EU green policy must bring the population with it

The writer is an FT contributing editor and writes the Chartbook newsletter

In response to America’s Inflation Reduction Act, Europe is scrambling to accelerate its own green industrial policy. Some, like Pascal Lamy, former director-general of the World Trade Organization and associate of Emmanuel Macron, would like to see Europe leading a green free-trading bloc against the US. The talks on March 10 between European Commission president Ursula von der Leyen and US president Joe Biden suggest that both Brussels and Washington prefer detente. Instead of a trade war, they proposed a road map for agreement on issues such as strategic materials and decarbonising steel and aluminium.

Given the expectations vested in it, the Net Zero Industrial Act announced by Brussels one week later was something of a damp squib, setting a self-sufficiency target of 40 per cent, speeding up permitting and easing restrictions on national subsidies, but offering no new funding. Business interests, meanwhile, are lobbying brazenly for more generous giveaways with less red tape. What is missing from this flurry of action in Europe is anything that resembles a substantial political agreement on accelerated great industrial policy.

The horse-trading in Washington over the summer of 2022 may have reduced the IRA to a mangled rump of Biden’s original Build Back Better plan. But the least one can say is that by the end, every last member of the Democratic party majority was on side. For all the kerfuffle in Europe about the IRA, what is so far lacking is any recognition of the need for an equivalent political effort.

Of course, you might say, Europe is far ahead of the US on climate. Already, in 2020 it passed NextGenEU with a large green component. But this leaves Europe on a trajectory far short of its own goals. If Europe is serious about raising investment, it faces a painful trilemma. If it wants more growth it has to find some way of funding investment in common or face increasing polarisation between more and less financially capable member states. The claim that there is already enough money in the NextGenEU kitty is an evasion. The money that is unspent is already spoken for. A big new green investment drive will require some new form collective finance. That will face opposition from the usual suspects in Northern Europe and will therefore require “statecraft”.

Faced with the divisive pandemic shock of 2020, it was statecraft in the form of the laborious NextGen EU deal that saved Europe. The precondition for that success was agreement between Berlin and Paris. Unfortunately, three years on, relations between France and Germany are as poor as they have been in decades. Given Macron’s embattled position, any initiative will need to come from Berlin, where the government seems mainly preoccupied with disputes within Olaf Scholz’s three-party coalition.

But the fact that Europe did not fail in 2020 was not just down to diplomacy. In democracies, public opinion matters. The deal between then-Chancellor Angela Merkel and Macron was impelled by polls showing strong public support for a common European response.

And yet, so far, Europe’s industrial policy debate has been singularly lacking in bottom-up public participation. This is striking since it was anxieties about the rise of populism and the impressive force of the youth mobilisation led by Greta Thunberg that did so much to drive green policy to the very top of the Brussels agenda. European industrial policy should seek to feed off broad-based public support for climate action.

One such idea suggested by Zoe, a Brussels think-tank, calls for EU green industrial policy to involve not just subsidies but some element of public ownership, so that taxpayers participate in profits as well as risks. It calls for much closer involvement of trade unions in framing industrial policy. Trade unions are important as a counterweight to business influence, but also because labour is so crucial to the transition. Millions of workers are going to be needed, not so much in steel, aluminium, hydrogen or batteries — the sectors that dominate the industrial policy discussion — but in heat pump installation and home insulation. The energy transition as a driver of pan-European job creation, labour mobility and collective learning offers a bottom-up answer to increasing social and economic polarisation.

Democracy is touted everywhere as a set of values and rights to uphold against foreign foes. It would strengthen the case if Europe more consistently embraced democratic politics, debate and negotiation as a way of actually getting things done.