Stay informed with free updates
Simply sign up to the EU economy myFT Digest — delivered directly to your inbox.
European industrialists are calling for deeper political union in the EU on energy, including harmonised tax incentives, in a bid to overcome obstacles to the bloc’s industrial competitiveness and ensure a green transition.
Peter Herweck, new chief executive of Schneider Electric, the industrial software and equipment group that ranks in the top 100 European companies by revenue, said a deeper political union “would resolve the energy dilemma that we have in Europe . . . We have 27 governments. There is no unity in coming up with a programme.”
His comments in an interview with the Financial Times follow a call from the big business lobby group, European Round Table for Industry, late last month for “a single Energy Union with a common market, harmonised permitting and tax systems, and a simple, stable and predictable regulatory framework to facilitate investment”.
They also follow a warning last week from Mario Draghi, the former Italian prime minister and European Central Bank president, that Europe was “going nowhere” if it failed to address the question of energy costs “twice or three times what it costs in other parts of the world”. Draghi is preparing a report for the European Commission on how to address the EU’s eroding competitiveness.
In a manifesto prepared with an eye on European parliamentary elections next year and published at the end of last month, the ERT noted that Europe’s industrial contribution to the global economy had declined significantly since 2000.
“Europe’s share of global industry gross value added declined from almost 25 per cent in 2000 to 16.3 per cent in 2020,” the document noted. “Between 2014 and 2019, large European companies were 20 per cent less profitable than their US counterparts, increased revenue about 40 per cent more slowly, invested 8 per cent less, and spent about 40 per cent less on research and development,” it said.
European industry has long struggled with energy prices substantially higher than in the US and parts of Asia. Over the 10 years to 2020, European gas prices were on average two to three times higher than the US, according to the International Energy Agency.
The gap risks being compounded after the US introduced its $369bn bumper green transition package, the Inflation Reduction Act, in 2022, which offers generous, extended tax breaks to new green projects. In the EU, tax policy remains the preserve of member states so it has relaxed rules on state aid to deter companies from redirecting investment to the US.
Herweck said the EU needed to heed the lessons of the IRA. “I am not a big fan of subsidies,” he said. “In the US they are not just putting money into things. They are offering tax credits. I understand that it’s different country by country [in the EU]. It’s also different state by state in the US, but they figured out how to do it.”
Many European companies have argued that long-term tax allowances are better suited to the extended investment cycle required for green industrial projects. They enable manufacturers to offset costs while building scale, said one chemicals industry executive.
Europe could also consider harmonised low interest loans to incentivise investment in reducing energy consumption or in underfunded areas such as power transmission, Herweck said.
In addition to energy, Europe would have to resolve the problem of an ever growing burden of regulation, Herweck added. “Costs are skyrocketing, regulations are getting more complicated,” he said. A deeper political union was needed “to simplify the solution”.
