The new EU Clean Industrial Deal: a plan that leaves much to be desired

The recently published Clean Industrial Deal (CID) has correctly acknowledged the strategic importance of energy-intensive industries and identified their key issues. Commission proposals in the CID include some commendable ideas, such as green lead markets or additional funding. Yet, the proposed measures lack the necessary urgency and boldness to reverse the decline of Europe's industries and fall short of protecting their global competitiveness and domestic market.

The European Economic and Social Committee (EESC) has come to the same conclusions on the urgency of the situation in energy-intensive industries. In its exploratory opinion CCMI/238 "The future of EU REII industry in the face of high energy prices and transition costs", the EESC highlights a significant competitiveness gap of resource- and energy-intensive industries (REIIs) in the EU compared to global competitors. The CID is a positive step in the right direction, even though it remains vague in critical policy areas.

The Commission has presented the right diagnosis for energy-intensive industries and correctly named energy prices as the main culprit. The Deal and the Action Plan for Affordable Energy elaborate extensively on the necessity to lower energy prices for REIIs, yet propose no reform of electricity market design. Marginal pricing has been working well at the time when the EU was benefitting from relatively cheap and stable piped gas from Russia. Unfortunately, the reality has changed, as we are now exposed to expensive and volatile LNG supplies, likely for years to come.

Electricity pricing is simply the most urgent challenge for EIIs. Our industries do not enjoy the effects of the increasing share of low-cost fossil-free electricity in the EU generation mix, because fossil-fuel prices continue to set the tone for electricity price-formation. Policy efforts at EU level (RePowerEU) to increase the share of renewable and low carbon energy are welcome, as they contribute to self-sufficiency and energy sovereignty. The problem is in the current market design, where an increased share of renewables does not translate into lower electricity bills. The modelling by the Commission Joint Research Centre shows that in 2030, coal and gas will keep setting the price for 85% of the hours, despite decreasing to only 11% of the generation mix, with renewables growing to 67% of the mix.

The Commission-supported Power Purchase Agreements (PPAs) are already implemented in practice, yet have not delivered meaningful pricing benefits as they reflect wholesale market price levels. 

"Industries need immediate measures transferring the cost benefits of renewable and low-carbon electricity to them and an unbiased assessment of price mitigation options, including electricity price decoupling. Otherwise, energy-intensive industries will shrink, leading to permanent capacity losses, also in downstream industries", concludes the CCMI opinion.

The Deal has also recognised shortcomings in the Carbon Border Adjustment Mechanism (CBAM) and in protection against trade circumvention. But it falls short of offering solace, as the CID tells us regretfully little on how the EU market will be protected, leaving energy-intensive industries unsure in a global trade war. Circumvention is concerning and will remain so. Unless CBAM and trade defense instruments undergo a comprehensive reform, EU energy-intensive industries will continue dragging their feet on green investments and fearing market outlook.

Therefore, the EESC urges EU institutions to deliver the groundbreaking policy change and implement more decisive measures in sector-specific Action Plans. Failure to act will result in further deindustrialisation, chipping away at EU’s capacity for industrial transformation. It was on European soil that the Industrial Revolution began in the late 18th century – we must not let today’s Europe become the place where industry is buried.

Author: Michal Pintér, CCMI Delegate