EcoAustria Policy Note 53: Thinking industry, technology and climate policy together!

In February 2023, the EU Commission presented the Green Deal Industrial Plan for the Net-Zero Age . This initiative aims to support the transition to a more sustainable and climate-friendly production of industrially manufactured goods in Europe. However, a sustainable economy requires more than just a change in production. Rather, economic policy levers must be evaluated against the three pillars of the green transformation, namely industrial, technology and climate policy. In a recent policy note, EcoAustria examined these pillars from an Austrian perspective and made corresponding economic policy recommendations.

Driving forward the reduction of emissions in production
The aim of the pillar of industrial policy in Europe is to reduce greenhouse gas emissions from the production of goods and services. Although Austria has lower emissions in comparison to the EU average, a west-east divide can be seen within the EU. The USA and the EU have similar emission levels in relation to economic output, while China has significantly higher emissions. A key economic policy lever in the context of industrial policy is the rapid expansion of the European Emissions Trading System (ETS) to the economy as a whole, as the mechanism provided for in the ETS creates incentives to switch to lower-emission production processes more quickly. The carbon border adjustment mechanism (CBAM) subjects imports into the EU to carbon pricing, but it is not location-neutral as it increases costs for EU exporters because they have to bear the higher import costs. According to EcoAustria, in order to maintain the competitiveness of the European economy and ensure location neutrality, it makes sense to refund the levies on intermediate consumption for EU exports imported from third countries when they are exported.

Strengthen innovation
The pillar of technology and innovation policy is relevant in that the future specialization of goods and services in an economy depends, among other things, on current research and development. With a 12% share of green export specializations, Austria is above the EU average. However, this share has stagnated in recent years. With regard to climate-friendly technologies, Austria has a high number of patents per capita. "There are two key levers for further strengthening Austria's position. These are the exploitation of innovation potential through cooperation and the creation of better framework conditions for venture capital and university spin-offs," says Wolfgang Schwarzbauer, Head of Regional Economic Policy and Foreign Trade Research at EcoAustria.

Driving forward the reduction of consumption-related emissions
Consumption in European countries such as Germany, Austria and Switzerland often leads to more CO2 emissions than these countries themselves emit. In Austria, household consumption primarily causes emissions in energy production, goods manufacturing and transportation. Climate policy has strong interactions with industrial policy, in particular with the Emissions Trading System (ETS). "A rapid expansion of the ETS to all sectors of the economy could lead to climate-damaging household consumption becoming more expensive and low-emission goods relatively cheaper. However, it is important that the price mechanism is not impaired by generous exemptions ," Schwarzbauer concludes.