Putting innovation at the heart of the Energy Union

As the European Commission elaborates its Energy Union strategy, and as national and local governments plan their contribution to the union’s aims of energy security, decarbonisation and cost-efficiency, they need to create an environment that nurtures innovation in policy, technology and business models, write Pascal Lamy and Philip Lowe.

Pascal Lamy is former Head of the WTO and President Emeritus of the Jacques Delors Institute. He was European Commissioner for Trade in the Prodi Commission (1999-2004).

Philip Lowe is former Director-General for Energy and Competition at the European Commission.

Both are members of the i24c High Level group.

The European Union has led the world in calling for action on climate change. For 30 years, EU Member States have worked to reduce their emissions, and have advocated international cooperation to tackle this global threat. Now, as we stand on the threshold of a revolution in how the world produces and consumes energy, the question is whether the EU can turn this leadership into global competitive advantage.

At last, there are signs the EU’s leadership is bearing fruit. Last December’s Paris Agreement is galvanizing the global effort to decarbonise our economies. Hundreds of billions of euros and dollars are being invested, each year, into clean energy generation and into making our industry, built environment and transport systems more energy efficient.

This presents Europe with an enormous opportunity: domestically, in cutting our energy bills, cleaning our air and reducing our impact on the climate; but also overseas, in exporting our technology and expertise around the world, creating jobs and growth.

Decarbonisation, digitalisation, local-level empowerment and the shift from manufacturing to ‘servitised’ business models will profoundly affect Europe’s entire energy system. These forces are creating new technologies and services, such as energy storage, demand-side energy management and electric vehicles, which promise enormous benefits in terms of cost, convenience and lower emissions.

But to grasp these opportunities, Europe needs to put innovation at the heart of its energy policy. As the European Commission elaborates its Energy Union strategy, and as national and local governments plan their contribution to the union’s aims of energy security, decarbonisation and cost-efficiency, they need to create an environment that nurtures innovation in policy, technology and business models.

Fortunately, Europe has a rich body of experience in fostering energy-related innovation on which to draw. Pioneering regulation has driven enormous investment and penetration of renewable energy technology across the EU, where it remains the world’s largest market in terms of installed capacity. It leads the world in domestic and industrial energy efficiency.

Europe also remains the largest investor in the research and development (R&D) of renewable energy technologies. In 2014, it accounted for 36% of total R&D in the sector. It is the global leader in terms of the cutting edge technologies that will enable decarbonisation, accounting for almost a fifth of high-value inventions in the space during 1995-2011, according to the European Patent Office.

It can point to pockets of success: Denmark’s wind industry; bioenergy penetration in Sweden; the growth of solar electricity generating capacity in Germany; energy-neutral housing in the Netherlands.

The question is, how can these promising precedents and examples of innovation be replicated and taken to scale, so that industrial and wider economic success results, in addition to the other benefits they deliver? Industrial Innovation for Competitiveness (i24c), which is dedicated to developing and promoting an industrial strategy that secures the competitive advantage of European industry through innovation, has worked with leading consultancy Capgemini to consider this question.

We have produced a report that draws on evidence from the past, as well as feedback from a wide range of stakeholders, to offer suggestions as to how policy can evolve to promote the energy-related innovation we will need to meet the energy challenges of the future, and secure competitive advantage for Europe in the process.[1]

Its main message is that the EU’s experience and expertise provides a promising foundation on which to build. It has many of the policies in place to enable decarbonisation. What is needed now is for public and private decision makers to put low-carbon innovation at the centre of their forward planning.

The report contains some specific recommendations. The EU must put the needs and the interests of the citizen-consumer at the heart of the energy revolution. The right price signals and incentives are necessary to ensure consumers benefit from the low-carbon transition. Local authorities must be empowered and supported, given the localised future of decentralised energy systems. Disruptive technologies and business models must be supported with policy and funding.

There is no room for complacency and much room for improvement, in particular to reap the benefit of investments made early in the innovation cycle. But Europe’s starting position is a relatively strong one. It has strengths that it can build upon, including the size of its market, the skills of its workforce, and the quality of its research institutes.

With the right innovation-enabling policy framework and strong related signals to investors, the Energy Union can ensure that Europe is the world leader in the low-carbon transition.

[1] Scaling up innovation in the Energy Union to meet new climate, competitiveness and societal goals: Scoping the future in the light of the past – i24c http://i2-4c.eu/eurics_report/ ‎