy which should be ‘adapted to the needs of competitiveness’ rather than being an integral and synergistic part of it. This approach risks tackling the issue without considering its opportunity for economic growth, which is instead emphasised by the European Commission and other industrial strategies, such as that of the United Kingdom.
Of the 15 objectives of Italy’s industrial strategy detailed in the Green Book, only two refer to the green transformation: ‘reaching the objectives of the green and tech transitions’ and ‘create an industrial development model based on a low cost of energy, and on the circular and bio economies’.
Reducing the cost of energy is a crucial element of competitiveness and, therefore, rightly sits at the heart of the Italian industrial development model. It is, though, less clear how the circular and bio economies, which are undoubtedly elements of strength of the national economic system, are strategic in the same way.
For an industrial strategy that links competitiveness and decarbonisation to be successful, it should focus on at least two other elements: tackling and enabling the decarbonisation of traditional industries and developing and supporting green technology supply chains. These two elements, alongside the aforementioned reduction of the cost of energy, could provide synergies that can ensure, on the one hand, that Italy fully takes advantage of the opportunity provided by the green transformation, and, on the other, that these benefits are also passed on to the wider manufacturing base and, therefore, to the entire national economy.
‘Industry’ is a heterogeneous set of production sectors, processes and products, connected in distributed, branched supply chains, but closely interconnected at a global level. Therefore, the decarbonisation of traditional industries needs a diversified strategy tailored to specific production processes and supply chains. Different production processes present different issues, often linked to the availability of technological solutions that are not always mature or economical, such as in the so-called “hard to abate” sectors i.e. steel, cement, chemicals. This is also true for ‘light’ industries, like food or textiles, where the challenge of sustainability is as urgent as it is complex, also due to the prevalence of small and medium enterprises which are often fragmented and have difficulty accessing financing.
Green technologies are a market estimated by the IEA to be worth 600bn dollars by 2030 and the Green Book clearly identifies the time-sensitive nature of the challenge posed by international competition and the economic opportunity offered by green technologies. Developing a vision of how to effectively support crucial technologies such as heat pumps, for example, could support a crucial market for Italy. The identification of green technologies should be done in coherence with the approach suggested in the Draghi Report, in which it is suggested that a cost-effectiveness assessment should be made based on the value of the domestic supply chain in relation to international competition. This would help determine the goal for each technology in light of the relative cumulated cost disadvantage: from trade strategy and full support for national/EU production at one end of the spectrum, to the facilitation of imports of cheaper foreign technology products on the other end. This in turn will feed into the same assessment which will need to be made at the European level.
Underpinning all this is a vision of the cost of energy as a key factor of industrial competitiveness. Since electricity is the cheapest decarbonised source of energy to produce, if compared with other solutions, electrification of production processes will be key to competitiveness. However, this requires an acceleration of the installation rate of renewable energy sources at competitive prices, which will act as a factor of decarbonisation of other sectors as they electrify. It will be necessary to expand and modernise the electricity transmission and distribution networks and ensure that cost savings due to cheaper energy production from renewables can be passed on to consumers. These elements could be accompanied by measures to further stimulate industrial energy efficiency in order to maximise the potential of electrification to reduce costs, emissions and national energy demand. Finally, a plan could be needed on the use of natural gas and its substitutes, which includes targeting their use to those sectors such as high-temperature processes which, in the short term, have no viable solutions available. A cohesive view of this issue would broaden the strategies envisaged in the Green Paper, which currently focuses on four factors: – i.e. the creation of a European electricity market, the inclusion of new generation nuclear (SMR and AMR), the concept of technological neutrality (understood as an approach that focuses on the objectives irrespective of the technologies adopted) and openness to the use of biofuels in the automotive sector- without an assessment of cost-effectiveness and their respective roles within the decarbonisation process.
Greater synergy between a clear identification of the relevance of decarbonisation for industrial policy and a vision capable of drawing conclusions from this initial assumption would in fact enable the construction of a cohesive and synergic strategy. This is something that needs to be addressed, particularly in the context of the upcoming industrial planning at the European level.
For the first time, the EU is putting forward a unified and coordinated vision of its industrial future, one that has the potential to fully leverage the EU’s economic size to allow it to compete internationally. This vision is expected to focus on green technologies, decarbonising traditional industries and lowering the cost of energy. If Italy’s industrial strategy can provide a plan consistent with this, it can take advantage of synergies at the European level, reduce duplication and influence the development of European industrial policy in a way that supports national efforts. Otherwise, it could risk becoming peripheral to EU action and ineffective in improving the competitiveness of Italy’s manufacturing base.
Tuesday, January 14
Hearing in the Environment Committee of the Chamber of Deputies on the role of nuclear energy in the transition and decarbonization process
Wednesday 15 January
Road to NetZero Milan: second webinar – PHOTOVOLTAIC FOR INDUSTRY AND PPA CONTRACTS –click here for free registration
Wednesday 29 January
Road to NetZero Milan: third webinar – STEEL: THE CHALLENGES OF DECARBONIZATION –click here for free registration
Wednesday, January 15
The European Commission presents the “Competitiveness Compass” and the annual Single Market Report.
Monday, February 3 and Tuesday, February 4
Informal Competitiveness (COMPET) Council – Internal Market and Industry (Poland)
Tuesday, February 11
Presentation of the 2025 Commission Work Programme in Strasbourg (EP Plenary)
January
IEA’s quarterly Gas Market Report
Monday, January 20 to Friday, January 24
World Economic Forum Annual Meeting (Davos) – link
February
IEA’s annual report on electricity
At NetZero Milan, we firmly believe that emphasising the need for ambitious corporate climate action should not overshadow the challenges of maintaining competitiveness, to withstand the potential risks of deindustrialisation – in any case the need to move along pathways of just transition.
This is why we are committed to offering our participants, exhibitors and visitors an event that is not self-referential or celebratory. On the contrary, we do not want to lose sight of the value for money of the event and its true customer focus.