On 9 September, Mario Draghi published his report on European competitiveness. While Draghi proposes an industrial deal to complement the Green Deal, his report’s findings were almost instantly washed out by noise from carmakers calling on the EU to rowback on its green goals.
Here's the one question the former European Central Bank president did not address.
What to do when the incumbents you are trying to protect are hellbent on sabotaging themselves?
It’s not just the auto industry. A similar situation is playing out in the clean fuels space. The oil and gas industry is supposed to make big investments in clean shipping and aviation fuels, notably e-kerosene and e-ammonia, but it is playing a game of wait and see.
Or take shipping, 35% of the world’s fleet sails under a European flag. It should be a ready source of demand for European hydrogen. But many of Europe’s biggest shipping companies are pushing for short-term solutions like LNG and biofuels.
In with the new, but what about the old?
These are just three examples of a much wider problem. Europe is an incumbent continent, full of century-old companies that say they want to be part of the “new”, but don’t want to “part” with the old.
The car industry’s fight to kill the EU’s 2025 car standards is a case in point. Most car execs understand the future is electric but have been struggling to transition. The latest reason for their dithering is lower car sales, overcapacity and a plunge in Chinese profits.
Hitting the EU’s clean car rules requires selling cheaper and better EVs (e.g. the <25k Citroen eC3), higher investments in new models, and lower sales of polluting SUVs. If the future is electric and net zero, this is surely the right path. It’s exactly the way things are playing out in China, the EU’s biggest competitor.
The logical policy response would be to enforce the CO2 regulations to boost EV sales, impose tariffs to encourage local manufacturing, and (re)introduce subsidies to help car and battery producers absorb the transition costs.
The thing is, car lobbyists oppose the car CO2 standards, oppose the China tariffs, and the powerful German auto lobby even opposes subsidies for electric cars!
Cutting through the Gordian Knot of complexity and incumbent inertia requires a political decision. Like Made in China 2025, the US IRA or indeed, the EU green deal.
Here’s the other problem with Draghi’s plan.
He rightly observes that it’s tough for the EU to compete with nation states like China or the USA. But he wrongly proposes that the EU could work more like a country by introducing a ‘new governance’ framework. This would mean the big priorities would be agreed by prime ministers at the European Council level, while EU states and the Commission iron out the details with industry.
This proposal would eliminate the EU Parliament and civil society from most decision making. It creates a huge risk of corporate capture and it would not work. Incumbents don’t always know what is best for them. Just think of dieselgate, the role of gas and hydrogen, or the need to go electric where T&E got it right years before industry did.
The reality is that the Green Deal is a sound industrial strategy. The Commission should ignore incumbent lobbying and hold the line on climate rules like the CO2 standards and fuel mandates. Where it should follow Draghi’s and Letta’s advice is in creating a genuine single market, a more assertive EU trade policy, and tackling our greatest weakness: the lack of a clean tech investment bazooka similar to the IRA or Made in China 2025. For the good of European workers - and its incumbents.
