Is dwell time in the green transition at risk when trade balances ride shotgun? Dennis Jul Pedersen, Port Director at the Port of Esbjerg, explores
Last year, the Draghi report on European Union (EU) competitiveness was issued, sparking several political discussions on the actions needed to be taken by European countries to compete with China and the United States (U.S.). The caveat is that Europe’s largest trading partner is the U.S., and that China’s largest trading partner is Europe.
In many cases, European producers receive parts, materials, and feedstock from China and then sell the end product to the U.S., thereby taking the role of the manufacturer. To remain competitive as a manufacturer, free trade and low energy prices are essential for sustaining Europe’s industrial complex.
From the outset, the framework trade agreement between the EU and the U.S. appears detrimental to Europe’s competitiveness, as it imposes tariffs and arguably prolongs the green transition by shifting to natural gas imports from the U.S. Rapidly, competitiveness in Europe has declined, as manufacturers will be under pressure from customers to compensate for tariffs.
At the same time, the production cost may not benefit from the lower energy prices, which the Draghi report portrays as vital for European competitiveness. The risk is that China will leapfrog Europe and become the U.S.’s largest trading partner, leveraging its immense buying power. Conversely, the theatre of international trade will have many sequences before the curtain goes down. The tariffs imposed by the U.S. may also increase domestic manufacturing, which will eventually draw in neighbouring countries and elevate the buying power of the continent. In this case, both Europe and China will need to find new markets for their produced goods.
The Schumann Declaration
One may argue that Europe has lost part of its industrial capacity, which must be rebuilt through innovation and low energy consumption. However, more important may be to understand the options available to keep Europe a peaceful and prosperous continent, and for this, solidarity has always been the backbone. On 9th May, 1950, the Schumann Declaration was signed with the overarching aim of abolishing harmful rivalry between European countries through de facto solidarity.
The Schumann Declaration explicitly stated the placement of “Franco- German production of coal and steel as a whole be placed under a common High Authority, within the framework of an organization open to the participation of the other countries of Europe.” The countries, which had been friends and foes just a few years earlier, now displayed the solidarity and unity that laid the groundwork for the EU.
Today, Europe is not emerging from a war, and de facto solidarity is manifested through the Union. However, with energy prices serving as the denominator for competitiveness, similarities can be drawn from the situation leading to the Schumann Declaration. In this context, pooling the need for natural gas from the European countries, together with a commitment to buy from the U.S., displays solidarity that will increase purchasing power.
After all, the Draghi report states that “EU companies still face electricity prices that are 2-3 times those in the U.S. Natural gas prices paid are 4-5 times higher,” wherefore it could be assumed that increased buying power could lead to lower natural gas prices in Europe and thereby increased competitiveness.
In the Schuman Declaration, the common goal was to “pursue the achievement of one of its essential tasks, namely, the development of the African continent”. Looking in the rearview mirror, the 75 years since the Schumann Declaration may spur many comments, but looking 75 years ahead, it will be hard to ignore climate as an overarching goal, which, from the European lens, must also be built on solidarity, unity, peace, and prosperity.
The green transition enters the world stage and more
And this is where the green transition enters the stage of the world theatre. Europe needs to display unity in purchasing natural gas from the U.S., and this may be the building block for readiness over the next many decades, provided that the same solidarity and unity are used to change the energy mix to ensure a timely green transition.
The energy mix of Europe becomes essential to achieve the necessary competitiveness, which will reach far beyond the shores of Africa, which was envisioned as the frontier area back in 1950. The future needs a greener world, and this goal is shared globally. However, in the present time, Europe needs to purchase more natural gas from the U.S. at a lower cost to reignite its renewable energy industry, electrify its societies and prepare for a blue hydrogen economy to maintain competitiveness.
To electrify societies, we need more green power now. The failing offshore wind auctions have an adverse effect, not only on the people manufacturing wind turbines, but on the greenification of our societies. Perhaps it is now time to rethink the model for making this happen. There is only a certain amount of seabed available, given the water depth and wind conditions for offshore wind. To utilise this seabed to the benefit of Europe, the development areas could be auctioned between Member States.
Debatably, Germany needs more offshore wind, and hence the German government could lease the seabed from the Danish government, which holds one of the keys to electrification through the potential in the Danish part of the North Sea. Conversely, such models would be of limited value if the EU did not regulate prices for the lease. No rules of collaboration could lead to increased competition between countries, which would be detrimental to solidarity.
A similar argument applies to the hard-to-abate sectors, which need to shift their focus from sustainability objectives to reducing CO2 emissions. This is initially achieved through carbon capture and storage, which could eventually support the production of blue hydrogen. These industries are vital for both the short- and long-term perspectives in the green transition. Debatably, some reservoirs hold higher potential than others, and a similar argument for solidarity and regulation can be envisioned, with the overarching intent of accelerating the industry and rapidly reducing emissions.
Consequently, one could argue that competition is healthy in any industry; however, challenging situations require collaborative decision-making derived from solidarity. Europe is in such a challenging position. Expecting one country to prosper on behalf of another, due to the beneficial location of the former, does not represent the solidarity necessary to ensure Europe’s competitiveness. Solidarity in the green transition is essential, presenting a dependency for all Europeans.
This work is licensed under Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International.
