Draghi Report: more capital intensive to generate competitive energy and decarbonize Europe

Making Europe the first continent free of CO2 "requires synchronizing climate policies with decarbonization plans that expand the capacity of energy companies, boost clean technologies, and shape intensive chains." Mario Draghi's opinion on injecting competitiveness into the EU Green Deal is resounding. Renewable energies must achieve their 'decoupling' from fossil-based sources through long-term contracts that cap the overpricing of gas in electricity bills. In this context, hydrogen corridors and valleys will play a crucial role in the innovative framework that should lead Europe to energy neutrality.

By Ignacio J. Domingo

"Transforming renewable energies into productive chains at the European level requires the mobilization of substantial amounts of public and private capital." It is one of the insights found in the over 400 pages of Mario Draghi's Competitiveness report, commissioned by Ursula von der Leyen at the end of her first term as President of the European Commission. But, certainly, not the only one. The analysis of the former president of the ECB and Prime Minister of Italy also advocates for decoupling renewable and fossil energy sources in order to reduce electricity costs and enhance their appeal to companies amid the global and European reindustrialization process. However, for this decoupling to take place in the electricity mix, the market must establish long-term, reliable "contractual relationships" to mitigate the impact of natural gas on electricity bills. 

Draghi's vision is based on eloquent data. According to his estimates, Europe would need half a trillion euros between 2025 and 2040 to decarbonize its energy-intensive industries—namely, chemicals, steel, non-metallic minerals, and paper—through a specific allocation within the annual investment fund of 800 billion euros (5% of the EU's GDP) that he recommends Brussels create if it wants Europe to gain sufficient innovative strength to compete effectively with the US and China. Essentially, because its productive fabrics have managed to widen the technological gap of the EU in recent times, weakening its productivity and questioning its challenge of becoming the first decarbonized economic space. He even establishes the European Green Deal before 2050, for which its Fit55 requires a 55% reduction in CO2 emissions by 2030.  

The document's philosopher's stone highlights the necessity for the EU's Green Deal objectives to align and work in tandem with the challenges of innovation, reindustrialization, and resilience among its economic agents, particularly companies. 

This is how he justified it during his appearance before the European Parliament to present his report: "We have the highest energy prices and our private sector is subject to electricity that doubles or even triples the bills of competitors like the US and China." Similarly, he added, "the current costs of retail and wholesale gas are priced between three and five times higher than those recorded in the US economy."   

However, Draghi sees the energy transition as an "opportunity." It simply needs to "synchronize all its policies with its climate objectives and align them with the various decarbonization plans and competitiveness processes that must be established to transform them into springboards for the production capacity of its energy companies, propel its transport sectors and clean technologies, and drive intensive value chains in businesses and factories within production segments where achieving net-zero emissions is particularly challenging to meet the goals." 

 The competitive strategy for European energy

Reducing dependency on fossil fuels in the internal market is vital for transforming productivity and, consequently, competitiveness. This can be achieved through cross-cutting measures—such as increased innovation, greater talent absorption, enhanced investments, improved financial and competition regulations, and better governance to minimize bureaucratic burdens and production bottlenecks—along with a series of specific sectoral recipes. This is unavoidable if Europe intends to mitigate its massive gas purchases, the volatility of energy prices, and, specifically, the disproportionate costs of coal, while also marginalizing the influence of these two sources on electricity bills. 

Long-term contracts for renewable sources, as explained by the London law firm Herbert Smith Freehills , are "a solution with a wide scope." These types of agreements "are undervalued" in the sector, yet they could enhance supply guarantees, prevent bottlenecks in energy transport networks, and increase the supply capacity of renewable sources. In summary, the firm's lawyers admit that Draghi's roadmap is headed in the right direction, and his recommendation to release capital intensive "will enhance competitiveness in the energy market, improve its efficiency, and accelerate net-zero CO2 emissions."  

Draghi's proposal to synchronize sustainable policies with climate objectives and decarbonization plans adheres to a pre-established framework by the former head of the European monetary authority. 

• In the gas sector, transforming the electricity market during its transition to energy neutrality, prioritizing consumers as the primary beneficiaries of low and competitive prices.
• In the electric business, accelerating the offer of generation with renewable sources, through the simplification and bureaucratic rationalization of green projects and energy infrastructures. This includes promoting investment in electrification networks to prevent supply disruptions and stimulate economic growth. Additionally, implementing a decoupling within the electricity mix in favor of clean energy and installing CCUS storage facilities for high-tech emission capture for immediate use is essential for facilitating progress toward decarbonization.     
• In terms of governance, the Herbert Smith Freehills team highlights the suggestion of implementing tax rebates for the sector to reduce energy costs, aligning official price relief measures to prevent distortions in the Internal Market while taking decisive steps toward creating an Energy Union. 

At another international law firm, DLA Piper, Draghi's suggestion to reduce fiscal pressure, stimulate innovation, and establish a genuine Energy Union is characterized as "high-level advice." This includes explicit references to hydrogen as a key driver for substantial decarbonization, as well as recognizing the industry as one of the beneficiaries of Power Purchase Agreements (PPAs) for the supply of renewable sources. Or the "regulatory changes" aimed at enhancing efficiency, integration, and centralization of energy within the internal market. At an opportune moment, with five years ahead, a full legislative cycle, to address all aspects simultaneously with a new college of commissioners, where the green agenda and competition policy take priority. Because, as Draghi himself emphasized, the dilemma facing the internal market is clear: "either this [the solutions from the report] or a slow agony [economic]. 

In Hydrogen Europe, an association of companies and investors promoting hydrogen production and consumption in the European Union, , the "transformative nature" of the Draghi report is also acknowledged, as well as the "crucial role" of technology and the emphasis the European leader places on hydrogen in the structural changes Europe will face in the next decade with projects such as infrastructure networks, transportation, hydrogen banks, and the "rationality" of advocating for legislation, mobilizing financial resources, and implementing good governance measures to achieve the decarbonization of the EU economy.

Moeve is committed to this clean source by promoting the Andalusian Green Hydrogen Valley, the largest European project for the generation and production of these sustainable molecules, as well as its maritime corridor that will connect the ports of Algeciras and Rotterdam, creating a significant north-south artery for this renewable energy vector in Europe. This will significantly      reduce      CO2 emissions in maritime transport and industry, among other sectors, while capturing between 15% and 20% of the global energy mix by 2050.

Ignacio J. Domingo has spent most of his 30 years of professional practice analyzing geopolitical, international economic and capital market issues in Expansión and collaborating with media channels such as El Confidencial, Capital, Estrategias de Inversión and El Diario.es, among others. He received the award as a first runner-up for the Citigroup Award, which recognizes the best annual economic reporting.