European competitiveness in the energy transition

Robert Schuman, one of the architects of European integration, was among the first to recognise that Europe’s peace and prosperity is tied to its energy policies. His proposal for a European Coal and Steel Community powered the continent’s post-war recovery and laid the foundations for modern Europe.

More than half a century later, the Green Deal set the framework for the EU to become the world’s first climate neutral continent, which Shell supported, and to kick-start investments in the energy transition. Good progress has been made.

Boosting the EU’s competitiveness in the energy transition

As the EU enters a new legislative cycle, the tasks facing policymakers remain demanding. The return of war to the continent has brought energy security back into sharp focus. At the same time, Europe remains rightly determined to realise its ambition to become climate-neutral by 2050.

Crucially, success in both areas requires a significant boost to the EU’s competitiveness in the energy transition. Since becoming CEO of Shell plc at the start of 2023, I’ve been encouraged by how more and more policymakers recognise this. To make Europe’s energy transition and net-zero ambitions a reality, the EU must not only be bold in its choices but be bold in their execution too. This would allow companies to accelerate the investments needed for the EU energy transition to become an economic growth strategy. 

Three areas in particular require urgent attention: expanding electrification, addressing the green premium and infrastructure needs for the uptake of low-carbon solutions in hard-to-abate sectors, and ensuring energy security.

Expanding electrification

Take the first of these: electrification. There is no pathway to net zero that does not require electrifying even more of the economy, using mainly renewable energy sources. But today electricity only accounts for around a third of the EU’s industrial energy consumption, and just a quarter of household energy consumption.

Expanding electrification can help cut emissions in almost every part of our lives, and will make the most difference in European homes, cars and factories. To achieve this, Europe must build on the best of the single market and strengthen the energy union, by making it easier for member states to share renewable energy like wind and solar power across borders. The European electricity market is a major competitive edge for the EU and has proved a strong lever in responding to the recent energy crisis.

Cross-border energy infrastructure planning and anticipatory investments must be prioritised to scale the market and attract more investment. This is critical to ensure energy resilience and make the most of energy transition investments.

The second area that needs urgent action is creating the business case for pioneering solutions such as hydrogen, carbon capture and storage (CCS) or low-carbon fuels such as sustainable aviation fuels. First-of-a-kind projects need a stronger policy push to deliver returns on investment and markets where industry can see a competitive advantage linked to being early adopters. Bolstering the business case for low-carbon energy solutions will help address green premiums, especially in hard-to-abate transport and industry sectors.

Today, Europe is a prime destination for investment in renewables and low-carbon energy solutions. At Shell, recent investments have included a rapidly growing e-mobility network across the EU; Nature Energy, Europe’s largest biogas producer; and our recent investment decisions on two of the largest renewable hydrogen plants in Europe: a 100 MW electrolyser in Germany, and a 200 MW electrolyser in the Netherlands, currently under construction. Shell is also investing in Northern Lights, the world’s first open-source CCS project below the North Sea. But challenges – from technology derisking to policy uncertainty, slow market demand and oversupply of cheaper alternatives – have also made us reset, delay or exit other projects after significant effort and spend. For example, we have paused the construction of one of our major biofuel projects to enhance its commercial viability, while also taking account of evolving market conditions.

Between 2023 and the end of 2025, Shell is investing some $10 to 15 billion in low-carbon energy solutions globally. A more conducive investment environment, based on improved enabling conditions would help attract capital, including from Shell, to scale up technologies like low-carbon fuels, hydrogen and CCS. The upcoming EU Clean Industrial Plan presents a unique opportunity for a closer dialogue with industry about additional measures to drive demand for low-carbon solutions, such as greater transparency on the carbon footprint of products, sectoral mandates or standards, and financial de-risking.

Some of the technology needed for deep decarbonisation takes between 10 and 15 years to develop. Given these timeframes, and the urgency of the energy transition, the regulations that companies rely on must be swifter and smarter. A fast and harmonised implementation of the EU’s Fit for 55 (FF55) across all member states could help the EU become the global leader in some of the most innovative environmentally friendly technologies. However, I am concerned about early examples of fragmentation and delays that could risk the rollout of pioneering energy transition projects.

When infrastructure projects are integrated, they can have a multiplier effect on industry’s energy transition. Hydrogen ramp-up and CCS must be preceded by infrastructure, due to long planning times for infrastructure construction and to connect industries immediately.

The third focus must be on energy security. The ability to import gas quickly from global markets – particularly in the form of LNG – played an indispensable role in keeping the lights on in Europe through the winter of 2022/23.

Europe’s response to the energy crisis was overall a success story. However, there is no doubt that it was detrimental to Europe’s competitiveness. In practice, a significant proportion of reduced demand for gas was a result of factory closures and the relocation of production to regions of abundant energy supply, like North America. Even today, only around half of that demand has returned, indicating a lack of confidence in competitive energy supplies.

European natural gas demand has started to decline, but gas will retain an essential role as a dependable energy source as the energy system ramps up low-carbon solutions. But many might be surprised by the extent our energy system is exposed to geopolitical risks and seasonal fluctuations. For example, in 2022 the rainy season in Brazil meant the country could produce more hydropower, with a knock-on effect that LNG bound for Brazil could be redirected to Europe. In future, winter shortfalls of solar or droughts affecting hydropower could have the opposite effect.

LNG is the only technology that can currently compensate for such fluctuations on a global scale. I have no doubt that stationary batteries and smart charging will play a vital role in the energy transition – and Shell is developing both. But the reality today is that a single LNG tanker carries as much energy as 20 million electric car batteries.

The EU must be more forward-looking in how it buys and uses gas, making the most of the size of its market. This would involve recognising the importance of long-term LNG contracts – which protect against being beholden to volatile prices – to the continent and leading the way in helping to lower the greenhouse gas footprint of gas use. If it does, Europe will remain an attractive destination for global gas supplies and see its energy security significantly strengthened.

Beyond security of supply, the EU, as well as companies like Shell, must also continue to drive down emissions of methane – a potent greenhouse gas – from the production and processing of natural gas and oil. We are proud to have led industry’s support for a strong international dimension in the EU’s flagship new Methane Regulation. The EU can lead the way in driving down emissions by effectively applying the new rules across the single market and beyond.

Bold action and bold implementation

Without even bolder action and implementation, Europe risks falling behind. Schuman’s successors must reaffirm the pivotal role of energy for Europe’s success – and draw on the industry expertise and experience available to them in the region. By proactively tackling the challenges of the energy transition, the EU’s competitiveness, and its energy security together, Europe has a better chance of making progress. At Shell, we are ready to play our part in helping to shape a climate-neutral, more competitive, and more secure Europe.

This article was originally published on Euractiv