In response to an increasingly complex and turbulent geopolitical landscape, the European Commission has released a new joint communication on Strengthening EU economic security, which focuses on mitigating risks related to the “targeted use of economic tools” by foreign powers.
The EU is right to take a more proactive approach to defending its interests and tackling near-term risks. But the new communication does not give sufficient attention to how increasing climate-related risks will further damage the EU’s economic security interests, or how the proposed risk mitigation strategies might impact Europe’s decarbonisation pathway. A more comprehensive approach to economic security must look longer term and consider the role of climate security in building a resilient future economy.
Why climate security is central to economic security
Climate change is a risk multiplier for the global economy. Its impacts will continue to damage critical infrastructure, jeopardise food and water security, and create wider financial instability. Not only does this instability pose an inherent risk to economic security, but as climate impacts worsen, the EU will also be exposed to new supply chain vulnerabilities which could be leveraged by hostile states.
The same logic applies to the role of decarbonisation in maximising economic security benefits. Accelerating the deployment of renewable power bolsters energy security, and the promotion of circular value chains will further reduce import dependencies to secure stable access to key transition inputs. Collaborating with international partners to facilitate the transfer of clean technologies across borders will be an increasing driver of trade diversification as the global transition accelerates.
It is therefore in the EU’s long-term interest to prioritise economic security tools with joint climate benefits and ensure that short-term responses to coercive risks do not undermine future climate action. Strengthening the global clean economy should be a key component of the EU’s approach to economic security.
Assessing the EU’s new approach through a climate lens
E3G has assessed the Commission’s latest announcement against the three pillars of the 2023 European Economic Security Strategy, with a focus on how the newly proposed economic security measures could also support the EU’s decarbonisation objectives.
Promoting:
- The RESourceEU Action Plan, the first flagship proposal under the new Economic Security Communication, supports the competitiveness and resilience of the EU’s low-carbon economy by putting forward ambitious measures on securing the supply of critical raw materials needed for the transition. Incorporating circularity as a “central enabler” of these efforts, such as developing a secondary market for resource recycling, will mitigate the EU’s import dependencies and safeguard the transition.
- Further analysis is needed to identify strategic sectors where the EU should increase domestic production of clean technologies, beyond boosting supply chain security for critical raw materials. The Commission should build on the recommendations in the Draghi report on EU competitiveness to identify priority sectors and outline the tools needed to promote them. This would put the EU on the front foot to boost preparedness as the economic security and global energy transition landscape continues to evolve.
Protecting:
- Remarks by Commissioner Šefčovič rightly acknowledge that “openness without security becomes vulnerability”. With the growing weaponisation of trade and clean technology supply chains under increasing pressure, the EU’s focus on countering economic coercion by hostile states will be a key tool for reducing vulnerabilities and defending the resilience of the clean economy.
- However, the recent Communication fails to acknowledge that restricting imports and investment flows could slow the speed and increase the cost of the low-carbon transition. New guidelines being developed on foreign direct investment (FDI) screening should balance the benefits of protecting critical infrastructure against the costs of delaying clean tech project financing. Additional analysis to identify which infrastructure or tech components are at highest risk (e.g. dual use technologies or materials) would support a more strategic application of these guidelines.
Partnering:
- Trade is at the core of the recent rise in economic security tensions, but it is also a key tool for growing a resilient clean economy. The new communication takes a balanced approach to preserving trade openness with trusted partners while also reducing high-risk dependencies that can affect the green transition. But these objectives could become increasingly difficult for the EU to balance as economic security threats increase.
- The Commission could advance this agenda by accelerating its push to forge new bilateral partnerships focused on growing clean sectors and diversifying value chains. For example, economic security could be assessed as a key metric when identifying potential trade partners. The recent clean trade and investment partnership (CTIP) signed with South Africa “brings together competitiveness and climate action” but does not have a focus on strengthening joint economic security. Critically, the European Commission needs to ensure that a sufficient level of EU funding is available through CTIPs to deliver an attractive offer to partner countries.
These steps would futureproof the Commission’s approach to economic security by looking beyond near-term risks towards the longer-term security threat posed by climate change. Protecting and growing a resilient clean economy must not be sidelined in Europe’s pursuit of economic security.
