What convergence between low-carbon transition and energy sovereignty in Europe?
In the energy sector, the European Union has two objectives: to continue the low-carbon transition in order to reduce greenhouse gas emissions; and to increase its energy sovereignty in a context of rising geopolitical tensions.
At first sight, these objectives are convergent, since lower dependence on hydrocarbon imports improves energy sovereignty. In detail the situation is more complex.
The European Union's track record in terms of transition is fairly positive, the share of renewable energies in the primary and electricity mixes has doubled since 2010; however, the improvement in energy sovereignty is more mixed. If we consider hydrocarbons and the value chain for clean tech, from critical materials to equipment such as solar panels, wind turbines, electric vehicles, and batteries, the European dependence on imports and the concentration of major suppliers can be very high.
In this context, what are the prospects for convergence between transition and sovereignty? We see two types of constraints and some reasons for optimism
The first constraint is linked to rising geopolitical tensions and geo-economic issues. The trade war between the United States and China is disrupting the clean tech value chain. It increases the attractiveness of the European market for Chinese exports, and it limits access to several critical raw materials.
A second constraint is that the transition stages follow different paces, which can create delays and bottlenecks. The European delay in electrification and the issue of integrating renewables into existing grids can slow down the transition and constrain sovereignty. For example, by keeping the role of gas as a transition energy or by increasing the need for significant investments in electricity storage capacities.
Finally, two more optimistic prospects: Firstly, the European Critical Raw Materials Act should reduce European vulnerability by promoting diversification of supply thanks to international partnerships and by supporting European investment in production and recycling of critical raw materials.
Secondly, even if European competitiveness will remain structurally weak in some clean tech segments, the European Union must not miss the opportunity to invest in electricity grids and in the production of stationary battery. It will be a key factor in further progress of low-carbon transition and energy sovereignty.
Author
BNP Paribas Team
BNP Paribas
BNP Paribas Economic Research Department is a worldwide function, part of Corporate and Investment Banking, at the service of both the Bank and its customers.
