The Heat is on (and How to Reclaim It): Industrial Symbiosis for Data Centers
3 June 2025
Green Innovation and Competitiveness in a Low-Carbon Economy
6 June 2025
By Eugénie BAUDOT
This essay was recognized as a runner-up in the 2025 Spring Semester Chair’s Essay Competition. The competition, coordinated in partnership with the European Investment Bank, focused on the topic: “Competitiveness in a low-carbon economy: the role of innovation and green technologies in maintaining the competitive advantage.”
As the climate clock is ticking, greenhouse gas emissions are struggling to decline. According to the IPCC, global emissions would need to be reduced by 43% by 2030 compared with 2019 to limit warming to 1.5°C [IPCC 2023]. The EU has committed to achieving carbon neutrality by 2050, with a net reduction of at least 55% by 2030 compared to 1990 [Council of the European Union, 2023]. Despite these commitments, emissions in some sectors, such as transportation, are either stagnant or increasing. However, these sectors are both highly emitting and crucial for the European economy.
This climate challenge is coupled with an uncertain geopolitical context. The Inflation Reduction Act (IRA) adopted by the United States in 2022 injects $370 billion to support green technologies, including electric mobility. However, Donald Trump’s return to the White House has threatened this course, with a withdrawal from climate commitments. This prospect opens up a scenario of a return to laissez-faire climate, where environmental ambitions become optional once again, even as the European Union continues to impose increasingly stringent standards (Bellan, 2025). China, for its part, is pursuing an offensive strategy by massively subsidizing its green industries, enabling players like BYD to flood the international market with low-cost electric vehicles. This asymmetry in public policy accentuates the risk of European industry falling behind the competition.
Furthermore, the Draghi report, submitted to the European Commission in March 2024, warns of this delay in investment in key transition sectors. It points to a risk of loss of industrial attractiveness and strategic dependence if Europe does not react [The Draghi report on EU competitiveness, 2024]. This is particularly true for the transport sector, “responsible for nearly a quarter of Europe’s greenhouse gas emissions” [European Environment Agency, 2021]. The automotive industry, the economic backbone of countries such as Germany and France, employs 13 million people in Europe [European Commission, 2025]. Today, it is weakened by aggressive foreign competition, dependence on critical metals, and the high costs associated with the transition to electric vehicles.
The question is therefore clear: how can we prevent Europe’s climate ambitions from translating into an industrial drain, job losses and a loss of economic sovereignty? This essay will analyze the levers that innovation and green technologies offer to meet this challenge, through the prism of the transport sector.
1. An automotive industry under pressure: Global tensions and European vulnerabilities
Europe has historically been an industrial export powerhouse. In the automotive sector, giants like Volkswagen, Stellantis, and Renault have long dominated global markets. However, today, the situation is changing. In 2023, China became the world’s leading car exporter, particularly in electric vehicles. Supported by the Chinese government, manufacturers like BYD, SAIC, and Geely benefit from massive subsidies for production, research, and exports. The result: their vehicles are arriving in Europe at unbeatable prices. In 2024, Chinese companies accounted for 76% of global EV sales (Hanley, 2024), and nearly 60% of electric vehicles sold in Europe now come from China. This breakthrough is also explained by China’s dominance over supply chains, presenting internal challenges: China controls 70% of the extraction and processing of critical metals (lithium, cobalt, nickel) necessary for batteries (Dasgupta, 2024). “In 2023, 52% of global lithium-ion battery sales were made by Chinese companies” [Le Point, 2024]. This strategic dependency makes the European industry vulnerable to supply disruptions or trade tensions.
At the same time, the IRA in the United States encourages manufacturers to invest locally through generous tax credits and administrative simplification. Several European firms have already announced plans for partial relocation or preferential investment in the US, such as Swedish group Northvolt and German company BASF [Transitions & Energies, 2022]. This dual pressure, from China and the US, creates a significant competitive distortion for European companies, which are subject to demanding climate standards without receiving equivalent public support.
This observation leads us to a conclusion: there is a strong need for innovation in Europe, investment in R&D, detaching from the global value chain (particularly for batteries), and training workers and researchers in strategic locations, with the creation of clusters. Protection mechanisms are also needed to safeguard the industry, preventing relocation and carbon leakage.
2. Green innovation as a competitiveness lever: Investing in strategic technologies
To preserve its competitiveness while meeting its climate goals, Europe must invest heavily in strategic green technologies. The solution lies in the reshoring of critical value chains and the development of integrated industrial sectors.
Several initiatives are moving in this direction. First, the European Battery Alliance, launched in 2017, aims to create a continental battery production sector, from raw material extraction to recycling [European Commission, 2017]. In France, the Douai gigafactory (ACC, a consortium of Stellantis, Mercedes, and Total) symbolizes this ambition (Vermeersch, 2024). In Germany, Northvolt and Volkswagen are investing in local production units (Volkswagen & Northvolt, 2019). The goal is clear: reduce dependence on China and create sustainable industrial jobs.
In addition, because the battery market is characterized by volatile prices [IEA, 2024], it would be interesting to develop solid-state batteries (SSBs) for the next generation of electric vehicles (EVs), which offer significant advantages over traditional lithium-ion batteries (LIBs), including higher energy density, safety (Hughes & Vagg, 2022), and environmental sustainability (Mauger et al., 2019).
Other areas are also strategic, such as clean hydrogen technologies, advanced biofuels, and electric charging infrastructure. The European Investment Bank (EIB) plays a crucial role here by financing innovative projects.
Moreover, innovation also involves the creation of regional technological clusters: ecosystems that bring together businesses, research and training centers, and public and academic institutions. These hubs allow for resource pooling, accelerate R&D, and structure entire industries. The creation of regional clusters in key automotive regions represents a far-reaching strategy aimed at ensuring competitiveness, creating jobs, and mitigating regional disparities, while driving innovation. These clusters would integrate various components, including reskilling centers to upskill displaced workers, fostering a “coalition cascade” (Meckling & Goedeking, 2023) that strengthens support for the green transition. R&D centers would drive technological advancements. These hubs will foster partnerships between private companies and academic institutions, which are key to incentivizing innovation and, therefore, patent creation. Finally, battery manufacturing plants will reduce Europe’s dependency on foreign raw materials while ensuring sustainability through recycling facilities. As battery recycling is another critical element for ensuring sustainability in the EV supply chain, recycling facilities would be established to create a circular economy for essential raw materials such as lithium, cobalt, and nickel. These facilities will reduce Europe’s dependency on foreign raw material supply chains, which are currently dominated by China, and ensure that vital resources are reused within the domestic market.
These clusters could be established in regions historically marked by thermal automotive industries to facilitate the transition. In Germany, Stuttgart, in Baden-Württemberg, and Wolfsburg, in Lower Saxony, are ideal sites for these clusters due to their automotive industrial legacy (Nahm, 2021) and existing infrastructures. For this green industrial policy to be effective, it must be accompanied by support for workers. Training and accompaniment in these regions are essential to avoid territorial divides. A just transition is a key condition for both political and economic success.
3. European tools to protect industry and avoid carbon leakage
Finally, we can conclude by discussing the European tools to protect industry and prevent carbon leakage. Europe has begun to equip itself with protective and incentivizing mechanisms to support its transition. First, the most emblematic is perhaps the Carbon Border Adjustment Mechanism (CBAM), which will gradually come into force from 2026, after a transitional phase, which started in October 2023 (European Commission, 2025). This mechanism aims to tax imports of highly emitting products from countries without equivalent climate regulations. It allows for the protection of European industries while encouraging third countries to adopt stricter standards. However, it faces several implementation challenges today.
Additionally, European climate diplomacy is shifting towards the creation of climate clubs, which are alliances between countries that share the same climate ambitions and commit to avoiding practices of environmental dumping. These clubs can facilitate technological exchanges, industrial cooperation, and the harmonization of standards [Climate Club, n.d.].
Conclusion
Europe cannot afford to choose between climate and industry. If it fails to combine climate ambition with industrial competitiveness, it risks not only losing its geopolitical influence, but also undermining its economic model. On the other hand, a well thought-out green innovation strategy can transform the ecological transition into a real driver of sovereignty, job creation and cohesion. The transport industry, and the automotive sector in particular, illustrates this crucial tension. Faced with growing geopolitical and industrial pressures, notably from China and the US, Europe needs to step up its industrial policies and structure its efforts around the key technologies of tomorrow, such as batteries, and the creation of regional clusters. The European Union has the necessary levers to succeed, but it must use them strategically. The European Investment Bank (EIB), a key player in the field of financing, has a central role to play as a catalyst for this ambitious pact between innovation and the environment.
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