| Faced with the urgency of climate change, the "Green Pact for Europe" aims to achieve carbon neutrality by 2050. Today, however, this ambitious project is hampered by the successive uncertainties generated by years of pandemics, energy price inflation and the war in Ukraine.
Yet the transition to a low-carbon economy also represents a formidable vector for innovation, energy security and green job creation.
What levers can we put in place to accelerate this transition and give ourselves, collectively, the chances of success?
In a note dedicated to this issue, our experts identify 4 main courses of action.
With one conviction: the growing number of links between the political and economic spheres should lead to a division of roles: on the one hand, regulatory objectives set at an institutional level, and on the other, the question of how to achieve them left to companies.
1. TOWARDS A BALANCED, LOW-CARBON ENERGY MIX ACROSS EUROPE
The IPCC's sixth report is unequivocal: the climate emergency is more pressing than ever, and a rapid, pragmatic energy transition is an absolute necessity. In response, the European Union has presented a series of measures, the "Green Pact for Europe", with the stated aim of achieving carbon neutrality by 2050. Today, this far-reaching project is coming up against the successive uncertainties generated by years of pandemics, energy price inflation and the war in Ukraine. While the EU had made natural gas one of the pillars of its energy transition, it now has to break away from its dependence on Russian gas at breakneck speed, thereby creating an air gap for other exporting countries.
Despite these upheavals, Europe must retain the idea of a collective strategy that characterizes its Green Pact. Achieving carbon neutrality means moving from a system centered on fossil fuels (two-thirds of the energy consumed in Europe), to a mix with a majority of "green" energies. This cannot be achieved without taking into account the energy disparities between European countries. It is vital that the logic of proportionality and solidarity between member states persist, and are revised in the light of the current geopolitical context. A lack of cohesion within the bloc could lead to a national withdrawal on the part of some of the 27 members, which would undermine European credibility on the international stage and minimize the chances of success of the Green Pact for Europe.
To avoid such a scenario, it is essential that Europe's future energy mix includes a variety of sources. While it seems obvious that the share of fossil fuels must decline, a poorly planned and dogmatic transition would be counterproductive. Decarbonized energies all have drawbacks that need to be anticipated if we are to achieve a viable mix by 2050. In addition to the intermittency often mentioned for solar and wind power, alternative energy sources raise issues of sovereignty, technological intensity and maintenance, for example. The aim is therefore to efficiently combine all the sources and means of producing energy in order to optimize their benefits.
This optimization also involves ensuring the right balance between supply and demand on a continental scale. A greener, more diverse European energy mix means taking into account the strengths and weaknesses of individual member states to ensure network resilience and efficiency. In order to avoid imbalances between countries, Europe must absolutely integrate redistribution logics between the 27 member states, using controllable and non-controllable energies. The installation of inter-state smart grids, for example, would be a way of balancing the continent's electricity production precisely and in real time.
This long-term planning is the basis for rebuilding energy stability, which is conducive to growth and the development of production. The initiatives proposed in the Green Pact are a first step, but it is now necessary to create a Union-wide consensus on the means to achieve the targets set for 2050, and on the roadmaps for each country.
2. FOR A TRULY INCENTIVE-BASED CARBON PRICE
Carbon pricing is one of the regulatory measures available to governments to accelerate decarbonization. It generally takes the form of a tax added to the selling price of a product or service according to its carbon intensity, or the creation of a carbon market leading to the pricing of emissions. Today, around a quarter of the world's greenhouse gas emissions and 60% of global GDP are covered by a carbon pricing mechanism, but the measure has certain limitations.
First of all, these statistics do not take into account the price per tonne of carbon equivalent, depending on the region or market studied. Today, three quarters of the tariffs mentioned set the price per tonne at less than 15$. For the measure to have a real environmental impact, this value should be between 80$ and 100$.
There are also more structural issues to consider. Carbon pricing is only viable on a global scale. In a globalized economy, regional or national pricing weakens the local market to the detriment of markets that would not apply a similar mechanism. To offset this imbalance, the unilateral implementation of adjustment measures is tempting, but involves economic stakes with sometimes political repercussions. A case in point is the Carbon Border Adjustment Mechanism (CBAM) set up by the European Union (EU) as part of its Fit-for-55 program. Aimed at adjusting the price of goods imported from non-member countries, this measure has been strongly criticized internationally for its protectionist character.
Secondly, it would be illusory to envisage a single carbon price worldwide, given the extent to which production costs and living standards vary from one region to another. Such a measure would disadvantage countries in the South and provide little incentive for those in the North. Finally, putting a price on carbon has a significant social and political cost. In the case of a carbon tax, consumer prices are directly affected, and resistance can be intense. A good ecological tax must therefore include a reduction in other taxes or charges, so as not to weigh on household purchasing power and business competitiveness.
Despite these drawbacks, carbon taxes are widely promoted internationally. Last May, the IMF recommended extending pricing mechanisms, highlighting the revenue-generating potential for governments. The trend therefore seems well underway, and in many cases will increase constraints for economic players. In addition to the financial stakes, these constraints will also be of an administrative or logistical nature: the European MACF, for example, requires economic players themselves to provide proof of the carbon content of products imported from third countries. It is essential that companies support this paradigm shift by being proactive in adapting to new regulations.. The political, economic and social risks induced by the carbon tax will be better anticipated if the business world shows itself capable of providing solutions to current points of tension, with the ultimate aim of minimizing the repercussions on populations.
3. FOR AN INDUSTRIAL POLICY FOCUSED ON THE ENERGY AND ECOLOGICAL TRANSITION
In 2020, the industrial sector (excluding the energy industry) accounted for around 12% of greenhouse gas emissions in the European Union, and represented 23.5% of its GDP, making the European Union the world's third-largest industrial power behind China and the United States. Competitiveness between these three powers is in full swing. The European Union, with its liberal doctrine of non-intervention, is struggling to keep pace with its competitors, whose policies of massive funding for industry and decarbonization are strongly encouraging their ecological transition.
In the European Union, manufacturing industry reduced its emissions by 40% between 1990 and 2020 (according to AEE 2020). While this reduction in emissions reflects the efforts made by industry players to introduce more energy-efficient processes, it sometimes conceals an increase in "exported pollution", due to the growing number of production relocations, and rising imports, which are adding to the carbon footprint of the transport sector.
Today, the attractiveness and competitiveness of the European Union in the face of its rivals rests on its ability to decarbonize quickly and efficiently, by thinking in terms of the ecosystem as a whole, from end to end of the value chain. To make a success of its ecological transition and achieve carbon neutrality by 2050, the EU needs to rethink its industrial policy with these decarbonization objectives in mind.
An industrial policy focused on the ecological transition would ensure the sector's long-term viability through the activation of a number of levers:
- Stimulating innovation via the search for technologically sustainable solutions (e.g. carbon storage, energy efficiency, new modes of transport, etc.), thus helping to reduce our impact on the environment
- Creating green jobs by developing new sectors linked to the environment (renewable energies, waste management, water management, etc.) This boom in new professions contributes to green growth.
- Improving competitiveness by adopting sustainable practices that enable them to better adapt to new ecological regulations and obligations, putting them in a better position than their less green competitors. The development of standards on ecological transition is increasingly pushing companies to think in terms of the ecosystem as a whole, rather than just internally, and to decarbonize their end-to-end value chain. The greenest companies are beginning to integrate environmental criteria into their strategic decision-making and performance assessment.
- Access to investment from financial players and consumers increasingly scrutinizing the ecological sustainability of companies. As ecological risk represents a growing financial risk for banks and other investors, they are gradually abandoning carbon-based investments and transforming them into "green" budgets, as witnessed by the exit of Exxon mobil from the Dow Jones in 2020, which investors reproached for having too harmful an impact on the environment.
The amount of public and private funding dedicated to decarbonizing businesses is substantial, as is the 54 billion euros invested through the France 2030 program, which aims to accelerate the transformation of key sectors of the French economy, and which aims to support 1,752 innovative projects. However, these funds are proving difficult to access, as many players are not ready to launch a real transition process. That's why it's essential to support the industrial fabric in its transition process, and give it access to these decarbonization investments.
4. TOWARDS ECOLOGICAL PLANNING ON A EUROPEAN SCALE
The measures and objectives included in the European Green Pact require sustained, coordinated action over the coming decades. However, this necessity comes up against the political realities of the 27 Member States, and their share of shifting agendas and sometimes opportunistic calculations. In the medium and long term, the multiplication of contradictory political signals is encouraging the maintenance of an ecological status quo, jeopardizing compliance with the targets set for 2050 and undermining the bloc's competitiveness in the face of powers such as China and the United States.
The example of industrial policy is striking: the Inflation Reduction Act introduced by Washington in 2022 provides for the investment of $400 billion in industrial transition, underlining the fundamental link between ecology and industry. At the same time, Europe is struggling to find a consensus on which sectors to prioritize. Yet, without a strategy with similar dimensions, driven by a collective and coordinated impetus, the key industries for transforming European production models risk sinking, as in the case of photovoltaics - a market today largely dominated by China.
Better cooperation between the worlds of business and politics is one way of avoiding this scenario. Politically, the objectives set must be clear, stable over the long term, and distinct from political mandates and agendas. The European Green Pact is a good example of the normative power of European institutions, but there are still disagreements on certain objectives, particularly in the medium term, which need to be resolved as quickly as possible. Economically, it is crucial that economic players take responsibility and make strong long-term commitments. Progress has been made: many companies have already integrated the impacts of climate change into their strategy to varying degrees. But these initiatives are still disparate and lack a global structure.
The growing number of bridges between the political and economic spheres should therefore lead to a division of roles, with regulatory objectives set at institutional level on the one hand, and the means of achieving them left to companies on the other. It is important that economic players have sufficient room for manoeuvre to adapt to present and future constraints: the unpredictability of climate change and technological progress, the economic, political and societal particularities of each of the Union's members... Multiplying standards that are too specific is therefore undesirable. For example, is it appropriate to ban the sale of internal combustion engines in the near future?
If carried out effectively, this cooperation should lead to the emergence of a strategic EU, capable of reflecting on the long-term impact of its policies and anticipating the complex challenges ahead: avoid the relocation of emissions, anticipate the renewal of wind and solar farms, define industrial relocation targets, prioritize key industrial sectors... All of which means producing effective standards and maintaining a competitive economy.
