The European Union is a global leader in reducing carbon emissions, but it is also taking steps to ensure that the green transition does not turn it into an industrial desert, with a raft of measures set to be announced next week.
Europe's industrial competitiveness in relation to the world's two largest economies, the United States and China, has become a major concern across the bloc 30 years after it established its borderless single market, which some say is now due for a major overhaul.
Next week's announcements include legislative proposals to facilitate domestic production of critical supplies and streamline grants for green projects, as well as address the contentious issue of state aid. They come before a summit of EU leaders on March 23-24 to discuss and guide the EU response.
Many in the EU are concerned that US President Joe Biden's Inflation Reduction Act, which offers $369 billion in green subsidies that mostly apply to products made in North America, could entice companies to leave Europe, allowing the U.S. to grow into a clean tech behemoth at the expense of Europe.
The EU's internal markets commissioner, Thierry Breton, said this week that it was clear that both the U.S. and China were attempting to divert industrial capacity away from Europe to make Europe dependent on their industries in the future: "Or to put it more bluntly - they are engaged in a subsidies race. Not us; them."
With its goal of carbon neutrality by 2050 and tough 2030 emissions targets, the EU likes to see itself as a climate change champion, with progress on that front ahead of efforts in the U.S. and China.
However, while it has strong positions in certain green sectors, it risks falling behind in technology.
According to a report by McKinsey Global Institute, Europe lags behind the U.S. in key future digital and green technologies across the board, with both trailing China and other east Asian countries in clean tech.
A further challenge is the supply of minerals essential for the green transition, with China processing nearly 90% of rare earths and 60% of lithium, a key component in batteries.
Russia-Ukraine war has reinforced a lesson learned during the early months of the COVID-19 pandemic, that is the EU cannot rely on a single supplier for critical materials, whether personal protective equipment or oil and gas.
The pandemic has already prompted calls for the EU to gain "strategic autonomy," though opened up a debate as to whether that meant producing essential goods in the bloc or diversifying supplies.
On the former, the EU executive will propose legislation on Tuesday that will allow the region to mine 10% of its strategic raw materials and increase processing to 40% of its needs by 2030.
Concerning the latter, the Commission believes that trade agreements with Chile and Australia, the two largest lithium producers, could ensure direct supply and reduce reliance on China.
It will also make proposals to speed up the granting of permits for green projects, which can currently take years, and to encourage investment in net-zero industry "valleys."
Then there's the thorny issue of subsidies and a potential future European Sovereignty Fund, an idea first floated last year by European Commission President Ursula von der Leyen.
Both topics are contentious. The Commission, backed by France and Germany, has proposed easing state aid rules to enable green investment, which could include matching subsidies offered elsewhere for net-zero technologies.
Some EU countries argue that they will be unable to match the sums offered by the EU's two largest economies.
Breton claims that the sovereignty fund, which would be funded through joint borrowing, would help ensure a level playing field between EU countries that do not have the same ability to provide state aid.
Countries such as the Netherlands, the Nordics, the Czech Republic, and Ireland have also warned of the dangers of blanket subsidies, arguing that efforts to improve the EU single market would be more effective.
The EU single market, often referred to as the crown jewel of European integration, has been a game changer for free movement of goods since its launch in 1993 but has done little to stimulate other parts of the economy.
"If you look at what we have today in terms of the single market for goods it's highly effective, it makes the EU very competitive globally and we need to try to do the same for services and digital in particular," Irish Trade Minister Simon Coveney said during a meeting with EU counterparts on Friday.
