Climate policy, security policy and industrial policy have become more entwined than ever
The CIP Foundation’s Chairman, Torben Möger Pedersen met with the foundation’s four Senior Fellows for a debate that touched on a wide variety of issues. From security policy to needs for innovation and technology development.
Climate policy dropped a couple of places down the agenda when the playing field for international politics dramatically changed in February 2022. With Russia’s invasion of Ukraine, security policy topped the agenda in all European countries.
However, there is no need for green tears. From a European perspective, independence from Russian gas is a key element in current security policy, and it also means expanding renewable energy. Similarly, increasing investment in defence can also drive green technologies as a co-benefit.
These were among the points of consensus when the CIP Foundation Chairman, Torben Möger Pedersen invited the foundation’s four senior fellows, Jesper Berg, Jens Lundsgaard, Brian Vad Mathiesen and Helge Sigurd Næss-Schmidt, to discuss the big picture and the challenges facing the green transition.
| Senior Fellows at the CIP Foundation The CIP Foundation has four Senior Fellows attached, who advise the foundation with both project selection, analysis and project development. |
The discussion covered a lot of ground. The initiatives in the EU Green Deal were touched upon and compared with approaches in the US and China. Innovation and technology development were also discussed, and the pace – or rather the lack of it – of the Danish PtX initiative received a few critical comments. Climate challenges cannot be solved in a vacuum, so everything was discussed, from the security of supply of critical raw materials to labour shortages.
Almost there
Climate policy is about more than just the green transition. Security policy, industrial policy and trade policy are all closely entwined with climate policy. The market for green technologies is growing fast. Therefore, the global economic slowdown is also very much a race to be first with commercial-scale green technologies.
Looking at the green transition from a narrow perspective, the challenges have already been reduced dramatically, partly thanks to the market economy, argued Helge Sigurd Næss-Schmidt, a former partner at Copenhagen Economics with a career that includes positions at the OECD and the Danish Ministry of Finance.
“In many countries around the world, especially developing countries, the green road is cheaper than the black road. This applies especially to energy for heating and transportation, as well as to the majority of energy consumption by businesses. So, unless a government tries to put the brakes on the green transition, it will become a reality. But at European level, we must consider who we want to work with in a future where Europe will be a smaller part of the global economy. We need to secure access to raw materials such as critical minerals, and both the US and Europe are short of skilled labour,” said Helge Sigurd Næss-Schmidt.
If you compare the three major players in the world economy, then Europe has tackled the challenges well, according to Brian Vad Mathiesen, professor of energy planning at Aalborg University, and he continued:
”For years, China has had insanely large and irrational subsidies. Moreover there’s actually a lot of planned economy in the American Inflation Reduction Act, which grants big tax breaks for investments in the green transition,” he said.
But even if government subsidies are not always economically rational, they are something that Europe has to deal with, he pointed out.
”I think the EU has struck the right balance for the time being. Competitiveness has been maintained, even though member states have been allowed to set up subsidy schemes in some areas. On top of this, companies are required to drive the green transition, which seems to be working. However, the EU must keep an eye on the development and continuously make adjustments to ensure that competition between member states continues to create better and more innovative solutions,” argued Brian Vad Mathiesen.
Reporting requirements can negatively impact SMEs
At corporate level, one of the big changes is the Corporate Sustainability Reporting Directive (CSRD), which recently came into force for the largest listed companies. Once fully implemented, the Directive will require all listed companies and all large non-listed companies to prepare sustainability reports in accordance with the European Sustainability Reporting Standards (ESRS).
However, the new rules will also have a big impact on a number of smaller businesses. Many small and medium-sized companies are subcontractors to larger corporations and they will be asked to provide data and documentation on their climate and environmental impact.
Former CEO of the Danish Financial Supervisory Authority, Jesper Berg, questioned the EU rules. He particularly feared that the new requirements will become a burden on smaller businesses (Small and mediumsized enterprises, SMEs).
“I’m a little concerned that many EU programmes, including the CSRD and the taxonomy, are all stop-gap solutions because the EU can’t agree on the first and best instrument: tariffs,” he said.
“Relying on investors to push things in the right direction might not be the best path forward. And I’m concerned about the burden being placed on small and medium-sized companies. I’m not sure that the benefits of these very extensive reporting rules match the costs,” Jesper Berg elaborated.
Talent requires purpose
With almost thirty years as the CEO of Pension Danmark, Torben Möger Pedersen has been one of the first and leading large-scale green investors. He believes that the reporting requirements are an important step in bringing about change.
”You get what you measure! Requiring companies to report on climate and other sustainability parameters changes the focus of companies. Work on climate and the environment will move up the decision-making chain to executive level instead of remaining at marketing level. This makes a big difference,” he argued.
Companies are also interested in attracting talent, stressed Torben Möger Pedersen.
”The first thing young people ask in a job interview these days is not about pay, it’s about what the company’s doing to make the world a better place. You’ll be in a weak position in the battle for talent if you can’t explain your company’s objectives in this context. And for this reason, a company must be able to document its efforts within the green transition.
Companies are meeting demands for a green transition from customers, employees, investors and the authorities,” he said.
An efficient green transition
The remaining participant in the debate, Jens Lundsgaard, also had a relatively favourable opinion of the EU initiatives. He is the deputy director of the OECD Directorate for Science, Technology and Innovation.
Jens Lundsgaard stressed that we should compare benefits and costs. In his opinion, we are pretty good at this, but it is imperative we do so because of the competition we are up against.
”In Denmark, we’ve been good at ensuring the efficiency of the green transition. We’ve brought the markets into play so we’re not just developing green solutions, we’re also making them as cheap as possible,” he said.
From his vantage point at the OECD headquarters in Paris, he has looked into conditions in the burgeoning Chinese electric car industry. The competition is daunting from a European perspective, confirmed Jens Lundsgaard and continued:
”The Chinese have mastered the market economy and are extremely competitive. In the electric vehicle industry, people work from 8 am to 8 pm, six days a week. When we asked Chinese representatives how this harmonises with the balance between welfare and development, the answer was that it’s just the way it is. So China is charging ahead with green technology thanks to government subsidies and an unparalleled working culture. How do we respond to that?”
The road from research to production must be shorter
Jens Lundsgaard points to research and innovation as one area where the EU has raised the bar. Twenty years ago, research and innovation were concentrated in national programmes. These days, the Horizon Europe programmes have set a shared course and ensured increased collaboration across member states.
However, we need to be even better, according to Jens Lundsgaard. When it comes to research and innovation, Europe still has something to learn from the US. Within IT and biotech, Americans have been preeminent at moving knowledge from research labs into industrial applications. Europe may be strong within a number of green technologies, but we need to be better at shortening the road from research to mass production.
“Furthermore, we in Europe could be better at delving into technologies to see which areas will dominate in ten or fifteen years’ time. The US and China also outdo us in terms of having a very targeted approach,” said Jens Lundsgaard.
A key element here can be the courage and willingness to experiment, Jesper Berg added.
”The economy works by experimentation. Someone tries something, sometimes it works, sometimes it doesn’t.
Climate solutions make new demands on diplomacy
The solutions of tomorrow also depend on correctly defining the issues. Jens Lundsgaard provided an example.
”When increasing the number of solar panels, we must ensure that they are placed on the worst farmland rather than on good soil that we still need for food production. This is an issue that requires knowledge, and it is something we can’t expect the EU to do for us – it has to be done at national level,” he said.
It is also important to keep an eye on the world around us, emphasised Helge Sigurd Næss-Schmidt. When you look at the critical raw materials so essential for green technology such as electric cars, solar cells and wind turbines, the supply chain often ends in China.
”We must ask ourselves who we want to work with in the long term. A number of critical minerals and other materials can also be found in Africa. I think both Denmark and Europe could benefit from the fact that we’ve had a presence in Africa for several decades, thanks to our development programmes. It’s crucial that we think of supply chains as an integral part of our climate policy and our diplomacy,” he pointed out.
Threats: Russia and paralysis
The panellists generally agreed that the green transition and climate policy are closely tied to security policy. Just as NASA’s space programme in the 1960s provided manifold civilian technological spin-offs and laid the foundation for Silicon Valley, increased defence spending can also help promote green technology, said Torben Möger Pedersen.
“We’re facing a threat from Russia and less engagement from the US. So we in Europe have to fend for ourselves. This requires increased defence spending, which will mean developing new dual-use technologies that can also be used outside the military,” he said.
The atmosphere remained calm and peaceful, even though the security situation often came up during the discussion. Many topics were discussed from an explorative perspective rather than a polemic one.
However, one topic did elicit some harsh comments – largely with consensus around the table: The focus on hydrogen production and the development of an infrastructure to bring hydrogen to large areas of heavy industry in Northern Germany and the Benelux countries.
The large establishment costs make the first-mover advantages very significant, stressed Brian Vad Mathiesen.
To that, Torben Möger Pedersen added that hydrogen production in the North Sea would only cover part of the overall need.
”I was standing by the German ambassador at one of the CIP Foundation’s meetings at this year’s Folkemødet, and I heard him clearly state that Germany can and will buy all the green hydrogen that Denmark can produce. In the spring of 2022, the Danish prime minister and other heads of state from countries that border the North Sea signed a declaration in Esbjerg on turning the North Sea into Europe’s green powerhouse through a massive deployment of offshore wind capacity in the North Sea. Since then, almost nothing has happened. It’s a real shame,” he said.
No one opposed that stament.
