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EU Faces Challenges in Meeting Clean Energy Goals Amid Global Competition

Although the US spent only USD 86 billion in 2023, the Inflation Reduction Act is expected to spur significant investments, allowing the US to match and eventually surpass the EU in clean energy spending by 2030.

June 03, 2024. By Abha Rustagi

The European Union (EU) is poised to fall behind its targets for renewable energy, clean technology capacity, and domestic supply chain investments, according to research and modeling by Rystad Energy.

In 2023, the bloc’s capital investments (capex) in clean technologies—including renewables, carbon capture, utilization and storage (CCUS), hydrogen, batteries, and nuclear—totaled USD 125 billion, a figure dwarfed by China’s USD 390 billion spending in the same sectors.

Although the US spent only USD 86 billion in 2023, the Inflation Reduction Act is expected to spur significant investments, allowing the US to match and eventually surpass the EU in clean energy spending by 2030.

Earlier this year, the EU passed the Net-Zero Industry Act (NZIA) as a roadmap to achieve its goal of reducing emissions by 92 percent compared to 1990 levels by 2040 and reaching net zero by 2050. The NZIA aims to support nascent industries, homeshore supply chains, and position the bloc as an attractive investment location through supplier incentives. However, the cleantech investment landscape in the EU presents a stark contrast between ambition and reality, with the bloc potentially facing another setback soon.

The upcoming EU elections are likely to have significant impacts on the bloc’s policy landscape. Predictions of a political shift to the right could lead to heightened Euroscepticism and a reduced willingness to tackle climate change and the energy transition from a continental perspective.

With crucial reevaluations of nationally determined contributions (NDC) and emissions goals expected next year, political upheaval could have long-lasting consequences on the EU's climate change progress.

The stakes are high as the EU strives to remain competitive in the global cleantech market. The rising right-wing populist wave could increase the risk of the EU falling further behind the US and China. Without cohesion and decisive action, the bloc may lag behind its counterparts for decades.

The NZIA sets forth ambitious targets to boost the production and deployment of key clean technologies, including batteries, CCUS, and hydrogen electrolyzers. However, only the battery sector shows genuine promise. European battery manufacturers, like FREYR Battery and Volkswagen, are relocating operations to the US to benefit from the Inflation Reduction Act's tax incentives, underscoring the need for competitive developer conditions in the EU.

Meanwhile, Chinese manufacturers are increasing their presence in the EU, with companies like EVE Energy announcing new manufacturing plants in Hungary.

For CCUS, the NZIA focuses on enhancing injection capacity for permanent CO2 sequestration. While capture technologies have matured, the development of injection and storage infrastructure is lagging. The projected CO2 injection capacity is expected to fall short of the NZIA target by about 63% by 2030, highlighting a significant gap between goals and infrastructure development.

Hydrogen electrolyzers also face challenges in meeting NZIA goals. The recent European Hydrogen Bank auction supported 1.5 GW of electrolyzer capacity, but the EU's target of 100 GW by 2030 remains distant. Technological challenges, high initial costs, and slow infrastructure development contribute to the shortfall, with the current pipeline falling 45% short of the target.

The EU’s Renewable Energy Directive (RED III), passed in October 2023, sets a target for 42.5 percent of total power consumption to come from renewable sources by 2030. While the EU is close to this goal, expecting about 975 GW of combined solar and wind capacity, it falls short of the 1,050 GW required.

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