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Eco-innovation in the European Semester

17/06/2013

The European Semester was established in 2010 as a mechanism to better coordinate economic policies in European Union countries. It was one of the EU's responses to the financial and economic crisis, which has resulted in economic contraction and rising unemployment in many EU countries. The European Semester is based on the idea that, because EU economies are highly integrated, enhanced policy coordination can help prevent discrepancies and will boost economic development in the EU generally.

The European Semester works according to an annual cycle. It starts in the autumn with the publication by the European Commission of an Annual Growth Survey, which sets out the Commission's view of EU policy priorities for the next year. Then, in spring, the European Council and European Parliament provide their views on the priorities. The Commission then draws up specific economic policy recommendations for each EU country, which are adopted by the European Council in July. It is then up to each EU country to take the recommendations into account when agreeing their national budgets for the subsequent year.

The idea overall is that the European Semester will help the EU move in a coordinated way towards its Europe 2020 goals of smarter, more sustainable and more inclusive economic growth. The Commission published its 2013 country-specific recommendations on 29 May. They are available at http://ec.europa.eu/europe2020/index_en.htm.

Timo Makela, Director in the European Commission's Environment Directorate-General, explained how the Commission plans to include specific eco-innovation recommendations in the European Semester as a way of promoting a more sustainable growth path for EU Member States.

What is the relevance of eco-innovation for the European Semester?

Timo Makela: When you look at the European economy overall, there is an employment crisis; unemployment has been increasing rapidly. European leaders are searching for possibilities for generating new economic activities and jobs. Cleantech - environmental goods and services understood in the wider sense - has been one of the only areas that has generated new employment and increased economic activities, even since [the onset of the crisis in] 2008. With that in mind, we need to see how this can be factored into the European Semester. We have already done it on the resource and waste side; there are recommendations to countries, which are then monitored, on resource use and waste - moving away from landfill to a circular economy.

These recommendations vary depending on the country, and they need to be rather specific. For instance, a classic case is that one needs to phase out subsidies for fossil fuels. The International Energy Agency has published figures that globally USD500 billion is the amount of subsidy to fossil fuels [1], while for renewables it is one-tenth of that - so there is not even a level playing field. These are the types of recommendations [i.e. to phase out fossil fuel subsidies] that have already been given [as part of the European Semester].

Now we are looking at how we can stimulate environmental goods and services and industry in our Member States through innovation, and particularly turning innovations into commercial applications and scaling up in the marketplace. [We are considering] which kind of policy measures in countries would be useful and helpful, looking at what they are doing and not doing now. Our initial findings show that there is a great variation between the countries of the EU. Some are investing and stimulating heavily the environmental goods and services industry and sectors, while this is not the case in other countries. We have done some rather detailed work on that front.

In the year to come we will identify specific [recommendations] to governments to stimulate eco-innovation. [It could be that governments] need to accelerate the creating of the market for new solutions through public procurement, for instance, or to consider [providing] support to start-ups in renewable energy. [Our recommendations] need to go into such detail and be backed by evidence.

My Commissioner is very keen that we want to use the semester exercise to advance this agenda - also to address the environmental challenges, but linking that to growth and jobs.

A Dutch environmental agency [2] has analysed how we can move further with our climate change targets from the current 20/20/20 [targets to more ambitious objectives] through 2050. They have concluded that in Europe tightening emission targets is not going to be enough. One needs to combine that with efficiency, energy and resource-efficiency targets, and innovation targets. For innovation targets of course you first need to develop a robust measure for that, but this is what the Dutch have concluded.

When will the first eco-innovation specific recommendations be included in the European Semester?

Timo Makela: They will not be for this round - which is ongoing - but for 2014. We are aiming to include the European Commission contribution next spring, and then that will flow into the debate between Member States.

This will be one of the lasting legacies of [Environment] Commissioner Potocnik, who feels very strongly about the need to innovate and then finding a way of turning those innovations, new ideas, into business opportunities - and then scaling them up in the market place.

Is there a risk that, if top-level EU politicians do not focus on eco-innovation, the EU will fall behind economically?

Timo Makela: Absolutely. The race is on. Japan, for instance, has set a target to capture half of the global market - Japan alone. China is moving very fast and no matter what we think about the United States policies, US businesses are investing very fast. Europe at the moment is controlling or producing approximately one-third of solutions in this quickly growing market, but there is a real danger [of falling behind]. This is also the reason why the public sector in the European Union needs to stimulate [eco-innovation] because it addresses global environmental challenges but offers also opportunities. If we lose that race, we [will] lose yet another power base of the European manufacturing and service industry.

Notes:

[1] USD 523 billion in 2011.

[2] The Netherlands Environmental Assessment Agency, see http://www.pbl.nl/en/publications/eu-policy-options-for-climate-and-energy-beyond-2020