Alison Mizzi, MBB President
This Opinion Piece featured on The Sunday Times of Malta, on 5th March 2023
For years, the European Union has been a global leader in efforts to mitigate and adapt to climate change. It has now greatly stepped up its climate ambition, issuing new and revised proposals tackling aspects such as clean energy, energy efficiency, waste reduction, water conservation, and more.
This naturally presents business opportunities for new clean technology industries in Europe. However, it also raises challenges, mostly in relation to the investment effort needed by both governments and private businesses to become greener.
The current inflationary pressures and economic slowdown brought about by first the COVID-19 pandemic, and then severely worsened by the war in Ukraine, have complicated these efforts. Other global competitors have reacted swiftly and put forward massive state aid packages to support their industry.
The US’s Inflation Reduction Act promises €330 billion in investments to support climate projects (including tax incentives) by 2032. Likewise, China has announced €260 billion worth of subsidies over five years directed towards clean technologies. Japan, UK, and Canada have also put forward similar plans.
While public support is crucial to incentivise adequate investment towards the green transition, these packages have raised real concerns over their potentially distortive effects on global markets, particularly between competing net-zero industries. Maintaining EU industrial competitiveness will indeed be crucial to ensure a successful green transition which results in long term growth and job creation.
Recognising this urgent need, the European Commission recently published its Green Deal Industrial Plan which aims to support the development of clean tech industries in Europe. The plan is based on the pillars of predictable and simplified regulations, faster access to funding, skills, and open trade.
On the regulatory front, the Commission will put forward a Net Zero Industry Act which will include specific goals for industrial capacity by 2030, while simplifying permitting processes. Complimenting this, a Critical Raw Materials Act will aim to ensure a secure supply of raw materials for EU industries through stronger agreements with third countries, facilitating extraction, and increased recycling of materials.
This represents a crucial development which extends beyond net zero industries. The global chip shortage, brought about partly by a scarcity of raw materials, had negative ramifications on various industries, leading to shortages of several technological products from car parts, electronics, computer peripherals and hardware.
Faster access to funding will be crucial to support businesses in implementing existing solutions, while also stimulating innovation in clean technology and timely deployment. Several financing opportunities already exist but can still be improved. Current schemes, while positive, have not proven to be sufficiently attractive for businesses to transition towards greener practices at the desired scale.
The proposed revision to EU state aid rules to provide for more targeted and simplified aid is expected to lead to added flexibility to support green investments. This needs to be treated with greater urgency. Other jurisdictions have already acted much faster than Europe, potentially already placing us at a competitiveness disadvantage if not addressed swiftly.
An EU funding opportunity coming from the more recent developments is the revision to the Recovery and Resilience Facility (RRF), through the REPowerEU Plan, which will provide an additional €20 billion of funding across the EU. This is an opportunity for Malta to further tailor its Recovery and Resilience Plan (RRP) to support investments which make sense locally, and which will help us achieve the EU climate targets.
These changes should be made in close consultation with businesses and stakeholders, to ensure the funding provided is meeting real needs on the ground.
Investment needs aside, the green transition will generate a great number of new jobs in growing and emerging clean technology industries. This will need to be met by workers equipped with the appropriate green skills, necessitating a large-scale upskilling and reskilling of the EU workforce.
There are already several EU initiatives in this area, including the European Strategy for Universities on the future proofing of skills, the European Skills Agenda on sustainable competitiveness, and the European Pact for Skills on upskilling and reskilling. This year’s European Year of Skills will be a further opportunity to align educational and training efforts with the EU’s heightened climate ambition.
Finally, close collaboration with third countries will be crucial to maintain European competitiveness. Climate efforts will not succeed if implemented unilaterally, and the EU should not bear the cost of transition on its own.
Several agreements and mechanisms can already be used to facilitate such collaboration. This can be done through, for instance, climate considerations included in free trade agreements, as well as the sustainable investment facilitation agreements targeting Africa in particular. More novel agreements will focus on the supply of critical raw materials and clean technology adoption.
The above-mentioned pillars are very much in line with priorities of the Malta Business Bureau as well as the concerns expressed by local businesses. The need to adapt industrial policies is growing in urgency with every crisis and added external pressures.
Most importantly, Europe cannot be left behind as we enter a new industrial age. The EU single market, its already strong climate policy, and other strategic tools place Europe at a great position to lead the clean technology transition globally.