Davos 23: Special Address by Ursula von der Leyen, President of the European Commission

Your role Highnesses, Excellencies, ladies and gentlemen. For one year now Ukraine has stunned the world. On that fatal February morning, many predicted that Kyiv would fall in a matter of days, but this did not account for the morale and physical courage of the Ukrainian people.

Dearest Olena, [First Lady of Ukraine Olena Zelenska, was present in the room] you and your people, have resisted the Russian invasion and pushback against the aggressor against all odds.

Dearest Olena. Not even Russia's severest attacks on civilians that you have described or the brutal winter have shaken your resolve. In this last year, your country has moved the world and has inspired Europe and I can assure you that Europe will always stand with you.

Many doubted whether European support would be so unwavering, but today Ukraine is a candidate country to access the European Union. European countries are providing more and more critical weapons to Ukraine. We are hosting around four million Ukrainians in our cities, our homes and our schools. We have put in place the strongest sanctions ever, which leave the Russian economy facing a decade of regression and its industry starved of any modern and critical technologies. There will be no impunity for these Russian crimes.

And, there will be no letup in our steadfast help for Ukraine and in preparing for the long-term efforts of reconstruction. And to reaffirm that support, we announced yesterday that the European Commission is delivering €3 billion of financial support. This is the first tranche of our €18 billion support package for 2023, the largest ever micro-financial assistance to a Third Country. This is a strong message and this will boast Ukraine's financial security, help to pay wages and ensure the running of hospitals and housing services and schools. I just want to say, my dearest Olena, and I think I can speak on behalf of this hall and this audience, we are in it for as long as it takes and stand by our Ukrainian friends. And Europe's reaction to the war is the latest example of how our Union has pulled together when it matters the most.

A year ago, Europe had a massive dependency on Russian fossil fuels, built over decades. This made us vulnerable to supply squeezes, price hikes and, of course, vulnerable to Vladimir Putin's market manipulation. In less than a year, Europe has overcome this dangerous dependency. We have replaced 80% of Russian pipeline gas. In parallel, we have filled our storage. We reduced our demand by more than 20% in the period from August to November and through a collective effort, we brought down gas prices quicker than anyone expected. From its peak in August, it was €350 per megawatt-hour. Now European natural gas prices have dropped by 80% this month. This is below the levels from before the Ukraine war. Europe has once again shown the power of its collective will.

Nevertheless, we should be under no illusion about how difficult these periods are, first the pandemic and then followed by a war, are for families and businesses. And we will have to show the same resolve as we face up to a collision of crises. Dear Klaus, as your Global Risks Report sets out, we see rising inflation making the cost of living and the cost of doing business more expensive. We see energy being used as a weapon, we see threats of trade wars and the return of confrontational geopolitics. In addition, climate change already comes with a huge cost and we have no time to lose in the transition to a clean economy and that is what I want to speak about.

The Net Zero transformation is already causing huge industrial, economic and geopolitical shifts. By far the quickest and most pronounced in our lifetime. It is changing the nature of work. It is reshaping the nature of our industry. But, we are on the brink of something far greater. Just think, in less than three decades we want to reach Net Zero. In less than three decades we have to reach Net Zero, but reaching Net Zero means developing and using a whole range of new clean technologies across our economy. In transport, buildings, manufacturing and energy.

Maybe of any time and those who develop and manufacture the technology will be the foundation of tomorrow's economy and will have the greatest competitive edge. So, the scale of the opportunity is clear for all to see. International energy agencies estimate that the market for mass-manufactured clean energy tech will be worth around $650 billion a year by 2030. More than triple today's levels. To get ahead of the competition, we need to keep investing and strengthening our industrial base and making Europe more investment and innovation-friendly and that is what investors are looking closely at in the different markets for cleantech.

Here in Europe, we moved first with the European Green Deal to set the path to climate neutrality by 2050. We've carved our Net Zero targets into law to provide the predictability and transparency that businesses need. We followed up with our information innovations and investment. This is an unprecedented investment in clean technology across all sectors of the green transition. Cleantech is now the fastest-growing investment sector in Europe, doubling its value between 2020 and 2021 alone. And the good news for the planet is that other major economies are also stepping up.

Japan's green transformation plan aims to help raise up to 20 trillion yen, around €140 billion, through green transition bonds. India has put forward the production-linked incentive scheme to enhance competitiveness in sectors such as solar and batteries. The United Kingdom, Canada and many others have put forward their investment plans in cleantech and, of course, we have seen the Inflation Reduction Act in the United States. The $369 billion cleantech investment plan. That means that together the European and the United States alone are putting forward almost €1 trillion to accelerate the clean energy economy.

This has the potential to massively boost the path to climate neutrality, but it is no secret that certain elements of the design of the Inflation Reduction Act raised a number of concerns in terms of some of the targeted incentives for companies. So, this is why we have been working with our United States friends to find solutions. For example, so that EU companies and EU-made electric cars can also benefit from the Inflation Reduction Act. Our aim should be to avoid disruptions in transatlantic trade and investment. We should ensure that our respective incentive programmes are fair and mutually reinforced and we should also set out how we can jointly benefit from this massive investment. For example, by creating economies of scale across the Atlantic, offsetting common standards. At the heart of the joint vision is our conviction that competition and trade are the keys to speeding up cleantech and climate neutrality.

That means we Europeans also need to get better at nurturing our own cleantech industry. We know that we have a small window to invest in clean energy and innovation and cleantech before the fossil fuel economy becomes obsolete. So, we have an industry at the moment being challenged by the pandemic. Supply-chain issues and price shocks. We see aggressive attempts to attract our industrial capacities away to China and elsewhere. We have a compelling need to make this Net Zero transition without creating new dependencies. We have learnt our lessons from fossil fuels and we know that future investment decisions will be taken now, depending on what we do today. We Europeans have a plan. A Green Deal Industrial plan. Our plan is to make Europe the home of cleantech and industrial innovation on the road to Net Zero. Our Green Deal Industrial Plan will be covering four different pillars: the regulatory environment; financing; skills; and trade.

The first pillar is about speed and access. We need to create a regulatory environment that allows us to scale up fast and to create conducive conditions for sectors crucial to reach the Net Zero goal that we have set ourselves. This includes, for example, wind, heat pumps, solar, clean hydrogen, storage and other topics, for which demand is boosted by our next-generation EU and repower EU investments.

To help make this happen, we will put forward a new Net Zero industry act. The new Net Zero Industry Act will identify clear goals for European cleantech by 2030 and the aim will be to focus investment on strategic projects along the entire supply chain. We will especially look at how to simplify and fast-track the permitting of projects for cleantech production sites.

In parallel to this Net Zero industry act, we will reflect on how to make important projects of common European interests faster to process, easier to fund and simpler to access for small and medium enterprises and for all our member states. The Net-Zero industry Act will go hand-in-hand with the Critical Raw Materials Act. For rare earth, which are vital for manufacturing key techologies, like wind power generation and hydrogen storage. Europe is today 98% dependent on one country. China. With just three countries accounting for more than 90% of lithium production, the entire supply chain has become incredibly tight. This has pushed up prices and threatened competitiveness.

We need to improve the refining of raw materials in Europe and in parallel, we will work with our trade partners to cooperate on sourcing production and processing to overcome the existing monopoly. To do this, we can build a critical raw materials club working with like-minded partners from the United States to the Ukraine to collectively strengthen supply chains and diversify away from a single monopoly. This is pillar one, speed and access through the Net Zero Industry Act. The industrial plan will boost investment in cleantech production to keep European industry attractive and there is a need to be competitive with offers and incentives that are currently available outside the European Union. This is why we will propose to temporarily adapt our state aid rules to speed up and simplify them. Easier calculation, simple procedures, accelerated approvals. Simple tax break models. And with targeted aid, for production facilities and strategic cleantech value chains, to counter relocation risks of foreign subsidies. We also know that state aid will only be a limited solution that only a few member states can use.

To avoid fragmenting the Single Market and to support the cleantech transition across the union, we must also step up EU funding. In the medium term, we will prepare a European sovereignty fund as part of the mid-term review of the budget this year. This will provide a structural solution to boost resources available for extreme research innovation and strategic industrial projects, but as this will take time, we will look at a bridging solution which is most needed to provide fast and targeted support. And to support this, we are working hard on a needs assessment.

The second pillar is funding and state aid. The third pillar of the Green Deal Industrial Plan is developing the skills to make this transition happen. The best transition is only as good as the skilled workers that can operate it. With the huge growth in new technologies, we will need a huge growth in skills and skilled workers in the sector. This cuts across all we do and will be the priority of our European year of skills.

The fourth pillar will be to facilitate open and fair trade to the benefit of all. For cleantech to deliver Net Zero globally, there will be a need for strong and resilient supply chains. Our economies will rely evermore on international trade as the transition speeds up to open up more markets and to access what is needed for the industry. We need an ambitious trade agenda, including by making the most out of the existing trade agreements, for example with Canada or the United Kingdom, with which we are trying hard to sort out our difficulties. We are working on concluding agreements with Mexico, New Zealand and Australia and making progress in Indonesia.

And, we need to restart the conversation regarding the agreement. International trade is key to helping our industry cut costs, create jobs and develop new products. But by the same token, where trade is not fair we must respond more robustly. China has made boosting cleantech innovation and manufacturing a key priority of its five-year plan. That's good. It dominates global production secotrs like electric vehicles and solar panels which are essential for the transition, but competition on Net Zero must be based on a level playing field. China has been openly encouraging energy-intensive companies in Europe and elsewhere to relocate all or part of their production. They do so with the promise of cheap energy, low labour costs and a unique regulatory environment and, at the same time, China heavily subsidises the industry and restricts access to its market for European Union countries.

We still need to work and trade with China, especially when it comes to this transition. SO, we need to refocus our approach on de-risking, rather than decoupling. This means using all our tools to deal with unfair practices, including the new foreign subsidies regulation and we won't hesitate to open investigations if we feel that our procurement of other markets is being distorted by such subsidies. We want to cooperate and work together. Climate change needs a global approach, but it must be a fair approach and a level playing field.

Ladies and gentlemen, the story of the cleantech economy is still being written. Over the years I have been coming to Davos I have heard many times that we are on the cusp of a period of creative destruction, that the idea that new innovation and old tech is replaced and leaves the old industry and jumps behind. In many ways, this dynamic applies to the cleantech revolution of today and tomorrow, but I believe if Europe gets it right the story of a cleantech economy can be one of creative construction with the right support and incentives for companies to innovate. With the right focus on skills and people. With the right environment to make the most out of our world-leading innovation capacity. Europe has everything. Talent, research, industrial capacity, investment. Europe has a plan for the future. And this is why I believe the story of the cleantech economy will be written in Europe. Thank you very much.