Decarbonization in the EU Competitiveness Report
Decarbonization that is not at odds with “competitiveness and growth” forms the second of three dimensions identified in the Competitiveness Report, presented by Draghi on September 9. These dimensions—technological innovation, increased security, and reduced dependencies—define what he calls an “existential challenge” for Europe.
According to the former Italian Prime Minister and ex-President of the European Central Bank, this constellation of economic, industrial, political, and social challenges will shape Europe’s fate over the coming decades. This vision seeks to build upon the Green Deal’s legacy, placing it within a more harmonious framework.
According to the Draghi Report, Europe’s “ambitious” climate goals must be supported by “a coherent plan to achieve them.” Only then will decarbonization become “an opportunity” for Europe. In addition to the points highlighted in the energy chapter of the report, the 328-page document offers a thorough analysis of key challenges and possible solutions in areas critical to the decarbonization pathway, including access to critical raw materials, energy-intensive industries, clean technologies, transport, and the automotive sector.
“To remain competitive,” Ursula von der Leyen emphasized during the presentation of the Draghi Report, “we must master the green and digital transition.”
Here is a detailed look at the proposals presented in the EU Competitiveness Report by Mario Draghi.
Draghi Report: The Critical Raw Materials Chapter
The parameters of the problem are clear. Europe is resource-poor, yet the energy transition will cause a surge in demand for certain minerals, such as lithium, nickel, and cobalt, essential for clean technologies. The continent also lacks sufficient processing capacity. Moreover, critical raw materials are often concentrated in a few countries, creating potential bottlenecks undermining the EU’s strategic autonomy.
The EU Competitiveness Report views the Critical Raw Materials Act, approved by the European Commission in recent years, as a solid starting point. However, it proposes 11 short- and medium-term priorities to implement, strengthen, and expand the law:
- Develop a comprehensive EU strategy based on the CRMA, covering the entire value chain from extraction to recycling. Short term (ST, 1-3 years)
- Establish a dedicated platform for critical materials in the EU to implement the EU strategy and leverage market power. Medium term (MT, 3-5 years)
- Develop financial solutions to support the critical materials value chain (ST/MT)
- Further develop resource diplomacy for critical materials to ensure supply and diversification (ST)
- Enhance common strategies with other global buyers from the G7/OECD (e.g., Japan) (ST/MT)
- Further promote the untapped potential of domestic resources in the EU, linked to improved standards and integration with industry at various levels of the value chain (MT)
- Boost European excellence in research and innovation on alternative materials or processes to replace critical materials in various applications (MT)
- Circularity: create a true Single Market for waste and recycling in Europe (ST)
- Accelerate the creation of a sustainable market for critical materials in the EU (ST/MT)
- Develop strategic reserves of critical minerals in the EU (ST)
- Improve transparency in financial markets for wholesale critical mineral contracts in the EU (ST)
Energy-Intensive Industries: Recommendations from the Draghi Report
Despite the Green Deal’s provision of financial support and protective measures (such as the CBAM) for the decarbonization of energy-intensive industries—responsible for 68% of the EU’s manufacturing greenhouse gas emissions—the current measures “are likely to be insufficient” to transform these industries while maintaining their competitiveness.
In this context, the EU Competitiveness Report identifies 11 priorities. Some overlap with those suggested in the energy chapter, such as ensuring access to competitive natural gas supplies during the transition and securing sufficient and competitive decarbonized electricity and clean hydrogen resources. Others focus on improving coordination among various EU policies, simplifying processes, and providing financial support.
In this regard, the Draghi Report cites the following priority actions:
- Further develop financial solutions (such as financial guarantees) for EU energy-intensive industries (EIIs) to improve market financing conditions. (Short term, ST)
- Strengthen relevant funding to support the decarbonization of EIIs, starting with allocating ETS revenue. (ST/Medium term, MT)
- Simplify, accelerate, and harmonize subsidy allocation mechanisms. Adopt common tools among member states, such as the European Hydrogen Bank and Carbon Contracts for Difference. (ST/MT)
- With implementing the Carbon Border Adjustment Mechanism (CBAM), the report suggests closely monitoring its operation during the current transition phase and, if necessary, “consider delaying the reduction of free ETS allowances if CBAM implementation proves ineffective.”
Among other proposed recommendations, the report highlights the creation of “green industrial districts”: “Coordinate the establishment of regional green industrial clusters around EU EIIs.” (ST/MT).
Clean Technologies
Europe has enormous potential to lead the global development of clean technologies but faces barriers and production challenges at the necessary scale in various segments. The EU’s share in solar panel production is now “negligible.” Europe still leads in assembling wind turbines but is losing market share to China, and imports of heat pumps are increasing. It remains a marginal player in battery production and dominates electrolysis technology but cannot produce at GW scale.
To reverse this trend, the Draghi Report suggests, among other priorities:
- Introduce a minimum explicit quota for innovative and sustainable locally produced products and components in public procurement and Contract for Difference auctions, where necessary to meet EU production targets. (Short term, ST)
- Promote other purchasing forms for selected locally produced technologies, such as requirements and incentives in EU and EIB funding programs, and national support programs. (ST)
- Define clean technologies as a strategic priority in the EU’s 10th Framework Program for Research and Innovation. (ST)
- Develop and implement a unified certification model for sustainable and innovative technologies. (Medium term, MT)
- Strengthen EU-level coordination, in collaboration with industry and research centers, starting with: supply chain monitoring, defining standards and critical minimum capacities, and coordinating R&D efforts (e.g., Joint Undertakings and IPCEIs). (ST)
EU Competitiveness Report: The Automotive Chapter
Green transition, integration of digital technologies towards increasingly software-oriented products, and new business models like car sharing are some of the main drivers behind the ongoing transformation in the European automotive sector. Traditionally a major engine of the continent’s competitiveness, it now faces a challenging reconfiguration.
The EU Competitiveness Report begins with the controversial shift to electric vehicles and notes that the European value chain has taken significantly longer than its Chinese counterpart to adapt to the new context. It also highlights the lack of coherence in some EU legislative initiatives and points out that the principle of technological neutrality—strongly advocated by certain countries, including Italy—has not been consistently applied to the automotive sector. In short, Draghi asserts, “The push for rapid market penetration of electric vehicles has not been matched in the EU by a synchronized push towards the conversion of the supply chain.”
Many of the priorities outlined by the Draghi Report for the automotive sector revolve around the need for increased coordination. For instance, the report suggests:
- Develop an EU industrial action plan for the automotive sector, enhancing both vertical and horizontal coordination within the value chain (Short term/Medium term, ST/MT).
- Ensure regulatory consistency, predictability, appropriate timing, and consultations for upcoming regulations. Adopt a technology-neutral approach in revising the “Fit-for-55” package (ST/MT).
- Promote standardization (ST).
- Ensure a coherent digital policy for the automotive sector, including the data ecosystem and AI development needs (MT).
To advance these aspects, Draghi identifies the creation of “accelerators” for the automotive sector among other priorities:
- Establish enhanced Net-Zero Acceleration Valleys dedicated to the automotive ecosystem (MT).
- Support joint European projects in the most innovative areas, such as affordable European electric vehicles, software-defined vehicles and future solutions for autonomous driving (SDV and AD), and the circularity value chain (ST/MT).