Ursula von der Leyen – 2022 Speech at the College of Europe in Bruges

The speech made by Ursula von der Leyen, the President of the European Commission, on 4 December 2022.

Dear students of the Sassoli promotion,

Dear young diplomats,

Dear Federica,

Thank you so much for inviting me. And let me thank you also for what you are doing here in Bruges. When we first met – you were the High Representative, I was the German Defence Minister – there was something that struck me about you. Besides the day-to-day crisis management, you always tried to focus on long-term, strategic thinking. You always thought that Europe needed a common strategic culture, and that is why you came up with the idea of a global strategy. It was a process to help a European strategic thinking emerge and it led to very practical steps towards a common European defence. Now you are doing the same here in Bruges, with young men and women from across Europe and with young diplomats from all Member States and beyond. And I want to start by congratulating you, and all participants in this pilot of the European Diplomatic Academy. You are the future of European foreign policy.

And we need that strategic thinking more than ever. Because difficult times lead to difficult questions. What is Europe’s strategic goal? What should our economy look like in the 2030s, and beyond? What is our growth strategy? What are the challenges to address in the short, mid and long term? The one common feature in answering all of those questions is without any doubt climate change. Its consequences will come in all shapes and forms. It is the most existential issue we all face. This is why Europe has a clear roadmap for this challenge. It is called the European Green Deal – and it is our growth strategy. And when we set off, we knew that the road would not always be smooth. That as the global setting around us constantly changed, we would have to constantly adapt to stay the course. But we did not know just how bumpy it would be. We had a pandemic with after-shocks that are still being felt around the world. Russia has unleashed an unprovoked, unjustified war of aggression against Ukraine. The spill-over effects are global – from energy security to redrawing global diplomacy. And in parallel, we are now confronted with an intensifying global clean tech race. In tackling all these new challenges, we always have to keep in mind the direction of our travel. It is towards a thriving, clean and competitive European economy. This is what I would like to talk about today.

And to do that I would first like to zoom out for a moment, and bring you back in time by a few years. Exactly three years ago, we launched the European Green Deal. It was the very beginning of my mandate as President of the European Commission. And we decided that our first priority would be to decarbonise and digitalise the European economy. I called it our ‘man on the Moon’ moment. And it really was a moon-shot. We were the first global power to set a path toward net-zero emissions and to make it legally binding. We had in the US an administration in place that did not believe that humans caused climate change and announced to pull out of the Paris agreement. China was investing heavily in coal. And Europe emerged as a global front-runner. We said: Let us not wait to do what is right. Let us invest today in the clean technologies of tomorrow. Because eventually, all advanced and emerging economies will embark on the same journey.

And we have stayed the course ever since. This has given certainty to industry and investors on the direction of travel. We have cast our goals into our first ever Climate Law. When the pandemic hit, we created NextGenerationEU not only to power the recovery but also, to accelerate digitalisation and the European Green Deal. Almost half of NextGenerationEU contributes to our wider climate objectives. We developed the legal framework to cut emissions by at least 55% by 2030. And in parallel, we have worked with industry in strategic fields, from joint European projects on batteries or hydrogen, to the European Chips Act. Europe has become the global hub of investment for clean tech and decarbonisation.

If you fast forward to today, there is some positive news. Europe is no longer alone in the fight against climate change. When President Biden came into office, one of his first decisions was to re-join the Paris agreement. Now the US has taken the next step and passed the Inflation Reduction Act and the Bipartisan Infrastructure Law. The IRA – as it is called – is an investment plan of roughly USD 369 billion to build up a new industrial ecosystem in strategic clean energy sectors. There is a striking symmetry between the Inflation Reduction Act and the European Green Deal. Both of them are simultaneously a climate strategy, and a strategy for investment and growth. Both of them include funding for a just transition, and both include regulatory standards. The two biggest and most advanced economies in the world are now moving in the same direction. The US relies on investment and regulatory standards – while the EU relies on a combination of investment and regulatory standards – and carbon pricing. Two continent-sized powers are modernising their economies by investing close to EUR 1 trillion and addressing together the biggest challenge of our times. And this is so important. It is not only a positive signal for the planet, but also for global investors.

Yet, the Inflation Reduction Act is also raising concerns here in Europe, against a very particular backdrop for our industry and economy. First, COVID-19 has exacerbated bottlenecks in many critical supply chains. The European industry has been carefully trying to fix the weak links of these chains, and make them more resilient, but this has come at a cost. Second, global energy supply is tight because of Russia’s war of aggression. Russia has cut 80% of its pipeline-gas supply to Europe in only eight months. But we have been able to compensate. Something that is truly remarkable, and that many deemed impossible. There have not only been no blackouts in Europe, but we also managed to fill our gas storages by roughly 96%. We are safe for the winter. But this comes at the cost of higher energy prices. And all of this affects the competitiveness of many European industries – especially energy intensive sectors of our economy.

It is against this backdrop that the Inflation Reduction Act has received so much additional scrutiny in Europe, but also in the rest of the world. There is a risk that the IRA can lead to unfair competition, could close markets, and fragment the very same critical supply chains that have already been tested by COVID-19. We need to look at these issues closely – and at the same time learn what we could also do better. And in doing so, we need to look at three aspects that are particularly challenging: First, the ‘Buy American’ logic that underpins part of the IRA. Second, tax breaks that could lead to discrimination. And third, production subsidies that could lead to a subsidies race. It sounds technical, but it is easier to understand with an example. If you are a consumer in the United States, you get a tax break when you buy electric vehicles, EVs, if they were manufactured in North America. And if you are a battery producer for those same electric vehicles, you get a tax break if you produce in the US. This means that a car manufacturer gets a double benefit for producing in North America and buying parts in the US. What is more, this could also attract critical components and raw materials towards the US, and away from transatlantic supply chains. This creates of course an attractive investment environment on clean tech in the US. But we already see how this could also affect Europe’s own clean tech base by redirecting investment flows. We have all heard the stories of producers that are considering to relocate future investment from Europe to the US.

Now, let me be clear: competition is good. It drives innovation, enhances efficiency and ensures progress. And in doing so it brings down prices for clean technologies. Competition between Europe and the United States can push both our industries to excel, to innovate, and to transform faster. This is why I believe in the need to invest into two clean energy industrial bases on both sides of the Atlantic. Not only will we create the well-paid jobs of the future both in Europe and in the US, we will also drive down costs for clean energy technologies globally. Together, we can make clean energy more affordable worldwide. And by doing so, we will also help decarbonise other economies, and drive a just transition. But: this competition must respect a level-playing field. That is why it is so critical, that the technology competition between the EU and the US is a race to the top for our industries on both sides of the Atlantic. And I am confident that Europe is in a strong position, to compete on global markets and develop the clean technologies of tomorrow.

But will this be enough to keep up in the clean tech race? And to strengthen our industrial base do we need to do more to accelerate the transition? Yes, if we are competing on a level playing field. But we must also take action to rebalance the playing field where the IRA or other measures create distortions. In other words: We need to do our homework in Europe and at the same time work with the US to mitigate competitive disadvantages. I see three main ways to do so. First, we have to adjust our own rules to facilitate public investments into the transition. Second, we have to re-assess the need for further European funding of the transition. Third, we have to work with the United States to address some of the most concerning aspects of the law.

To my first point. We have to adjust our own rules to make it easier for public investments to power the transition. State aid is a tried and tested tool here in Europe to incentivise business activities for the public interest. Last summer, for instance, we approved EUR 5.4 billion in state aid for the hydrogen value chain, under one of our IPCEIs. These public investments will benefit 35 companies from 15 Member States, from Portugal to Denmark, from Finland to Italy. They will help bring new technologies from the laboratory to the factory, for hydrogen production, for storage and for hydrogen-powered trucks, trains and ships. It is one of many examples of our state aid policy at the service of clean tech.

Yet, the Inflation Reduction Act should make us reflect on how we can improve our state aid frameworks, and adapt them to a new global environment. First, we must look at how we can make our frameworks more predictable and simple. Europe has built a very sophisticated system. But businesses today want simple and predictable rules. We have built a very precise system. But businesses today want state aid rules to be predictable, above all. We are very careful to avoid distortions in our Single Market. But we must also be responsive to the increasing global competition on clean tech. If you look at the IRA, it invests right along the value chain in some strategic sectors. But this is not always the case for our state aid. Our Important Projects of Common European, IPCEIs, for instance, aim to bring breakthrough technologies from the laboratory to their first industrial deployment. But we will also take a fresh look at how we support the whole value chain, down to the mass production of the most strategic green-tech solutions and clean end-products, including through public investment. Our state aid frameworks exist to preserve our precious Single Market. But if investments in strategic sectors leak away from Europe, this would only undermine the Single Market. And that is why we are now reflecting on how to simplify and adapt our state aid rules.

My second point has to do with complementary European funding. While it is critical that Member States have the flexibility to invest their budgets in strategic sectors, this approach cannot be self-standing. As such it would favour deep-pocket states and lead to distortions that would eventually undermine the Single Market. Thus, we also need a common European answer to the challenge – both in the short and the mid term. In the short term, we have to bridge the difficult time of transition for our SMEs and industries towards cheaper and renewable energy all across the EU. REPowerEU is our tool for that. REPowerEU invests in energy efficiency, in renewable energy and in infrastructure to integrate the Energy Union. And REPowerEU will massively speed up the permitting process for renewable energy projects. We are now working on boosting REPowerEU. REPowerEU also needs greater firepower to accelerate the clean transition. However, we also need to think beyond ad hoc solutions. The new assertive industrial policy of our competitors requires a structural answer. In my State of the Union address, I introduced the idea of establishing a sovereignty fund. The logic behind is simple: a common European industrial policy requires common European funding. The goal of our European industrial policy is for European industry to be the leaders in the clean transition. This means over the mid term beefing up the resources available for upstream research, innovation and strategic projects at the EU level. This means on one hand new and additional funding at the EU level. And on the other hand, higher level of policy coordination, like hydrogen, semiconductors, quantum computing, AI and biotechnology.

On my final point: cooperation instead of confrontation. We are working closely with the Biden administration on how to jointly strengthen our clean energy industrial bases. Let me go back to the example I gave you earlier: electrical vehicles or EVs. In Europe, we have just agreed to phase out the combustion engine by 2035. This means, new vehicles sold after 2035 will be exclusively electric. Similar regulatory commitments exist in the United States. And at the same time, China is subsidising massively this sector. So we, the US and the EU, have a vast common interest to preserve our industrial leadership. This will require fundamental changes in the automobile industry. It will require significant private and public investments in innovation, infrastructure, supply chains and raw materials on both sides of the Atlantic. But it is not just about investment – it is also about setting standards and joining forces where it makes sense. Take for example the charging infrastructure for EVs: if Europe and the United States agree on common standards, we will shape global standards and not leave it to others. Or take critical raw materials for clean tech: Today, the production and processing of some of these critical raw materials are controlled by one single country, China. Europe and the US can build an alternative to this monopoly by establishing a critical raw materials club. The idea behind it is simple: Cooperation with partners and allies on sourcing, on production and on the processing gives us the ability to overcome the monopoly. These two examples of standards and raw materials give you an idea on what we are working on with the White House for the here and now.

Finally, all this should be seen in a wider context. So let us zoom out again and focus on the bigger picture. An aggressive Russia is threatening our democracies and blackmailing us with our dependency on fossil fuel energy. An increasingly assertive China is cultivating dependencies in all continents, to project power for its own interests. But by contrast, look at what the US and Europe can achieve if we join forces. Take Ukraine. Think about the immense impact of our sanctions. Think how much support we have mobilised, from our countries and the world, to help Ukraine in the last nine months. Look at us joining forces to dry out Russia’s war chest by introducing an oil price cap. Since the end of the Cold War, never has transatlantic cooperation been closer than in those last two years. We have ended long-standing disputes, on steel tariffs, on Airbus-Boeing, on securing data flows. We have created a Tech and Trade Council to cooperate on tech and trade matters. We have set up a Task Force on European Energy Security that led to additional deliveries of 15 bcm of LNG this year. In the first half of 2022, the US supplied more than three-quarters of the EU’s additional needs. And on climate, we have brought together over 100 countries to sign the Global Methane Pledge – a commitment to cut global methane emissions by 30% in this decade. This is the power of transatlantic partnership.

Dear students, Ladies and Gentlemen,

This is my message to you as you embark on this journey at the European Diplomatic Academy. There will always be times where new challenges emerge and old tensions rise back to the surface. This can be the case with rivals and competitors or even with our oldest and closest partners. But as you will learn in this next year, Europe always looks for solutions – crafted by cooperation, designed by diplomacy. Of course, Europe will always do what is right for Europe. So yes, the EU will respond in an adequate and well calibrated manner to the IRA. But does this mean that we will engage in a costly trade war with the United States in the middle of an actual war? This is not in our interest. Nor in the interest of the Americans. And it would harm global innovation, too. That is why we have to work so hard in Europe and the US now to address the distortions. The last two years, the EU and the US have shown that we are stronger individually when we stand together collectively. When we focus on what binds us – our values and friendship, our belief in fair competition and open markets and our commitment to the rules-based order. For friends like us, competition and cooperation can be two faces of the same coin. Let us strengthen clean investment on both sides of the Atlantic. Let us do it for our people, for our industries, for affordable clean energy worldwide, and for the sake of our planet.

Long live Europe.