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1. Made in Europe: An EU Green Industrial Plan to respond to the challenge of US and Chinese protectionism

Author:
Alekos Kritikos and George Pagoulatos
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
The EU needs to urgently formulate a response to US and Chinese protectionism. US decarbonization legislation poses a threat of deindustrialization for Europe. Europe needs a plan to support EU green, industrial and technological competitiveness, while protecting European cohesion and the single market, and promoting European strategic autonomy. Relaxing EU state aid rules must be an inevitable first component of Europe’s response. But this would overwhelmingly benefit the stronger economies of Germany and France, undermining EU cohesion and the integrity of the single market. Thus, the second component of EU response must be a European Sovereignty Fund, of a size commensurate to the magnitude of the challenge. The new Fund must support value chain categories that include as many EU member states as possible. SURE, extended to encompass the energy crisis and green transition, should be an integral part of the mix, and so should promoting technological skills and reskilling for the “Clean Tech Economy”. Investment funding should seek to contribute to vertical integration, including as many stages in the supply chain as possible. It should contribute to the return of specific supply chains and production units from third countries to the EU and seek to include the EU’s weakest economies. Subsidies should rise if the investment is cross-border in nature and carry a bonus if made in an EU region with a low GDP per capita compared to the EU average. Funding could also promote European strategic autonomy by including cross-border partnerships of EU member states in the defence technology industry. It should involve new funding rather than simply recycling money from existing programmes, and certainly avoid deploying undisbursed resources from the Recovery & Resilience Fund.
Topic:
European Union, Investment, Industry, Protectionism, and Strategic Autonomy
Political Geography:
China, Europe, and United States of America

2. The investment gap: the UK’s efforts to replace the European Investment Bank

Author:
Peter Jurkovic and Stephen Hunsaker
Publication Date:
09-2023
Content Type:
Special Report
Institution:
UK in a Changing Europe, King's College London
Abstract:
Following Brexit, the UK lost access to funding from the European Investment Bank. In this report, Stephen Hunsaker and Peter Jurkovic detail the impact this has had on the UK development finance landscape. The report outlines not only the role that development banks play in providing longer term financing for projects the private sector might be reluctant to support, but also the specific role the European Investment Bank played in infrastructure investments in the UK prior to 2020. It also explores the potential and ongoing implications of a lack of access to that investment despite the existence of a number of UK based banks intended to fill the gap.
Topic:
European Union, Finance, Economy, Brexit, Investment, Banking, and European Investment Bank
Political Geography:
United Kingdom and Europe

3. An EU global gateway … to what?

Author:
Fanny Sauvignon and Stefania Benaglia
Publication Date:
11-2023
Content Type:
Commentary and Analysis
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
What is Global Gateway’s unique offer? How does it beat the competition? Why is Global Gateway a values-based offer and what does this entail in practical terms? Amid criticism and comparisons, the EU’s Global Gateway deserves scrutiny and effort to define its purpose and added value, both within and outside the EU. Initially designed as a foreign policy strategy, Global Gateway has not been put to its intended use. Instead, the first two years of implementation have highlighted conceptual and structural challenges that fall short of the EU’s international needs and ambitions. Up to now, it has focused on delivery, namely Team Europe, flagship projects, and investment packages. The EU’s projected power and credibility with its international partners is at stake. However, trusted and resilient connectivity links are difficult to build without putting the foreign policy versus development debate to rest. Differentiating the EU’s offer from its competitors and addressing dwindling credibility requires strong and coherent international leadership. As this CEPS Explainer outlines, resources aggregation approach ‘à la IMEC’, holds the potential to better connect narrative to implementation and build the EU’s external power. Developing on from this, the strategic connectivity clusters (SCCs) approach streamlines international connectivity cooperation.
Topic:
Foreign Policy, European Union, Investment, and Engagement
Political Geography:
Europe

4. Lessons from the T20: Five Priorities for Italian Infrastructure Investment

Author:
Fulvio Bersanetti, Nicola Bilotta, Raffaele Della Croce, Valeria Lauria, and Nicolò Russo Perez
Publication Date:
01-2022
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
As states and societies continue to struggle with the pandemic, a fundamental element of the post-Covid recovery will be the capacity to revive both public and private investments in infrastructure, thereby boosting growth and employment. Differently than previous crises, reorienting infrastructure investment to respond to the new social and environmental needs will also be needed, starting with health and poverty reduction, as well as climate change and the digitalisation drive. Italy is no exception. Under the Recovery and Resilience Facility (RRF) promoted by the European Union, Italy will receive 191 billion euro in which infrastructure investments will play a fundamental role. To unlock its full economic potential and pursue a successful post-Covid recovery, Italy should embrace five key priorities for infrastructure investment.
Topic:
Infrastructure, Finance, Sustainable Development Goals, Investment, and COVID-19
Political Geography:
Europe and Italy

5. Characterisation of Danish agricultural investments in Tanzania and Uganda

Author:
Rikke Broegaard, Helle Monk Ravnborg, Evelyne Lazaro, Teddy Nakanwagi, and David Tumusiime
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Danish Institute for International Studies (DIIS)
Abstract:
This DIIS Working Paper presents key characteristics of each of the six cases including main crop focus, size and business model, as well as types of investors, their investment approach and the factors that motivate them. It also presents the different objectives that the investors have expressed wanting to achieve. As most of the investments involve private funds, it is reasonable to expect that one important goal is to ensure a viable economy in the investment. However, in addition to an economically sound investment, all of the investors behind these six cases have ambitions regarding ways in which they see themselves - through the investment - as contributors towards a positive societal development in the area of the investment. Thus, the paper presents the different ways the investors see their investments contributing to development in the area. The paper is based on interviews with the investors and field work in the areas of investments.
Topic:
Agriculture, Development, Environment, Poverty, Natural Resources, Food, Inequality, Investment, and Land Rights
Political Geography:
Europe, Denmark, Tanzania, and Africa

6. Germany’s Economic Security and Technology: Optimizing Export Control, Investment Screening and Market Access Instruments

Author:
Tyson Barker and David Hagebölling
Publication Date:
11-2022
Content Type:
Special Report
Institution:
German Council on Foreign Relations (DGAP)
Abstract:
Technological development and increasingly fraught US-China competition have geopolitical consequences for technology access. The erosion of post-Cold War multilateral dual-use technology export control regimes, such as the Wassenaar Arrangement, and investment and other control frameworks have led to na-tional, EU, and ad hoc measures, such as the restrictions on Russian semiconductor access following the invasion of Ukraine. The German government must integrate technology access and control instruments – export controls, FDI screening, critical infrastructure access, research protection, and outbound investment– in its Digital Strategy and National Security Strategy. The former currently neglects critical technology access and control; the latter must address it comprehensively. German – and EU – dual-use export and FDI screening reforms have been updated and are now in place. Capacity building and alignment with EU and NATO partners now deserves greater attention. Measures could include more robust, institutionalized information-sharing and consultations on dual-use technology export, import, investment, and research controls in a Multilateral Technology Control Committee born out of the G7 or TTC. The commit-tee should also establish the capacity to deny end-user access to German technology through its own Foreign-Direct Product Rules and Entity List.
Topic:
Security, Economics, Science and Technology, Investment, and Exports
Political Geography:
China, Europe, Asia, North America, and United States of America

7. China, Europe, and the Pandemic Recession: Beijing’s Investments and Transatlantic Security

Author:
John R. Deni, Chris Alden, Erik Brattberg, Roger Cliff, Mark Duckenfield, R. Evan Ellis, Nicholas Nelson, and Laura Speranza
Publication Date:
05-2022
Content Type:
Special Report
Institution:
The Strategic Studies Institute of the U.S. Army War College
Abstract:
Given the depth and breadth of the pandemic-induced recession in Europe, private companies in need of capital and governments looking to shed state-owned enterprises may be tempted to sell shares, assets, or outright ownership to investors with liquidity to spare. Of greatest concern is the role that China might play in Europe, building Beijing’s soft power, weakening allied geopolitical solidarity, and potentially reprising the role it played in the 2010s, when its investments in Europe expanded dramatically. More specifically, there is concern over China’s investments in infrastructure and sensitive technologies relevant to American and allied military operations and capabilities. Whether Europe is prepared and able to parry Beijing’s economic statecraft is somewhat unclear, given varied attitudes toward China and the patchwork of investment screening mechanisms across the continent. Regardless, the outcomes will have significant implications for US security and for the Defense Department specifically. In support of US European Command (EUCOM) and the Department of Homeland Security (DHS), the U.S. Army War College’s Strategic Studies Institute (SSI) assembled an interdisciplinary team to examine these issues and offer actionable policy recommendations for military leaders and decisionmakers on both sides of the Atlantic.
Topic:
Security, Military Affairs, Economy, Investment, Transatlantic Relations, COVID-19, State-Owned Enterprises, and Recession
Political Geography:
China, Europe, Asia, and United States of America

8. GCC Countries, Seeking Food Security, Eye Agricultural Investments

Author:
Sara Nowacka
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
The Polish Institute of International Affairs
Abstract:
The growing consumption of food in the Gulf states is leading to the acquisition of foreign farmlands. This practice increases the Gulf states’ influence in African countries and the European neighbourhood. The competitiveness of their agricultural sector is also growing in relation to the less innovative European agriculture thanks to the development of technologies responding to difficult climatic conditions.
Topic:
Agriculture, Food Security, Investment, Innovation, and Gulf Cooperation Council
Political Geography:
Europe, Middle East, and Gulf Nations

9. How do Economies in EU-CEE Cope with Labour Shortages?

Author:
Vasily Astrov, Richard Grieveson, Doris Hanzl-Weiss, Sebastian Leitner, Isilda Mara, Hermine Vidovic, and Zuzana Zavarská
Publication Date:
11-2022
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The EU member states in Central and Eastern Europe (EU-CEE) have been experiencing increasing labour shortages, which only briefly subsided in the wake of the COVID-19 pandemic. Ongoing demographic decline suggests that labour shortages will only get stronger over time. As a result, the bargaining power of labour has increased, wages have been generally rising ahead of labour productivity, and industrial action (strikes) – the level of which has remained low in recent decades – has emerged in some instances. In the face of labour and skill shortages, people have been investing in education. The share of employees with tertiary education has increased, and vocational training has gained in importance, although active labour market policies have been used only selectively. Employers have increasingly been investing in fixed assets, especially in manufacturing, and the degree of robotisation has risen strongly. Despite domestic concerns that automation would generate massive job losses, our findings suggest that capital deepening has taken place faster where labour was in higher demand. Thus, labour was not substituted with capital, but rather the complementary effect prevailed. Employment actually increased in EU-CEE over the past two decades – despite the shrinking working-age population. Employers could hire not only the formerly unemployed, but also the formerly inactive, and used the relaxed immigration policies to attract foreign workers, especially from Ukraine and the Western Balkans. Czechia, Hungary, Slovenia and Slovakia and most recently Poland have become net receivers of migrants, while in Bulgaria immigration largely compensates for the natives who go abroad. However, immigration from non-European countries as a general solution to the problem of labour shortages in the region is highly problematic in the current domestic political context. Overall, both our findings for the EU-CEE region over recent years and the experience of Western Europe during the ‘golden age’ (1950-1973) suggest that labour shortages are not in themselves an obstacle to rapid structural change and income growth. However, for such an economic model to be sustainable, more active government policies will be needed, such as greater public investment in education and training, higher minimum wages in order to encourage automation, and more extensive welfare networks in order to deal with the possible negative short-run side-effects of automation.
Topic:
Migration, Labor Issues, European Union, Populism, Vocational Training, Investment, Labor Market, Trade Unions, and Immigration Policy
Political Geography:
Europe

10. 70 years on, it's time to reinvent the ECSC

Author:
Thierry Lepercq
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Robert Schuman Foundation (RSF)
Abstract:
Upset between Berlin, Brussels and La Coruña On 16 May 2022, in the Radialsystem conference centre in Berlin, a chair remained forlornly empty. The German Minister for Education and Research, Bettina Stark-Watzinger, inaugurated the conference "Green Hydrogen for a Sustainable European Future" promoted by the German government, before handing over to her Italian counterpart, Cristina Messa, and then to European Commissioner Mariya Gabriel. The empty chair was that of the French Presidency of the European Union which, despite strenuous effort on the part of the German government, did not wish to delegate a representative. In the Chancellery, the mood was one of great tension. Nearly 100 executives representing 31 gas transmission and storage operators (TSOs) from 28 European countries met with the European Commission on 7 June 2022 in Brussels. It was time to present the latest version of the European Hydrogen Backbone (EHB), an initiative launched two years ago by the German company OGE. On the agenda was the unveiling of an ambitious plan to build 28,000 km of hydrogen pipelines across the continent by 2030. One point of interest was a dotted line linking Barcelona to Livorno - to connect the Iberian Peninsula to the rest of Europe, bypassing France, whose opposition to cross-border green hydrogen infrastructure is no longer a mystery. A few months later, on 5 October 2022 in La Coruña, Pedro Sanchez, president of the Spanish government, hosted German Chancellor Olaf Scholz, together with some fifteen ministers. On the agenda of this summit: the European energy crisis and the measures that must be taken to strengthen the continent's supply security and European solidarity. One proposal stood out: to strengthen gas interconnections to allow liquefied natural gas (LNG) arriving in Spanish ports to relieve a German industry that is on the verge of suffocating - and to pave the way for the implementation of green hydrogen transport infrastructures (EHB).
Topic:
Energy Policy, Gas, Investment, Economic Crisis, European Commission, and Energy Crisis
Political Geography:
Europe, Germany, and Spain

11. Corruption and Private Sector Investment in Ukraine’s Reconstruction

Author:
Nick Fenton and Andrew Lohsen
Publication Date:
11-2022
Content Type:
Policy Brief
Institution:
Center for Strategic and International Studies
Abstract:
The aim of the bipartisan and international CSIS Ukraine Economic Reconstruction Commission is to produce a policy framework that will help attract private sector investments to support Ukraine’s future economic reconstruction. To support the commission, CSIS will convene a series of working groups to examine a range of issue-specific areas that are critical for reconstruction and modernization of the Ukrainian economy, including in agriculture, energy, and transportation and logistics, as well as addressing the impact of corruption on private sector investment. Ukraine experienced significant human and economic losses in the first six months of Russia’s unprovoked invasion. In July 2022, the Ukrainian government estimated the cost of recovery at $750 billion. That figure continues to grow due to ongoing missile strikes and artillery shelling, population displacement, and disruptions of exports. Given the scale of Ukraine’s losses, private sector investment will be critical to the country’s recovery and transformation. But concerns about corruption threaten the flow of much-needed funds. Ukraine has undertaken significant anti-corruption reforms in recent years, but it will need to show additional progress to maximize the potential for foreign investment.
Topic:
Corruption, Infrastructure, Investment, and Private Sector
Political Geography:
Europe and Ukraine

12. Istanbul Journal of Economics: Volume 72 Issue 1

Author:
Gökhan Karabulut
Publication Date:
01-2022
Content Type:
Journal Article
Journal:
Istanbul Journal of Economics
Institution:
Istanbul University Faculty of Economics
Abstract:
Istanbul Journal of Economics-İstanbul İktisat Dergisi is an open access, peer-reviewed, scholarly journal published two times a year in June and December. It has been an official publication of Istanbul University Faculty of Economics since 1939. The manuscripts submitted for publication in the journal must be scientific and original work in Turkish or English. Being one of the earliest peer-reviewed academic journals in Turkey in the area of economics, Istanbul Journal of Economics-İstanbul İktisat Dergisi aims to provide a forum for exploring issues in basicly economics and publish both disciplinary and multidisciplinary articles. Economics is the main scope of the journal. However, multidisciplinary and comparative approaches are encouraged as well and articles from various social science areas such as sociology of economics, history, social policy, international relations, financial studies are welcomed in this regard. The target group of the journal consists of academicians, researchers, professionals, students, related professional and academic bodies and institutions.
Topic:
Debt, Development, Economics, Budget, Finance, Investment, Trade, Unemployment, and COVID-19
Political Geography:
Europe, Turkey, and Asia

13. Applying an intergenerational mindset to European technology investments

Author:
Fabian Zuleeg
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
Russia’s war of aggression in Ukraine and the upcoming winter of discontent have accelerated the permacrisis, with serious consequences, not just in the short term, but also for Europe’s future. If the EU proves unable to work together and address today’s strategic challenges, member states risk leaving future generations with a Europe that is economically, politically, and socially fragmented and constrained. But this is not the moment for defeatism. Rather, the EU should adopt an intergenerational approach across all policy areas, asking: how will our reactions to today’s severe challenges affect future generations? This should include a common investment strategy: to counter our common societal challenges and crises, the EU should invest in technology and education, increasing Europe’s human and intellectual capital. However, despite technology’s prominence in the EU political agenda, the Union still struggles to make decisive steps to achieve global leadership in many areas. This Discussion Paper argues that the EU should have access to and control over new technologies to guarantee that these “public goods” are, at least in part, in common ownership. Taking equity stakes in technology should be at the heart of the European Sovereignty Fund, announced by Ursula von der Leyen in her 2022 State of the Union speech. Additionally, member states should work together to create a better environment for future private investment by harnessing the power of the Single Market and completing the Capital Markets Union. By adopting this intergenerational mindset, the EU can start the process of building technological wealth which will be accessible to everyone and help tackle Europe’s fundamental challenges. This new investment strategy will offer hope and ensure that the EU can provide peace, prosperity, and sustainability for the current and, more importantly, future generations.
Topic:
Education, Science and Technology, European Union, Investment, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine

14. Raising EU productivity through innovation

Author:
Reinhilde Veugelers and Frederic Warzynski
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Research and development is seen as a key contributor to growth because it generates knowledge, leading to new or improved products through product innovation, and makes firms more efficient at producing goods through process innovation. Firm level studies generally find evidence of strong positive productivity effects for firms that invest in R&D. In this context, digital systems could be an important driver of productivity growth, particularly in combination with investments in R&D. But there has been little hard evidence of a significant productivity boost from digital technologies. How the relationship between productivity growth, innovation and digital technology adoption plays out is particularly important for the European Union, where productivity growth has long been weak. Researchers from the MICROPROD project have assessed the effect of technology investment on productivity and performance. Combining recent unique firm-level data and state-of-the art research methodologies, MICROPROD research provides a better overview of which firms are most likely to adopt digital technologies and to innovate, and to turn these investments into productivity growth.
Topic:
European Union, Investment, Innovation, and Productivity
Political Geography:
Europe

15. Investors beware: Europe’s top firms are highly exposed to China

Author:
Ties Dams and Xiaoxue Martin
Publication Date:
04-2022
Content Type:
Special Report
Institution:
Clingendael Netherlands Institute of International Relations
Abstract:
Europe’s top firms are highly exposed to China, and therefore to China-related geopolitical risk. This risk is only set to increase in the coming years, as geopolitical tensions between China, the US and the EU are not expected to decrease. Moreover, case studies of LVMH, HSBC, ASML and BMW show that some of Europe’s biggest listed firms could and should offer investors more transparency on their risk-management strategies. Intelligence on China and geopolitical risk exposure is key for investors, and investors that get ahead of the curve may have the edge in the long term. This report is aimed at investors in Europe’s biggest listed firms. It argues that investors have a growing need for transparency amongst European biggest companies with regard to their strategies in dealing with China-related geopolitical risk. Even investors without direct interests in China are or will be affected by China-related geopolitical risk due to the various forms of exposure of companies in the European home market. This means that investors may be increasingly exposed to the risks linked to great power competition, without having the knowledge necessary to anticipate geopolitical changes. As geopolitical tensions between China, the US and the EU are not expected to decrease, investors would be wise to seek greater transparency about European companies’ exposure to the Chinese market – and indeed get ahead of the curve and gain a competitive advantage by investing in those firms that have forward-looking geopolitical strategies in place. This report aims to put this point on investors’ strategic agenda by making the following three points: Europe’s top firms are highly exposed to China. China-related geopolitical risk is spreading. Case studies suggest that Europe’s top firms may not be sufficiently transparent about geopolitical risk management.
Topic:
Geopolitics, Business, Investment, and Risk
Political Geography:
China and Europe

16. FDI Spillover Effects on Innovation Activities of Knowledge-using and Knowledge-creating Firms: Evidence from an Emerging Economy

Author:
Iraj Hashi, Mehtap Hisarciklilar, Slavo Radošević, Nebojša Stojčić, and Nina Vujanović
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The beneficial effects of innovation for firms’ performance and competitiveness are well documented, but it has been suggested in recent years that innovation regimes differ between advanced and emerging economies. While advanced economies rely on knowledge generation, their emerging counterparts follow mainly a knowledge-use regime through the application of existing knowledge and technology. Climbing up the technological ladder can be helped through spillovers from foreign investors to local firms. We investigate whether FDI spillovers influence different phases of the innovation process (from decision to innovate to productivity) among knowledge-using and knowledge-creating firms in an emerging European economy. The results show that the innovation process in emerging economies is closer to the imitation than the creation of novel products. Local firms benefit from foreign counterparts in the early phase of the innovation process. Stronger FDI effects are found among firms that undertake innovation through knowledge use rather than through knowledge generation.
Topic:
Emerging Markets, International Trade and Finance, Foreign Direct Investment, Economy, Investment, and Knowledge Systems
Political Geography:
Europe

17. Shared fortunes: Why Britain, the European Union, and Africa need one another

Author:
Nicholas Westcott
Publication Date:
04-2022
Content Type:
Policy Brief
Institution:
European Council on Foreign Relations (ECFR)
Abstract:
Britain and Africa are deeply connected through their history and people as much as through trade, investment, aid, and culture. They can both benefit greatly from this relationship – especially in areas where their interests converge, including economic development, security, education, and climate. But political forces on both sides could push them apart – even as, increasingly, Britain needs Africa more than Africa needs Britain. The British government and the EU need to understand the relationship in its geostrategic context – the influence of China, Russia, Gulf states, and others affects African countries’ views on their place in the world. A closer and more responsive relationship between Britain, Africa, and the EU would have significant benefits for all sides – partly because each is weaker individually than they are together, and because Britain still has strengths that are most useful in cooperation with others. But this will only be possible if the British government significantly changes its approach to Europe as well as to Africa.
Topic:
Foreign Policy, European Union, Investment, and Trade
Political Geography:
Africa, United Kingdom, and Europe

18. The Five ‘I’s of EU defence: Inclusive integration for effective investment, innovation and institutions

Author:
Dylan Macchiarini Crosson and Steven Blockmans
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
At the crossroads of industrial policy and the Common Security and Defence Policy (CSDP), the European Union’s (EU) defence initiatives are accelerating with the political backing of both the EU institutions and key Member States. Russia’s war in Ukraine has played a seminal role in the introduction of taboo-breaking proposals to strengthen EU defence capabilities. In order to be effective, the EU must adopt the mantra of ‘inclusive integration’, recognising that increased cooperation amongst Member States, candidate countries, and like-minded partners makes the Union stronger. Policy actions under this mantra should thus aim to complete the regulatory framework of the European Defence Technological and Industrial Base, continue providing the right incentives for joint capabilities development, address the needs of Member State armed forces, maintain the EU’s technological cutting edge and guarantee continued political momentum.
Topic:
Defense Policy, European Union, Investment, Institutions, Innovation, and Russia-Ukraine War
Political Geography:
Europe

19. Energy in the Eastern Mediterranean

Author:
Karen E. Young, Emily Stromquist, and Colby Connelly
Publication Date:
05-2022
Content Type:
Video
Institution:
Middle East Institute (MEI)
Abstract:
Karen Young, director of MEI's Program on Economics and Energy, is joined by Emily Stromquist and Colby Connelly for a discussion on gas and energy developments in the Eastern Mediterranean.
Topic:
Development, Gas, Investment, and Energy
Political Geography:
Europe, Middle East, Israel, Algeria, Egypt, and Eastern Mediterranean

20. Commercialisation contracts: European support for low-carbon technology deployment

Author:
Ben McWilliams and Georg Zachmann
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Many of the technologies that can help the European Union become a net-zero emissions economy by 2050 have been shown to work but are not yet commercially competitive with incumbent fossil-fuel technologies. There is not enough private investment to drive the deployment of new low-carbon alternatives. This is primarily because carbon prices are neither high enough nor stable. There are a number of benefits from the deployment of low-carbon technologies that private firms do not factor in. These include the benefits of decreasing industry-wide costs over time, and the global climate benefits from the development of low-carbon technologies within the EU that can subsequently be exported. The result is an investment level below the socially optimal value in the EU. Commercialisation contracts could be implemented as a temporary measure to remove the risk associated with uncertain carbon prices for ambitious low-carbon projects. The aim of the contracts would be to increase private investment to the socially optimal level. Contracts would be allocated through auctions in which fixed prices for abated emissions over a fixed duration would be agreed on a project-by-project basis. On an annual basis, public subsidies amounting to the difference between the agreed carbon price and the actual EU carbon price would be provided to investors, depending on the total carbon emissions abated. As long as EU carbon prices are low, investors would receive larger subsidies to ensure their competitiveness. Contracts would be auctioned at EU level. This would generate increased competition compared to national auctions, leading to more efficient outcomes and preventing fragmentation of the single market. From about €3 billion to €6 billion would be provided to the main industrial emitting sectors annually, with the amount reducing as the EU carbon price rises and low-carbon technologies become competitive without subsidy.
Topic:
Climate Change, Energy Policy, Science and Technology, Investment, Trade, Carbon Emissions, and Decarbonization
Political Geography:
Europe