Mission Growth: Europe at the Lead of the New Industrial Revolution
Europe is facing a severe economic crisis. But this situation and the changes are also an opportunity. We cannot let our industry simply leave Europe. It is a significant contributor to the real economy producing real values. Now, all efforts need to be undertaken to secure a modern, resource efficient, competitive and robust industry in Europe.Europe’s economy cannot survive in a sustainable way without a strong and profoundly reshaped industrial base. New technologies have dramatically changed our life and our economy in the past 20 years. Political systems collapsed, new players emerged on the markets, as well as new materials, new technologies and workers who are better skilled than ever. The wind of change is blowing at a time when Europe is facing a severe economic and social crisis. But this situation and the changes are also an opportunity. Politics should play its part in seizing it, aiming straight at a new industrial revolution. We cannot let our industry simply leave Europe. It is a significant contributor to the real economy producing real values. Now, all efforts need to be undertaken to secure a modern, resource efficient, competitive and robust industry in Europe. Along with the need to create new jobs and boost our competitiveness, we have to tackle other vital challenges: the ageing of people in Europe whilst the world population is growing; increasing pressure on raw materials and energy supplies; the need to counter climate change and preserve ecosystems. Therefore we need an industrial revolution.
The new industrial revolution – The vision
The new industrial revolution should lead towards the gradual substitution of hydrocarbons as our main source of energy, and towards a more efficient and sustainable use of our resources. More in general, our economy as a whole is going through major transformations, with new production techniques based on digital technologies, advanced materials, key enabling technologies, space, robotics, renewable energy, recycling and reuse of raw materials.
This revolution will affect many economic sectors: manufacturing, services, energy, raw materials, transport, construction, and chemicals; and it will be accompanied by technological innovation and the creation of new professional figures, such as:
- New materials and nanotechnologies can provide adequate substitutes to rare earths and make renewable sources of energy less expensive and more efficient and we can reuse wastes as new sources of energy.
- Making the electric car a mass consumption good, with costs and performances comparable to those of traditional vehicles, but with 0 emissions as they will use renewable energy.
- Buildings can dramatically consume less energy and become producers of energy.
- Thanks to developments in the space industry, our transport and electricity transmission systems will be “smarter”.
- The factories and the cities of the future will impact less in terms of emissions, but provide a higher living quality and higher job satisfaction.
- Digital technology, creativity and design will revolutionize the production of goods and services.
- Innovations in the chemical sector and biotechnologies are the only way to create sustainable and competitive biofuels.
- We will have many new small economic players, new entrepreneurs running smart start-ups, as they will provide the creative power, the ideas and innovations which we need to speed up the transition to the Third Industrial Revolution.
- Europe needs to exploit the business opportunities resulting from the transition to a more sustainable, resource efficient and low carbon economy. In particular, we need to ensure that industrial, climate, energy, environmental and other relevant policies provide consistency, coherence and certainty and create the right conditions for innovation.
Green technologies: Big opportunity for European firms
The global market for green technologies represents a big opportunity for European firms. Currently, the global market for environmental goods and services is estimated to be around €1000 billion per annum – and this is expected to double or even triple by 2020.
Europe produces some world leading eco-technologies. Our core environmental industries that are active in the fields of pollution management and control, waste collection and treatment, renewable energy and recycling have a combined turnover of over €300bn; provide more than 3 million jobs, and have an impressive overall global market share of approximately 1/3rd. This sector is offering many new and skilled green jobs and exploiting first mover advantages. And as European industries have to thrive or strive in the global arena the external competitiveness implications of our actions are also crucial.
The global market for green technologies represents a big opportunity for European firms. Currently, the global market for environmental goods and services is estimated to be around €1000 billion per annum – and this is expected to double or by 2020.
But neither Europe nor industry can do this alone. In a globalised world, we have to be realistic and reasonable about our industry’s potential contribution to worldwide environmental improvements. The EU is working hard to obtain ambitious and effective outcomes in Rio+20 and in climate and other relevant negotiations. Each region’s responsibilities and priorities are different but as we share the planet, we must all be part of the change we want.
It is encouraging to see that in Europe significant decoupling of economic growth and environmental impact has already been achieved and is continuing. Policies like Ecodesign are driving this change and helping to deliver more sustainable, products, production and consumption. Corporate Social Responsibility is also a flexible and effective way to encourage companies to do the right thing for societies and the planet – think partnerships instead of polemics.
Example: Impressive employment developments in eco-industry sub-sectors
Recycling recorded the fastest growth rate among the largest eco-industry sub-sectors (recycling, waste supply, wastewater treatment and waste management). Admittedly, its annual growth rate could not match the renewable energy sub-sector, which expanded by 37 % per year in the period 2004–2008 (EREC, 2010). However, the annual increase of recycling’s turnover was still very rapid at 17 %.
The growing importance of the recycling sub-sector is also apparent in its increasing scale relative to the economic output of key sectors. In the period 2004– 2008 the value of recyclables relative to the gross value added of the manufacturing, electricity and waste management sectors increased from about 1.7 % to 2.7 %. Although the financial crisis has reduced this level, the importance of recycling for the economy is still greater in 2009 than five years earlier.
As figure below shows, overall employment related to materials recovery in Europe has increased steadily, from 422 inhabitants per million in 2000 to 611 in 2007, which is an increase of 45 %.
Employment growth in EU eco-industry sub-sectors in the period 2000–2008
1 466 673
|Water supply||417 763||703 758||6.74|
|Wastewater management||253 554||302 958||2.25|
|Recycled materials||229 286||512 337||10.57|
|Others||129 313||193 854||5.19|
|Renewable energy||49 756||167 283||16.37|
|Air pollution||22 600||19 067||2.10|
|Biodiversity||39 667||49 196||2.73|
|Soil and groundwater||14 882||18 412||2.70|
|Noise and vibration||4 176||7 565||7.71|
|Total||2 005 764||3 441 102||6.98|
How to promote sustainable production?
This calls for a twin-track approach to encouraging sustainable (green) growth across all industry sectors while taking initiatives to help the environmental goods and services sector. To help bring about a more competitive and more environmentally sound industry, we also need to move beyond consideration of products and traditional services, adopt a value-chain approach and look more into innovative ways of organising production modes, cooperation and partnerships between businesses (e.g. green business models, industrial symbiosis). We know that many of the most resource-efficient economies are also the most competitive. But we also know that the transition will not be cost free and will require significant investment by industry.
Recycling can be an important source of raw materials
But how could Europe call for a new industrial revolution without considering the elements that are absolutely fundamental for the development and reinforcement of its industrial base – that is raw materials. 360 kg of lead; 343 kg of zinc, 1630 kg of aluminium, 14883 kg of iron and 561603 kg of sand and gravels are consumed during the life of a European.
However, for a number of these raw materials, considered “critical” by the European Union, the EU is largely dependent on third countries’ production. This is, for instance, the case of indium, used in photovoltaics and flat screens, antimony (e.g. flame retardant) and cobalt (e.g. building and transportation) or of the now renowned rare earth elements, essential for permanent magnets in electric cars and wind turbines, with a 100% import dependency rate, or graphite, with a 95% import dependency.
Confronted to the very basic need for a secure supply of raw materials, innovation can be a major driver for progress. And in today’s globalised world, it is even a prerequisite if European companies are to survive the competition of developed but also emerging countries.
Although Europe is a world leader in recycling, there is still room for significant improvement. For example, only 17% of metals in mobile phones are being recycled today. When only 40% of waste material of iron and steel is reused today, it has the potential to reach up to 55% of future consumption. For other metals, recycling could potentially contribute to up to 50% of consumption. New technological solutions have to be found so that critical raw materials can be recovered.
But recycling will not, on its own, provide the solution. Europe needs to improve raw materials production within its own territory. It has been estimated that the value of unexploited European mineral resources at a depth of 500-1,000 metres is about € 100 billion: there is a need to mine at lower depths, in more remote areas and under harsher conditions.
There is also a need to increase knowledge of Europe’s geological potential, develop alternatives and substitutes for critical raw materials, and reinforce the skills in these different fields to meet the challenges ahead, along the entire raw materials value chain.
That is why the European Commission has proposed, on 29 February 2012, to launch a European Innovation Partnership on raw materials, which will aim to push Europe to the forefront in raw material exploration, extraction, processing, recycling and substitution technologies by 2020.
Low energy buildings: Still a limited market uptake with high CO2 saving potential
In low energy buildings, as much as 80% of the operational costs can be saved through integrated design solutions; however there is still a limited market uptake. So far, around 20.000 low energy houses have been built in Europe of which approximately 17.000 in Germany and Austria alone.
At present, seven EU MS have defined for themselves when a building is a low energybuilding (AT, CZ, DK, UK, FI, FR and DE, BE (Flanders), a few more (LUX, RO, SK, SE) plan to do so. Typically the required decrease in energy consumption will range from 30 to 50 % of what is defined for standard technology for new buildings.
EU Member State policies on low energy buildings
|Austria||Planned: social housing subsidies only for passive buildings as of 2015|
|Denmark||By 2020 all new buildings use 75 % less energy than currently enshrined in code|
|Finland||30 – 40 % less by 2010 : passive house standards by 2015|
|France||By 2012 all new buildings are low energy buildings (Effinergie standard), by 2020 new buildings are energy-positive|
|Germany||By 2020 buildings should be operating without fossil fuel|
|Hungary||New buildings to be zero emission buildings by 2020, for large investments already in 2012|
|Ireland||60 % less by 2010, Net zero energy buildings by 2013|
|Netherlands||50 % reduction by 2015, 25 % reduction by 2010 both compared to current code plans to build energy-neutral by 2020|
|44 % better in 2013 (equivalent to Passivhauslevel) and zero carbon as of 2016|
|Sweden||Total energy use / heated square metre in dwellings and non residential buildings should decrease. The decrease should amount to 20 per cent until 2020 and 50 per cent until 2050, compared to the corresponding use of energy in 1995.|
In summer 2012 the Commission will present a communication on its ideas to promote sustainable construction in the EU.
Key enabling technologies – Europe is not reaping the full benefits
The global market in Key Enabling Technologies (KETs), notably micro- and nanoelectronics, advanced materials, industrial biotechnology, photonics, nanotechnology and advanced manufacturing systems, is forecast to grow from EUR 646 Billion to over EUR 1 Trillion between 2008 and 2015; this is a jump of over 154%, or more than 8% of the EU’s GDP. Rapid growth in jobs is expected. In nanotechnology industries only, the number of jobs in the EU is expected to increase around 400,000 by 2015. Europe is a global leader in KETs research and development with a global share in patent applications of more than 30%. Despite this, the EU is not translating its dominant R&D base into the goods and services needed to stimulate growth and jobs.
KETs potentials: KETs are a key source of innovation. They provide indispensable technology bricks that enable a wide range of product applications, including those required for developing low carbon energy technologies, improving energy and resource. The Europeans Commission will present in June 2012 a communication on how it intends to promote KET that they give European industry a competitive edge in deploying the industrial technologies of the future.
Space – A high tech industry defying global competitions
The European navigation and Earth observation service industry is an emerging industry with a high worldwide potential for growth and job creation, mainly made up of SMEs and start-ups which form the backbone of our economy. It is estimated that, already, 6-7% of GDP in Western countries, i.e. € 800 billion in the European Union, is dependent on satellite radio navigation. The deployment of Global Navigation Satellite Systems and GMES infrastructures will soon open up new opportunities for the sector in Europe. Galileo and EGNOS are expected to generate economic and social benefits worth around € 60-90 billion over the next 20 years. Europe cannot afford to miss out on this growth sector. Although some private applications have already proven successful, satellite enabled products and services still depend to a large part on public customers at national and local levels at this stage of development.
Promoting electric car/less polluting cars
In summer 2012 the European Commission will issue EU-wide guidelines for incentives to incite consumers to purchase energy efficient cars, enabling car manufacturers to realise economies of scale, which is currently not possible as Member States have different systems in place which forces car producers to run costly, smaller series of eco-friendly cars.
How can EU action help?
Overcoming the bottleneck of access to finance
EU firms are facing a credit crunch that is likely to worsen further as the banking system restructures and deleverages. It is rather alarming that enterprises face insufficient access to appropriate sources of risk capital, since this continues to be one of the most significant constraints to the creation and development of growth-oriented firms.
We must therefore consider the broader picture: as capital markets are being transformed by the crisis and the regulatory reforms that it has triggered, we shall review what new possibilities are created by these changes. It is necessary to consider new ways of improving financing conditions for SMEs and to strengthen the whole range of risk capital markets.
What can be done?
Reserving part of the new resources from the Growth Agenda to loans to SMEs for this same purpose could considerably increase our potential. It is important to underline that this support must be provided on a commercial basis, such as the new Risk Sharing Instrument which is being RSI) is being created under the EU’s Seventh Framework Programme for Research (FP7). It is expected to unlock a further €6 billion of loans until the end of 2013, including up to €1.2 billion for SMEs.
Moreover Europe is providing a balanced mix of flexible financial instruments under the current programme period (2007-2013) to support SMEs.
- The financial instruments (loan guarantees and venture capital) of theCompetitiveness and Innovation Framework Programme (CIP) with a budget of €1.1billion will enable financial institutions to provide about €30 billion of new finance for more than 315 000 SMEs.
- In the field of Cohesion Policy, the JEREMIE facility (Joint European Resources for Micro to Medium Enterprises) provides access to finance to SMEs by means of equity, loans or guarantees. In the current financial period the measures are estimated to amount to at least €3 billion.
- The European Progress Microfinance Facility (Progress Microfinance) aims to increase access to microcredit (loans of up to €25 000) for individuals who have lost or are at risk of losing their job or have difficulties entering or re-entering the labour market.
- During 2011, the European Investment Bank Group provided €13 billion of finance for SMEs and midcaps companies. Overall more than 120 000 SMEs received EIB Group support across Europe last year.
- For the forthcoming programming period 2014 – 2020, the Commission is aiming at increasing the use of financial instruments. In the context of the COSME Programme it is proposed to dedicate €1.4 billion to debt and equity instruments that support SMEs and to build on the success of the financial instruments established under the Competitiveness and Innovation Framework Programme.
Consultation: Enabling consumers to spur industrial innovation
Consumers should not underestimate their power to spur industrial innovations. For example, if coach operators would bundle their orders asking car manufacturers to fit the roof of busses with solar panels, industry could produce such coaches at larger scale and at lower price. These busses would not only help to reduce CO2 emissions, they could even trigger similar demand for vans or passenger cars, thus enabling mass production of innovative cars at larger scale. Another example: If consumers would concentrate their purchases on less energy consuming household products, or garden tools with low noise emissions, industry would speed up the supply of such innovative products.
Thus, innovation is not only the result of the work of inventors, researchers and engineers. Also demand led innovation can be powerful, thereby helping European industry to become more competitive and to become innovation leader for a series of industrial goods, at the same time addressing societal challenges.
These ideas were reflected in the European Council Conclusions 1-2 March 2012:
“Creating the best possible environment for entrepreneurs to commercialise their ideas and create jobs and putting demand-led innovation as a main driver of Europe’s research and development policy”
There is a vast potential in harnessing the demand-side in innovation policy development to support European industry. In times of crisis we need measures to help turn innovative ideas into new marketable products and services, creating jobs and growth in Europe. The well-functioning of EU internal market for innovations should be ensured.
Therefore, in a few days the European Commission will launch a public consultation with the aim to gather inputs from stakeholders and citizens on the scope of possible future EU-level actions in demand-side policies for industrial innovation policy.
More actions to help boost the EUs industry
There is a need to reinforce initiatives to relaunch growth with short-term actions. We must concentrate our efforts in creating a climate of confidence capable of reigniting private sector investment in the adoption of new technologies to increase our competitiveness to facilitate investment for the take up of new technologies and innovations
- First, the speedy development of industrial standards and the provision of a stable regulatory environment, especially the protection of industrial property rights, will contribute to remove uncertainties for the development of these new technologies and their markets. With respect to standards, a good standard can ease consumers’ life, promote sustainability, and enhance European competitiveness and technological leadership in global markets (IP/11/668 -Commission for better standards to boost European competitiveness).
- Secondly, large productivity and resource-efficiency gains result from the adoption of new technologies by user industries, public support for investment in these new technologies could be achieved in the short term by the reorientation and concentration of efforts of the CIP programme on the take up of new advanced and cleaner technologies by SMEs. In the mid and longer term, the COSME programme could take up a major role in this sense (IP/11/1476- € 2.5 billions to boost business competitiveness and SMEs 2014 – 2020).
- Timely Internal Market rules are needed to strengthen this weak link in our innovation chain. We should keep improving the Single Market. It is the core of the EU and the basis of wealth creation, so any obstacles to the free circulation of goods must be addressed. More information
- Framework conditions for industry need to be improved. At a time of economic crisis, it is essential that the public sector itself does everything in its power to reduce regulative and administrative burdens. More information
We need to act on industrial innovation in order to keep Europe’s global leadership. It is essential that Europe continues to invest in R&D and innovation and that the EU improves its performance on the take-up and commercialisation of technologies. This may concern our space industrial policy, life sciences or other technologies. There is not much point in being creative and research new products and technologies in Europe, if in the end it is non-European enterprises that benefit from it and end up actually manufacturing the new products or deploying the new technologies. Our policies must therefore focus more on connecting the research stage with deployment and actual market introduction.
Finally, we need to support the internationalisation of EU firms. The sources of growth are changing rapidly in the world economy. The emerging market economies of Asia and Latin America are likely to more than double their output up to 2020, outpacing the growth of the more developed economies. It is essential that EU businesses, especially SMEs, are enabled to make the most of the resulting opportunities and gain from EU-coordinated efforts to open and operate in international markets. (IP/11/1318 - Opening the world for small and medium sized enterprises to enhance EU growth)
VP Tajani visited in the framework of the new scheme “Missions for Growth” several Latin American countries recently, and such business diplomacy initiatives should be continued. On such visits the VP is accompanied by European CEOs from all main industrial sectors.
EU industry needs to overcome lack of confidence
Lack of confidence is undermining the dynamism of European manufacturing delaying investment plans, especially for SMEs. The Commission has reviewed downwards its investment forecasts from +0.8% in Autumn 2011 to -0.9% this Spring. The outlook isparticularly bleak for business investment in equipment: high uncertainty remains a drag to investment decisions. In several Member States, equipment investment is still influenced by tightened financing conditions and companies’ deleveraging.
The effects of this are seen in declining employment, productivity and competitiveness in EU industry. Employment in manufacturing has fallen by some 18% since 2000 and by over 10% since the beginning of the crisis. EU manufacturing productivity growthmeanwhile has weakened over the last decade from 2.6% up to 2005 to 1.9% in the second part of the decade. This is in marked contrast to the strong “catch-up” productivity gains in the emerging market economies.
Manufacturing output down in first quarter 2012
The serious interruption in the economic recovery of industry since the second half of 2011 continues to affect economic prospects. Trend-adjusted manufacturing output in the first quarter of 2012 was a percentage point lower than in the second quarter of last year, whilst headline industrial production has fallen back somewhat further owing to developments in the mining and energy sectors. The ECFIN industrial confidence indicator remains at its longer-term average, whilst the PMI confidence indicator indicates further contraction in the euro area. Uncertainties about the economic outlook, high international raw materials and energy prices and on-going difficulties in access to finance continue to weigh down business confidence. Construction output has also fallen in recent months, with a strong contraction in civil engineering (roads, bridges etc.).
Overall in the first quarter of 2012, manufacturing production was some 0.8% lower than a year ago and also some 0.6% below the level registered in the preceding three months. The situation varies across sectors with most capital goods sectors maintaining their expansion, whilst consumer goods sectors have contracted. In the first quarter of 2012, the highest growth was registered in chemicals, computer and electronics, and machinery and equipment sectors, whilst the biggest declines in production occurred in leather, other non-metallic products, and beverages. Manufacturing output is now 11% higher than its trough in early 2009 and some 9% below its former peak in early 2008. Recent data and forecasts for services, including tourism, remain positive, but their future performance will be affected by general economic situation.
EU27 production indices 1993 – 2011 (trend adjusted)
International demand for EU products has increased rapidly and has supported EU manufacturing production (see article in the March issue). Extra-EU exports have already recovered their previous peak. In contrast, intra-EU trade, internal demand and private consumption continue to be subdued. The recovery in output growth in Europe has greatly lagged that in the rest of the world, particularly emerging Asia and Latin America.
The Monthly note “The recovery of European industry” (edition May 2012) will be available soon here.