What the Draghi report says about EU climate action and energy
The future of European competitiveness report has a strong focus on climate and energy, laying out a joint decarbonisation and competitiveness plan, along with plans for boosting security and reducing dependencies, closing the innovation gap and more.
Why has Draghi produced this report?
Draghi, a former Italian prime minister widely credited with “saving the euro” during his time as European Central Bank president, was asked by European Commission president Ursula von der Leyen to write this report a year ago.
In her plans for the current European Commission between 2024 and 2029, Von der Leyen said she would draw on Draghi’s work to design “a new plan for Europe’s sustainable prosperity and competitiveness”.
The report was initially expected to come out before the EU elections, which ultimately saw Von der Leyen win her second term as president. However, after weeks of rumours, officials confirmed that it would be delayed until September.
Competitiveness has been a big topic in the EU in recent months. Both Belgium and Hungary deemed it a priority during their presidencies of the Council of the EU this year.
Geopolitical changes, including competition from the US and China, are often cited as the key drivers of these concerns. Draghi summarises the current state of play in the foreword to his report:
“The previous global paradigm is fading. The era of rapid world trade growth looks to have passed, with EU companies facing both greater competition from abroad and lower access to overseas markets. Europe has abruptly lost its most important supplier of energy, Russia. All the while, geopolitical stability is waning, and our dependencies have turned out to be vulnerabilities.”
What are the areas of ‘transformation’ identified in the report?
The Draghi report concludes that the EU “faces three major transformations”.
The first is the need to accelerate innovation. This section of the report focuses primarily on the EU’s poor performance in the digital sector, especially compared to the US, as the world stands “on the cusp of another digital revolution” driven by artificial intelligence.
The second “transformation” is the general need to reduce energy prices across the EU. This has significant implications for the bloc’s energy and climate policies.
Despite prices falling from their peak following Russia’s invasion of Ukraine, the report notes that electricity and gas prices facing EU companies are still very high.
The charts below show how the cost of both power (left) and gas (right) for EU companies – indicated by the blue lines – are far higher than in China and the US, indicated by the yellow and grey lines, respectively.
Cost of power (left) and gas (right) for industries in the EU, China and the US (€/megawatt hour). Source: The future of European competitiveness report, with data from Eurostat, EIA and CEIC.
It identifies three overarching reasons for this. First, making the comparison with the US, the report says Europe has a relative lack of natural resources. (For example, the US is the largest oil producer in the world, whereas the EU imports 98% of its oil and 90% of its gas.)
Second, it says the EU has failed to make better use of its collective bargaining power – despite being the world’s largest importer of gas and liquified natural gas (LNG). Crucially, the final point the report identifies is an array of “fundamental issues with the EU’s energy market”.
What should be done to develop international competitiveness?
Trade policy will be “fundamental” to combine decarbonisation with competitiveness, Draghi’s report suggests. Supply chains will need to be secured, new markets grown and state-sponsored competition offset, it states.
Europe must confront some key choices about how to pursue decarbonisation while preserving the competitive position of its industry, the report continues.
In particular, the report identifies China and the US as major competitors for the EU, where competition is becoming acute in industries such as clean tech and electric vehicles (EVs).
Funding for the green transition in the EU is often more complex to access than in other regions, again creating challenges for competitiveness, the report notes.
Conclusion
The Draghi report offers a comprehensive analysis of the challenges facing the EU and presents a range of recommendations for addressing them. By focusing on accelerating innovation, reducing energy prices, and developing international competitiveness, the report provides a roadmap for the EU to achieve its sustainability and competitiveness goals.
Frequently Asked Questions
Q: What is the main focus of the Draghi report?
A: The main focus of the report is on climate and energy, and it presents a joint decarbonisation and competitiveness plan for the EU.
Q: What are the three major transformations identified in the report?
A: The report identifies three major transformations: accelerating innovation, reducing energy prices, and developing international competitiveness.
Q: What are the main challenges facing the EU in terms of energy and climate?
A: The report highlights the EU’s high energy prices, lack of natural resources, and failure to make better use of its collective bargaining power as key challenges.
Q: What is the report’s recommendation for addressing these challenges?
A: The report recommends a range of measures, including investing in clean energy, reducing energy prices, and developing international competitiveness through trade policy and supply chain management.
