The EU has its sights set on becoming the world’s green digital leader, with European Commission president Ursula von der Leyen last year declaring the next ten years to the bloc’s “digital decade”. Indeed, the EU's flagship initiative aiming to create the world's first climate-neutral continent – the European Green Deal – recognises that the clean energy and digital transitions are closely linked.
We have been discussing the question of how this will accomplished at length at this year’s World Economic Forum (WEF) gathering in Davos, Switzerland. Here are some early insights.
One, Europe is in an excellent position to achieve its goal of becoming a green digital leader. Representing 9% of the world’s emissions, the EU’s role will be to inspire through action, demonstrating how the transition can be fast, secure, and economically prosperous.
With the EU as the world's largest single market, it has significant leverage to drive digital and energy transitions. The cooperative spirit among the individual states that has been evidenced in its ability to cope with the concurrent energy, climate and food crises that are currently gripping the planet – and most recently uniting quickly in the face of Russian aggression in Ukraine – bode well for success here
There is incentive for the continent too. Becoming a green digital leader through the European Green Deal will bring enormous benefits. A carbon-neutral Europe will mean cleaner air, more efficient buildings and low-emission energy. Harnessing the digital transition and aligning it with the energy transition will supercharge these efforts in the transition to net-zero.
Two, we must think innovatively. Two quotes from a WEF session in Davos entitled Energy Outlook: Overcoming the Crisis.
“Deep decarbonisation is not possible without digital”: Zoe Yujnovich, Shell’s upstream director.
“There is no green without digital”: José María Álvarez-Pallete López, CEO of Telefónica.
The next steps vitally needed are a shift in mentality and the courage to embrace disruptive technologies vital in the transition to net-zero, at scale and pace
These assertions underscore the argument that green transitions need to be interlinked with technological innovation to be fast and scalable.
Globally, if we are to transition to net-zero by 2050, we need to grow our renewable energy deployment exponentially. The International Energy Agency estimates that to achieve net-zero, the rate at which renewable energy capacity is added must increase from 134GW a year in 2020 to 630 GW a year in 2030. If we take offshore wind as an example, 95% of the offshore wind capacity required to hit the 2050 net-zero target is yet to be built, and the industry must reduce its levelised cost of electricity by 60% if it is to hit net-zero targets.
This explosive growth is crying out for digital innovation. The possibilities are endless, with – for one example – the rapid advancements in digital twinning. Such technology can create a powerful innovation curve in the offshore wind industry by creating leaner, more efficient and innovative designs. The digital feedback loop provided by this technology allows for improvements to the design and operations of wind turbines, which in turn lead to lower costs, shorter timeframes to design and build wind capacity, and therefore increased renewable energy adoption.
Such acceleration in all renewables would allow Europe to move from a precarious position of dependence on Russian oil and gas to one of diverse, locally-produced renewable energy. Diversity of production, including a diversity of technology stacks, is also being raised as a significant concern by several European ministers in Davos.
Three, to build a better future, we have to imagine it first. As a senior European official put it at the Europe’s Global Role session earlier this week, “what is hurting us is a lack of imagination”.
Currently, Europe is wedded to state-driven incremental innovation, which has served it well. However, with rapid expansion of renewables needed, European companies must be encouraged to be imaginative and embrace regular strategic shifts in innovation curves to grow at a quicker pace.
It would be wise to look at Tesla for inspiration. The US car company revolutionised the automotive industry by embracing disruptive technologies and being bold on innovation, with their core mission of electrification and on any front where they could achieve significant cost reduction. For instance, Tesla innovated on electric cars, charging, and autonomous driving. The company was also the first adopter of the gigapress technology made by the Italian company IDRA group, which has gone on to revolutionise its manufacturing process.
It is clear that meticulous incremental innovation – Europe's mantra for so long – will not win the race, even in their core competency space. We must urgently accelerate the energy transition, and embracing innovation will supercharge it. Unfortunately, there are signs that Europe is currently falling behind innovation trends critical to the transition. For instance, the EU lags behind China and the United States in creating and deploying energy storage technologies, and the European offshore wind industry is now falling behind China.
Four, a shift in mindset will be mandatory. A change in mentality is fundamental if Europe is to become the green digital leader it strives to be. A culture of disruptive innovation must take hold. Europe must implement extra measures to accelerate the transition as this change happens.
The EU should look to invest heavily in digital solutions that it can deploy to accelerate the greening of its economy. Progress has been made in this direction most recently with the commitment in May to the REPowerEU plan to accelerate the deployment of green hydrogen technology. However, more must be done, and quickly. Creating a European version of the First Movers Coalition – a global coalition of companies dedicated to using their purchasing power and supply chains to develop early markets for clean energy technologies and bring them to market by 2030 – would speed up such investment and deployment.
Regulators also have a role to play by being careful not to regulate the renewables industry to the detriment of the energy transition. For instance, it would be wise to not too heavily regulate the offshore wind industry, where the priority must be fast build and deployment. Regulation, carries the systemic risk of getting the industry stuck on old innovation curves.
Renewable energy companies must be encouraged to share data as much as possible to grow the industry. In the case of offshore wind, OEMs are often reluctant to share data due to the desire to protect intellectual property). While understandable, they could share data on system behaviour while protecting design data. This would allow the ecosystem to develop pioneering solutions, speeding up adoption.
Let’s be painfully plain: we are amid energy, food and cost of living crises that have squeezed the living standards of millions across the continent. European leaders are acutely aware of this.
In Davos this week, the point has been repeatedly made that Europe's transition to becoming a green digital leader will only succeed if citizens are brought along with it. At the Europe’s Global Role session, multiple high-ranking officials noted that “people are not happy” and that clearly “someone who can't get to the end of the month can't be bothered with the end of the world”.
As household bills are rising across the continent, oil & gas companies posted record profits in the first quarter, and analysis by the IEA indicates the oil & gas sector income will increase to $4trn in 2022. Oil companies should invest this record revenue into renewables to help ease the global energy crisis, and the window to do so without governments stepping in is closing fast. As one senior politician in Davos said: “People are not going to watch oil & gas companies get record profits [and not reinvest it back in people].”
Overall, Europe is in a good place with regards to the energy and digital transitions. The continent has the political will and the tools available to become a green digital leader. It knows where it wants to be and why it wants to get there. The technology required already exists, and the next steps vitally needed are a shift in mentality and the courage to embrace disruptive technologies vital in the transition to net-zero, at scale and pace. We can get on track for this future by working together and ensuring that all citizens are brought along in the transition.
· Thomas Leurent is CEO of international digital engineering company Akselos