How the Supply Chain can aid Europe's Energy Transition

No fewer than 74 organisations, including Shell, bp and Tata Steel, have urged the European Commission to prioritise demand creation to accelerate the clean energy sector.
In an open letter, the groups warn that clean technology development is faltering, investment drying up and Europe risking an "industrial exodus".
The letter states: “The years ahead will be decisive for Europe’s industrial sector. By 2040, emission allowances will have run out, and European industry is expected to reach zero emissions. Without intervention, Europe is heading towards an industrial exodus without any winners.”
Europe's manufacturing challenges
The letter identifies several factors contributing to Europe’s challenges in maintaining a competitive industrial sector, including competitiveness and the cost of clean technology.
Crumbling competitiveness
Once a global hub for investment due to its vast market, skilled workforce and advanced facilities, Europe now struggles with high energy costs, labour shortages and competition from cheaper imports.
The letter says: “Investing in Europe was once the most normal thing in the world. In recent years, however, its competitive position for industrial investment has started to crumble.
"Energy costs have risen sharply, labour is scarce and, on top of that, European markets are increasingly flooded by cheaper products from other parts of the world.”
Cost of clean tech
European companies investing in sustainability often face increased production costs, making their products less competitive. The letter notes that investments in cleaner technology often drive up prices.
It explains: “Barring exceptions, investments in cleaner technology increase production costs and selling prices. As a result, sustainable frontrunners in particular are pricing themselves out of the market, leaving the European industry stuck.”
With a strained business model, the industry is unable to absorb the extra cost of sustainability, exacerbating the problem.
Demand creation as a solution
The letter's signatories argue that demand creation is essential when it comes to addressing Europe’s clean energy challenges.
This approach involves stimulating markets for cleaner industrial products by introducing offtake mandates at the end of value chains. A proven example is gasoline (E10), where suppliers are required to purchase sustainable fuels for 10% of their supply volumes.
The letter explains: “The additional cost of a cleaner product is not covered by subsidies but is part of the product price as a result of this requirement. In turn, investors get market-based compensation for manufacturing a more expensive but less carbon-intensive product.”
While this approach works for biofuels, it has yet to be widely applied to other industries.
The letter proposes expanding demand creation to cover cleaner-produced materials such as plastics, synthetics, rubber, steel and building products. Both public tenders and private markets would play a role in driving demand, encouraging investment and fostering competitiveness.
Industry backing for demand creation
Organisations to support the letter include major corporations, industry associations and NGOs.
Shell highlighted its commitment to demand creation on LinkedIn, stating: “In September 2024, our CEO Wael Sawan appealed to the European Commission to boost European competitiveness in the energy transition. At Shell, we are ready to play our part in helping to shape a more competitive and secure Europe.”
Other signatories include bp, Tata Steel, RWE, Vattenfall, Ørsted, Eneco and Arcadis.
The letter concludes with a call for collaboration: “Of course, we are open to further discuss and provide suggestions on how demand creation can become a reality. In this way, with combined efforts, we can also shape the next phase of Europe’s energy and resource transition.”
This initiative seeks to give European companies the certainty needed to drive investment in low-carbon solutions, ensuring that Europe remains a leader in the global energy transition.
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