The European Union (EU) is on track to significantly miss its ambitious energy transition targets for renewable energy, clean technology capacity, and domestic supply chain investments, according to recent research by Rystad Energy.
The EU’s capital investments in clean technologies — covering renewables, carbon capture, utilisation and storage (CCUS), hydrogen, batteries, and nuclear — totalled $125 billion in 2023, falling far behind China’s expenditure of $390 billion in the same sectors.
Although the United States is currently trailing the EU with $86 billion in annual clean-tech spending, the Inflation Reduction Act (IRA) is set to boost American investments significantly, while the EU’s spending is projected to plateau in the coming years.
By 2030, the US is expected to match the EU’s total clean energy spending and outpace it in subsequent years.
In response to the US’s IRA, the EU passed the Net-Zero Industry Act (NZIA) earlier this year, aiming to cut emissions by 92 per cent from 1990 levels by 2040 and achieve net zero by 2050.
The NZIA outlines ambitious targets to support nascent industries, promote homeshoring of supply chains, and position the EU as an attractive investment location through supplier incentives.
However, the current state of the EU’s clean technology investments starkly contrasts with these ambitions, and another reality check may be imminent.
The upcoming EU elections are likely to have profound impacts on the bloc’s policy direction. Predictions of a political shift to the right, following similar trends in recent national elections, suggest a potential rise in Euroscepticism and a decreased willingness to address climate change and energy transition on a continental scale.
With 2024 being pivotal for the EU’s climate goals, reevaluations of nationally determined contributions (NDC) and emissions targets are expected.
Significant political upheaval could have long-lasting effects on the EU’s climate progress.
“The stakes are high in the upcoming EU election — as the EU strives to remain competitive in the global clean tech market, the rising right-wing populist wave could critically heighten the EU’s risk of falling further behind the US and China.
“The next few years are critical, and hesitancy or a lack of cohesion could see the bloc lagging its counterparts for decades to come. As things stand, the EU is losing ground and is highly unlikely to reach its lofty goals,” said Lars Nitter Havro, senior analyst of energy systems research at Rystad Energy.
The NZIA sets forth ambitious targets and provisions to boost the production and deployment of key clean technologies, including batteries, CCUS, and hydrogen electrolysers, as part of the EU’s broader emissions reduction and energy security goals.
While the Act outlines production targets and regulatory frameworks to accelerate development and commercialisation, only the battery sector is currently showing genuine promise.
However, European battery manufacturers are increasingly relocating to the US to benefit from the IRA’s tax incentives.
For instance, Norway-based FREYR Battery has moved its headquarters to the United States and is establishing a gigafactory in Georgia. Similarly, Volkswagen, initially investing heavily in Northvolt, is now exploring opportunities in Canada to align with the IRA and maximise tax credits.
For CCUS, the NZIA emphasises enhancing injection capacity, a critical step for permanently sequestering carbon dioxide (CO2) and reducing atmospheric CO2 levels.
While capture technologies at emission sources have advanced, the development of injection and storage infrastructure is lagging.
The projected CO2 injection capacity is expected to fall short of the NZIA target by about 63 per cent by 2030, highlighting a significant gap between decarbonisation goals and infrastructure development.
Hydrogen electrolysers also face challenges despite significant investment and policy support. The European Hydrogen Bank’s recent auction supported 1.5 GW of electrolyser capacity, but the EU’s target of 100 GW by 2030 remains far off.
The risked pipeline for hydrogen electrolysers is falling 45 per cent short of this target, due to technological challenges, high initial costs, and slow infrastructure development.
The updated Renewable Energy Directive (RED III), passed in October 2023, sets specific targets for solar and wind energy capacity.
The EU aims to generate 42.5 per cent of its total power consumption from renewable sources by 2030. Current and expected projects suggest the EU will have about 975 gigawatts (GW) of combined solar and wind capacity, just shy of the 1,050 GW needed to meet its goal.
Achieving these targets depends on sustained political and financial support for renewable technologies, which are vulnerable to political shifts and manufacturing capacity challenges.
The EU has lost much of its manufacturing base to competition from China and the US, making it difficult to establish a resilient supply chain in Europe.
Key industry players are relocating to regions with more attractive incentives, such as the US, undermining the EU’s manufacturing capacity and increasing its reliance on external sources for essential components.
As the EU strives to keep pace in the global clean tech race, the upcoming elections and resulting policy shifts will play a crucial role in determining its future trajectory.
The challenge lies in reconciling ambitious climate goals with the practical realities of investment, infrastructure development, and political will.
