Europe is at a crossroads. In his analysis published in September 2024, Mario Draghi highlighted an “existential risk” and forecast Europe’s “slow agony” if it doesn’t radically change course to reverse declining productivity, investment, and innovation. Recent announcements only seem to confirm this dire prediction: industries are reducing production across Europe (Volkswagen, thyssenkrupp Steel); announced investments are being cancelled or put on hold (Northvolt, ACC Gigafactories), and industrial output in Europe’s four largest economies is declining, with Germany, France, Italy and Spain having recorded a year-on-year drop in the production of capital goods and consumer durables.
There is no denying it: Europe is in crisis, one in which its established industrial base is eroding while new sectors fail to get off the ground. This is particularly concerning for cleantech where Europe’s ambitions are high, but the economic realities are sobering. As the recent bankruptcy of Northvolt reminds us, even with solid industrial policy in place, it is hard to scale up in Europe. Turning this situation around will be one of the overriding priorities of the new European Commission, which has recently unveiled the Competitiveness Compass and will soon produce the Clean Industrial Deal, two new (long overdue) economic and industrial policy programs. In a volatile security and fractured geopolitical environment, with looming threats of trade wars and deepening systemic competition, European policymakers have their work cut out for them.
While the multitude of threats can seem overwhelming, they make sustaining the current manufacturing base and building out new capacity all the more important. The good news is that Europe has inherent strengths which it must now quickly capitalise on: one of the world’s most highly skilled workforces, supported by strong education systems and a robust healthcare infrastructure that fuels innovation and resilience. The EU and other European countries excel in the early stages of green innovation, together accounting for almost 27% of global cleantech patents between 2017–2021, ahead of Japan (21%), the US (20%) and China (15%). The key now will be to finally turn these assets into tangible economic outcomes, reasserting technology leadership and demonstrating that a resource-poor geography with now structurally higher energy prices as a result of the war in Ukraine can be the perfect springboard for clean, innovative manufacturing at scale.
In this third series of our Cleantech Reality Check, we home in on three sectors of critical importance for Europe’s – old and new – industrial base. In the former camp, we analyse steelmaking, long a pillar of Europe’s industrial heritage, which faces a dual challenge: enhancing productivity in an intensely competitive global market that suffers from overcapacity, while also cutting emissions. In the latter category, we examine batteries and electrolysers, two pivotal clean technologies vital to the world’s green transition and Europe’s competitiveness agenda, both of which are scaling far too slowly to meet ambitious targets and build out global market share.
As we outlined in the first part of this Cleantech Reality Check series, our objective is to provide fact-based, real-time analysis of key technology and policy areas. This data-driven approach is complemented with key recommendations on how to improve performance and accelerate progress. As the following analysis indicates, while Europe faces formidable challenges in steel, batteries and electrolyers, decisive action now can lead to a future turnaround in fortune.
The Cleantech Reality Check is published jointly by Breakthrough Energy and Cleantech for Europe, with analytical support provided by Systemiq. Read parts one and two of the series on Renewable Hydrogen and Electrification.
