Empowering Europe: Developing a Roadmap to Strategic Autonomy
20 December 2023
Author: EIES
EIES’ launch paper examines Europe's strategic energy supply chain dependencies and vulnerabilities, identifying a path for derisking the energy transition while safeguarding industrial competitiveness.
From the end of the Cold War until the present day, concerns about energy security and supply chain resilience have moved down the priority list. These concerns are now high on the agenda for European policymakers, given the systemic shock of the COVID-19 pandemic, Russia’s invasion of Ukraine and disruption of gas supplies, and the realisation that global supply chains have critical vulnerabilities and are highly dependent on China. Beijing, in turn, is aggressively and opaquely using state support to prop up its industry, is currently the global leader in key segments of energy and climate technology, and has, in its recent restrictions on gallium and germanium exports, demonstrated once again a willingness to flex its supply chain dominance. This polycrisis impacts Europe’s ability to execute the energy transition to deliver benefits to Europeans (job creation, higher salaries, improved quality of life, etc.) while ending fossil fuel dependence. Additionally, the Inflation Reduction Act’s approach to climate policy through industrial policy challenges Europe’s energy transition.
Energy security, industrial policy, sluggish growth, and inflation have now moved to the core of European Union (EU) and national political debates. In addition to the European Green Deal, policymakers have been working on developing the policies and tools required to address existential challenges: implementing an EU economic security strategy; developing tools to assess trade-related risks; screening and potentially blocking inbound investment that threatens their technology; sanctioning states that attempt to coerce common trade policy or specific member states; developing a joint industrial policy (including defence) that sets concrete targets for mining, processing and manufacturing of critical materials and technology; building global climate and resource clubs with like-minded countries; accelerating the rollout of renewable energy to reduce dependence on volatile fossil fuel supplies and unreliable and hostile producers; expanding and securing energy transport infrastructure.
Efforts made to date are steps in the right direction, but the challenge will be to increase support and accelerate the pace over the next 5-10 years. Difficult trade-offs and decisions must be made to ensure Europe does not replace one dependency with another and to reduce exposure to external influence and future shocks without slowing growth or damaging security. The objective is to ‘derisk,’ rather than ‘decouple’ from China and other risky partners, to avoid escalation of disputes and negative consequences of invidious dependencies. Importantly, the risks of protectionist policies and actions, the potential for escalation, and the fact that it is impossible to completely decouple European economies and supply chains from China should not (1) lead Europe to underestimate the security threats it faces and be underprepared for them, and (2) impede Europe’s efforts to both build domestic energy and industrial capacity, and diversify trade relations with countries that share European values and goals.
Europe must urgently consider how to improve the functioning of the single market - a pillar of the EU built on free movement of goods, services, and people – and rethink fiscal tools so that they better protect all European economies and do not result in a “two-speed Europe.” We must better map and strategically address our vulnerabilities, prepare contingency plans, and be ready to use new defensive trade tools. We must develop new, long-term global collaboration frameworks with like-minded countries that enable Europe to transcend short-term political trends and mandates. This includes renewing and “future-proofing” the transatlantic alliance. We must devise and implement European and national energy and industrial transition plans that work for all European member states to ensure energy and supply chain security, industrial competitiveness, and strategic autonomy. The EU must not allow past difficulties in crafting a joint security policy to prevent meaningful progress on this front. In short, Europe must pursue economic, energy transition, and security goals in tandem, as its major global competitors do, to deliver shared security and prosperity to all Europeans.
The remainder of this decade will be the most challenging - and most critical - in setting Europe on the right track. Europe remains unprepared to facilitate the scale of manufacturing needed to deliver tangible economic benefits and counter rising social unrest. It faces persistently high energy prices and a constrained macro-economic environment, an ongoing war on European soil that we must win to ensure the stability and freedom of the whole continent, and geopolitical uncertainty and proxy conflicts in Europe’s neighbourhood. The reverberations of these events are leading to political instability and a backlash against the household budget impacts of energy transition and climate policies. Joint European vision, action and solidarity, as well as collaboration with like-minded global partners, will be critical to Europe’s success.
The scarcity of natural resources in Europe has historically fostered invention, innovation, and technological development in energy and industry across the continent – whether through research and development of nuclear technologies or a range of strategies for hydroelectric power. Historically, it also drove a legacy of pan-European coordination and integration of energy markets through the establishment of the European Coal and Steel Community and the European Atomic Energy Community, and the move towards a single electricity market. In recent years, progress on the energy market and infrastructure integration has been sluggish due to a lack of incentives for shared energy security. The war in Ukraine, however, and growing apprehension about Chinese actions have prompted European policymakers and businesses to pursue deeper energy integration, improve interconnection and interdependence, and move faster towards a whole-of-supply-chain approach to energy and industrial policy. Moving forward, we must return to the foundational principles of collaboration and solidarity to achieve a transition towards a net-zero economy that protects and nurtures European competitiveness.
Strengthen European energy and industrial supply chains and cooperation
Make whole-supply-chain energy security a priority of European energy policy, with a focus on regional strengths and stronger coordination across European organisations and national governments to secure support for the transition.
Boost European capacity in mining, processing, and manufacturing of raw materials and clean energy technologies, prioritising speed, innovation, industrial decarbonization, and circularity.
Expand all available forms of dispatchable low-emission energy, strengthen European energy transport infrastructure, and increase market integration within the EU and with its neighbours.
Develop tailored regional and national energy and industrial transition plans and improve EU-level coordination, guidance, and support, particularly for countries with more limited capacity.
Improve access to capital and reduce fragmentation by strengthening and simplifying funding mechanisms, shifting the focus to scaling up production and infrastructure, and prioritising energy and industrial investments in the next EU multiannual financial framework.
Build Allied Global Supply Chains
Strengthen Europe’s energy supply chains by building a club with like-minded countries, emphasising clear incentives for Global South participation, along with prioritising the implementation of new trade deals.
Form global, technology-specific alliances, strengthening collaboration with key clean energy technology producers and ensuring reciprocal market access through initiatives like the Clean Energy Incentives Dialogue.
Enhance the transatlantic relationship for energy security and technology cooperation, beginning with technology-specific alliances and leveraging successful examples like the consensus on diversifying chip manufacturing.
Counteract anticompetitive and antidemocratic behaviour by enforcing radical transparency, high human rights and environmental standards at borders, and establishing carbon pricing as a foundation of industrial output for Europe and its partners.