Global Intelligence Series

European Green Recovery Strategy and Industry Perspectives

Date February 10, 2021
Speaker Heidi HILTUNEN (First Counsellor (Climate change, energy and transport), Delegation of the European Union to Japan)
Speaker Nikolaus BOLTZE (thyssenkrupp Group Representative (Japan), Representative Director & President, thyssenkrupp Japan K.K.)
Commentator KAWAGUCHI Yukihiro (Director Global Environment Affairs Office, METI)
Moderator WATANABE Tetsuya (Vice President, RIETI)

Green Recovery Strategy is at the core of the European growth strategy to recover from the economic and social damage caused by Covid-19. The strategy aims to build a carbon neutral society by promoting R&D, facilitating investment and developing a regulatory framework in a wide range of areas from renewable energy, mobility, agriculture, finance and waste management. Carbon Border Adjustment Measures are also under discussion. This seminar takes an overarching view of the European Green Recovery Strategy and highlights Industry perspectives.



I will first talk about the EU Green Deal and then go on to discuss the EU response to the COVID-19 crisis and how this is impacted by the EU Green Deal. The European Commission adopted the Green Deal in December 2019 as the EU's new growth strategy. The aim is to cut emissions of greenhouse gases while at the same time creating jobs and ensuring economic growth, to lead the EU into an ecological transition towards a modern, resource-efficient and competitive economy with zero net emissions of greenhouse gases by 2050. Another goal we have is an economy that decouples economic growth from resource and energy use and pollution, and, in fact, this decoupling has been achieved already. Between 1990 and 2019, the EU economy grew by 62% and at the same time emissions decreased by 25%.

The EU Green Deal and other recent EU policy action

The heart of the Green Deal is creating jobs, increasing competitiveness and boosting innovation. It bears many similarities to Prime Minister SUGA's vision for decarbonization in Japan. The EU Green Deal cuts across energy, transport, environmental and agricultural policies, among others. The core is the climate policies and the ambition to increase the reduction of greenhouse gases for 2030 and 2050. This is closely linked to action in the energy sector to supply clean, affordable and secure energy to all Europeans. We also need to mobilize the industry for a clean and circular economy, and the path for this has been outlined in the new industrial strategy that was adopted in March last year. Buildings are a key part of the strategy, building and renovating in an energy and resource efficient way; what we call the Renovation Wave.

Action on pollution and restoring and preserving ecosystems and biodiversity is also needed. On agriculture and agricultural policies, we adopted a so-called "farm-to-fork" strategy. This is a strategy adopted in May 2020 to develop a fair, healthy and environmentally friendly food system in the EU. The latest big package is our new strategy for sustainable and smart mobility adopted in December 2020. We also need to make sure that our research and innovation policies align with the Green Deal.

On climate policy and climate action, the EU submitted its long-term strategy to the UNFCCC in March 2020 and its objective to reach climate neutrality by 2050. In December last year, the EU heads of state endorsed the objective to reduce greenhouse gas emissions by at least 55% by 2030. Before this proposal was adopted, a very detailed impact assessment was prepared on the effects on the economy, society and the environment. This showed a very positive impact on sustainable growth, job creation and public health.

As the next step, the Commission is reviewing and revising all of the legislative measures relevant to these increased ambitions. The deadline for this that we have set for ourselves is June 2021. One element of the policy package is the cap on border adjustment mechanisms for selected sectors, which is currently in the design phase in Brussels. A new EU strategy on climate adaptation will also be released this year. The Commission proposed a new climate law in March 2020. This sends a strong political message and translates the 2050 climate neutrality goal into legislation, making it irreversible. It's also a clear signal to investors and to businesses about the direction of policy for the next 30 years.

Ensuring implementation

How do we make sure that this really happens? How do we know that we are on track towards climate neutrality by 2050? This new law contains provisions that ensure follow-up and accountability. For example, member states would be required to prepare their climate and energy plans. This climate law will introduce the new climate neutrality objective into law and impact assessments for new legislation will need to take this into account. The law also emphasizes the role of adaptation and public participation.

It is important that the recovery and recovery support provided by governments in the wake of the global COVID crisis is green. Governments globally are going to be spending more than 10 trillion euros on recovery from the credit crisis. We need to make sure that we don't lapse into a fossil fuel and resource-intensive recovery, and that we avoid short-termism and lock-in stranded assets. We must ensure that we have multilateral action and global solidarity to help countries that cannot make the transition alone.

Energy sector recovery strategy

For the EU, the energy sector is a special recovery priority. About 75% of EU greenhouse gases are linked to the energy system and the energy sector. We will need about a 60% reduction in emissions from buildings and the power sector by 2030. This can be achieved through renewable energy, increased energy efficiency, electrification, etc. We will see a big fall in the use of fossil fuels; coal use will decrease by more than 70% compared to 2015. By 2030, we expect the share of renewable energy and electricity production to double to something like 65% or more. Industry and buildings can decarbonize, cooling and heating should be powered by 40% renewable energy by 2030.

We published the strategy for energy system integration in July last year together with the EU clean hydrogen strategy. The building sector renovation strategy published in October 2020 aims to double the renovation rate of buildings in the EU, and the Renewable Offshore Energy Initiative came out in November 2020. We're working currently on reviewing and revising the Renewable Energy and Energy Efficiency Directives by this summer and are also reviewing the regulations for supporting the trans-European networks.

The first EU strategy I'd like to take a closer look at is the strategy for energy system integration presented in July last year. It foresees a future integrated EU energy system with three characteristics. One is a more efficient and circular energy system where waste energy is captured and reused and energy flows between users and producers, reducing wasted resources. Second, the EU should have a cleaner power system with a high share of renewable energy and more direct electrification of energy sectors such as industry, heating of buildings and transport. And third, we need decarbonized fuels for sectors that are hard to electrify, such as heavy industry and transport.

The EU hydrogen strategy adopted in July 2020 aims to boost clean hydrogen production in Europe in three phases. The first one, from now to 2024, is supporting the installation of at least six gigawatts of renewable hydrogen electrolyzers in the EU and the production of up to one million tons of renewable hydrogen. From 2025 to 2030, hydrogen needs to become an intrinsic part of an integrated energy system, with a target of at least 40 gigawatts of renewable hydrogen energy reserves and production of up to 10 million tons of renewable hydrogen in the EU. From 2030 onwards, renewable hydrogen will be deployed at a large scale across all hard-to-decarbonize sectors in the EU.

The Renovation Wave initiative is important because buildings are responsible for approximately 40% of EU energy consumption and 36% of greenhouse gas emissions. This initiative was launched in October 2020 with the aim of improving the energy performance and doubling the renovation rate of buildings by 2030. It is actually very low at the moment at about 1%, so we are going from 1% to 2%. This will enhance the quality of life for people who live in and use buildings and at the same time reduce greenhouse gas emissions, foster digitalization and improve the reuse and recycling of materials. We expect that by 2030, 35 million buildings could be renovated and up to 160,000 additional green jobs created in the construction sector, and funding will be available for these initiatives through the next-generation EU initiative I will talk about later.

The EU strategy on offshore renewable energy presented in November last year aims to increase Europe's offshore wind capacity from the current 12 gigawatts to at least 60 gigawatts by 2030 and 300 gigawatts by 2050. These should be complemented by ocean energy and other emerging technologies, such as floating wind and solar. We have calculated that investments of around 800 billion euros will be needed to achieve these targets. Coal still represents 40% of global electricity generation. Coal use in the EU has decreased by 27% since 2005 and 17 EU member states have decided to stop using coal for electricity generation completely. A recent study found that in 2020, 38% of electricity in the EU was already produced with renewable energy against 37% from fossil fuels due to the rapid growth of wind and solar.

Transition assistance

The transition mechanism supports regions that will face difficulties with the transition: regions that are the most carbon intensive or have the most people working in the fossil fuel industry. We've introduced the Just Transition mechanism to support member states, citizens and companies and ensure that this transition is fair. Targeted support will be provided to regions that are most affected to alleviate the social and economic impacts. It has three elements: a Just Transition fund of 40 billion euros, a public sector loan facility with 10 billion in loans, and an InvestEU transition scheme that aims to mobilize 30 billion euros in investments.

How does this all work? The member states prepare plans for regions that are most affected by the transition and then make plans on how best to support them with the local authorities. Citizens can benefit from reskilling and new employment opportunities. Companies can get support for the transition to low-carbon technologies and easier access to loans, and member states and regions can benefit through creation of new jobs in the green economy and technical assistance.

Managing the post-COVID-19 recovery

The EU's instrument for economic recovery from the current crisis is a temporary instrument aiming to boost recovery and help to repair the economic and social damage. Its centerpiece is providing support to member states for investment and reforms through a recovery and resilience facility amounting to 560 billion euros. It also aims to make European economies and societies more sustainable and resilient and better prepared for the transition. Member states create recovery and resilience plans to get access to these funds. We also have funds to incentivize private investment. The most important of these is the solvent support instrument, which amounts to 31 billion euros. This is provided to companies that are in crisis because of the impacts of COVID-19 on their businesses. It aims to prevent insolvencies through equity investment in companies with solvency problems. To take advantage of this, companies must be established and operate in the EU, be economically viable and prove that they have been hit by the pandemic and are unable to secure financing from the market.

Mobilizing international private investors and financial support through the financial markets is key for the success of the green transition. This potential remains largely untapped. We need to mobilize international investors and therefore the EU, together with the relevant public authorities from Argentina, Canada, Chile, China, India, Kenya and Morocco, launched the International Platform on Sustainable Finance in October 2019. Japan has also recently joined this platform for public authorities, which aims to exchange and disseminate information to promote best practices in sustainable finance. The main focus of the work is creating taxonomies: specifications of sustainable economic activities and standards and labels for green financial products and disclosure of sustainability-related information.

International cooperation is very important. We are half a year from COP 26 in Glasgow in November of this year, and we need to increase our collective climate ambitions ahead of this and demonstrate our commitments, particularly focusing on cooperation among the G20 countries, who are responsible for 80% of global greenhouse gas emissions.

Relationship with Japan

We have different dialogues with Japan. The focus of the energy dialogue has been cooperation on hydrogen, offshore wind energy, LNG and electricity market reform, as well as international cooperation, for instance on renewable energy in Africa. We also cooperate on climate and carbon neutrality policies and we have a joint 2050 decarbonisation target with Japan. Japan is a key participant in the international sustainable finance platform I just mentioned and we also work together in the multilateral fora.

Nikolaus BOLTZE:
My remarks come from an industrial viewpoint. I would like to briefly talk about the situation in Germany. I chose our cement and steel processes because these industries are the largest single contributors to CO2 emissions. I would also like to explain one promising regional approach in Germany in which various stakeholders are integrating various green technologies. I'll conclude with a few statements from industry supporting the political agenda Ms. HILTUNEN just discussed.

Four steps to climate neutrality by 2050

The goal is to be climate neutral by 2050. This ambitious target can be achieved in four steps. The first has already happened in Germany: basic research and the introduction of renewable energy sources, mainly wind and solar. This started before 1990 and was achieved by 2010 with a reduction of between 5% and 25% of CO2. The second step covered system integration. New business models were introduced and technology was optimized with the help of increased digitalization. We are presently between the second and the third step and the third phase: increased sector coupling. Mobility, industry applications and the usage of heat is combined under the umbrella of green hydrogen. This includes industrial scale production of hydrogen and long-term storage solutions. I will introduce one of the many examples, called Westküste100. In the fourth and final stage, starting from 2030, we will aim to completely phase out fossil fuels. Improved sector coupling and increased usage of renewable energy is key to reach the final goal of an integrated energy system.

Cement and steel

thyssenkrupp represents old-school industry in Germany: a group of companies with more than 100,000 employees in 60 countries, including Japan, where our activities started more than 160 years ago. We are organized into six segments: automotive supply, industrial components, technology, shipbuilding and production and handling of steel. Cement is an important base material for the building industry and for all kinds of civil engineering. The most important use of cement is in the production of concrete. China produces more than half of the world's cement, followed by India. The EU and Japan are also medium-sized players in this business. This sector contributes more than 7% of global CO2 emissions.

We can offer three proven solutions to reduce this carbon footprint. The first is a step combustor which uses waste as fuel, reducing the amount of coal required. Second, replacing clinker with thermally activated clay can reduce CO2 emissions by up to 40%. The last proposal is called oxyfuel. In this process, pure oxygen is substituted for ambient air in clinker production. Highly concentrated CO2 is produced, which is separated and not released into the atmosphere. Thanks to its purity, the greenhouse gas can be then converted into a raw material for the production of fuels, plastic and fertilizers.

Steel production is part of our company's heritage. The current process uses coal or coke to heat up huge blast furnaces and melt iron ore. About 8% of global CO2 emissions are linked to the steel production process. 95% of our group's CO2 emissions come from steel production. If we succeed in using hydrogen to make steel production climate neutral, we will reduce Germany's total CO2 emissions by 2.5%. Our intermediate goal is a 30% reduction by 2030. To achieve this, we are installing a two-way solution. The first proposal is Carbon Direct Avoidance (CDA) by replacing coal with hydrogen. The second one for our existing blast furnaces is Carbon Capture and Utilization (CCU). This means absorbing CO2 emissions and turning them into chemicals for fuel, plastics and fertilizer. Our aim is to reduce blast furnace CO2 emissions by up to 20%.

To combine the results of all these efforts, our real-world laboratory is called "Westküste100." Offshore wind in the North Sea is used to generate renewable energy. This electricity is used in an electrolyzer to produce hydrogen and oxygen. The excess heat is used for a nearby business park. The hydrogen afterwards is fed into the gas grid or stored underground. The oxygen is put into cement production. The pure CO2 from the cement plant and the hydrogen is used in methanol synthesis and in a refinery. The refinery produces syngas and petrol and finally syn-kerosene, which can be used for aviation purposes at Hamburg Airport.

We are fully committed to the Paris Agreement of 2015 and willing to take responsibility. The right political framework is necessary. The production conditions have to fit and they are not allowed to change otherwise investment in the industry would be difficult. The price for electricity has to be kept at a competitive level, while the infrastructure for gas and the electricity grid has to be further developed. Carbon Border Adjustment (CBA) should be considered. Entirely new green markets have to be established while maintaining competitive production conditions. Green materials will initially be more expensive than conventional products. Governments will have to provide incentives for customers to source green materials.

Commentary and Q&A

Our prime minister has declared that Japan will achieve carbon neutrality by 2050. We have a roadmap covering 14 areas. Part of this is a green growth strategy which includes a fund of 2 trillion yen, nearly 15 billion euros, to encourage investment and innovation by private companies. We also will tackle regulatory reform as well as green finance. Carbon pricing is also being discussed.

The EU is on track for carbon neutrality. In the US, President Biden is also heading towards carbon neutrality by 2050 so the momentum for climate neutrality exists. I have two questions for both speakers. Which field do you think is most promising for cooperation between the EU and Japan, both at the government level and also in the private sector? The second question is, what are your views on the border adjustment issue?

I think you're absolutely right. We're really heading in the same direction as Japan. We're very much looking forward to continuing to cooperate with Japan and with METI. I think renewable energy may be the most promising area. Also, we have our new hydrogen strategy, and Japan is one of the world leaders in this. I think climate policies overall are a very promising area of future cooperation. Finally, we are working on a proposal for a carbon adjustment mechanism protocol that will be fully in line with WTO rules.

Nikolaus BOLTZE:
It's important that we share our experiences to avoid making the same mistakes. I believe we can lead by example and show how to be a good global and environmentally friendly citizen.

Do you have any concerns about Chinese companies increasing their presence in European markets in the area of renewable energy, especially those influenced by the Chinese government?

Nikolaus BOLTZE:
We are always in competition with low-cost countries but we have to find a unique selling point for our technology. We have to aim to be the best in the world because we are not going to win a race to the bottom. We have to create a market for green material, for green steel and maybe governments can mandate and promote this. We can show the world that we are willing, at least in the beginning, to spend some money and effort in order to achieve climate neutrality.

I think competition is always good as long as it's fair. We have trade defense tools for dealing with unfair competition.

*This summary was compiled by RIETI Editorial staff.