The EU Green Deal and the Energy, Utilities and Resources industry: Leading by example in spearheading the energy transition

Chris Winkelman Energy - Utilities - Resources Industry Leader & Energy Transition Leader, Partner, PwC Netherlands

In mid-2021, the Germany-based chemicals giant Baden Aniline and Soda Factory (BASF) struck an agreement with the major European energy company Vattenfall to buy a stake in the Hollandse Kust Zuid offshore wind farm. The aim? To enable BASF to implement innovative, low-emission technologies at several of its production sites across Europe – and accelerate progress towards its target of achieving net-zero emissions by 2050.

The deal was just one example of how European companies in different industries – and in some cases competitors within the same industry – are converging around a common goal: decarbonisation of their operations and energy usage in support of the global drive to keep temperature increases as low as possible. It’s an effort that’s being encouraged and supported by the EU Green Deal, the EU’s ambitious new strategy to transform into a more competitive economy where growth is decoupled from use of resources.

Energy, Utilities and Resources setting the pace

However, it’s a strategy that many companies have yet to learn about. In PwC’s recent EU Green Deal Survey – based on interviews with 296 senior decision-makers in businesses across Europe – 60% of all respondents said they were unfamiliar with the Green Deal, and only 29% were prepared for it. But some other findings were more encouraging: for example, 66% had already earmarked capital to invest in becoming more sustainable, and 51% said they intend to shift key locations in their supply chain.

What do these findings tell us? Based on my everyday conversations with Energy, Utilities and Resources (EU&R) companies, who are by nature heavy users of energy and resources and thus ahead of the curve in this area, it’s a reality check to hear that more than half of companies across all industries are not familiar with the EU Green Deal. Especially because EU&R businesses are actively working on decarbonisation, and hence most of them are keenly aware of what the Green Deal means for them. So, for me, the lower level of awareness in other sectors sounds like a wake-up call that more story-telling is needed to get the message across.

Something else I find surprising is the relatively high proportion of companies – 51% – that are looking to reshape their supply chains to reduce carbon. While I’m seeing more and more EU&R companies do this, including moves such as the wind farm investment I mentioned above, I’ve seen less concrete action on supply chains so far in other industries. Which suggests that this is an area where EU&R companies can lead the way – and are doing so.

Priorities for progress

So, what actions should companies in EU&R – and across other sectors – be taking to support the Green Deal’s goals and comply with its requirements? Again, the EU Green Deal Survey results provide some useful guidance. Among sustainability initiatives, decarbonising energy emerges as the top priority – with 78% of companies wanting to increase their consumption of clean energy, and 60% looking to reduce their energy consumption, which means becoming more energy efficient.

For companies in any industry, the first step towards these priorities is to inventorise their energy usage across their operations and the resulting Scope 1 and Scope 2 emissions. Of course, Scope 3 emissions are also important but are much more outside the span of control of the company. Large companies that are already emitting within Europe can have a head-start in creating this inventory, as they’ll already be subject to the EU Emissions Trading System (ETS), as a result of which they should already have the processes, procedures and technologies in place to understand their emissions elsewhere in the world. Armed with a comprehensive inventory, a business can identify which areas of its operations and sourcing can be replaced or upgraded most easily to reduce energy usage and carbon emissions, and target investment at these.

EU&R companies can play a big role in helping other industries realise these opportunities. Companies across the EU&R sector – from long-standing incumbents to new startups – are investing heavily in renewable energy, and international oil companies are diversifying into renewables to decarbonise their own business and to help others decarbonise. As part of this shift, established EU&R players are using their existing infrastructure and processes to support the energy transition, while also applying their brain power and connections to emphasise the importance of cooperation to maximise chances for a successful transition. Cooperation between competitors in the same Industry, across Industries, between public and private and between politics and businesses. And they’re helping to bring their customers and wider society along on the journey, while being frank about the challenges it involves. This includes the replacement of old jobs with new ones, but also upskilling the workforce to better fit this changing demand for new capabilities through extensive training programs.

As mentioned before, a key enabler of this drive for greater sustainability is collaboration and convergence between EU&R and other industries, often including cooperation along value chains between the public and private sectors. Some prime examples? The roll-out across countries of infrastructure for charging electric vehicles (EVs), the battery value chain. The creation of integrated “industrial clusters” to improve energy efficiency and reduce emissions. And joint investments in green hydrogen to provide a decarbonised energy carrier for the future.

Government incentives are supporting the journey…

Alongside public-private cooperation, a further powerful driver of the EU Green Deal’s ambitions is government funding. Our survey finds that 70% of companies undertaking environmental improvements have tapped incentives, grants and tax credits to do so. This bears out my experience with EU&R clients, which suggests that companies’ traditional reluctance to take government money has substantially softened – with a growing acceptance that the sheer scale of the climate challenge means accepting government support is fully justified and required. Under the EU Green Deal and other EU schemes there are many funds and sources of finance for green initiatives, available not just to companies but also countries. These funds should act as a lubricant for the energy transition.

…as taxes shift from labour to pollutive activities

As progress continues, an important change that the EU Green Deal is helping to drive – and which also has big implications for EU&R businesses – is an ongoing shift in the focus of taxation away from labour and towards pollutive activities. While this refocusing is clearly positive for the environment, it brings significant challenges for governments, since it will not be easy to replace the existing revenues from labour taxes with a similar level of income from pollution-based levies. But there’s now the political will in place to reshape the tax base in this way, and legislation and tax rules will follow: the question is not if, but when.


The opportunities ahead for EU&R businesses

In my view, the main opportunities are two-fold. First, to harness the know-how and funds now available to limit the negative impacts of climate change by reducing emissions. And second, to lead by example and help other industries navigate the transition successfully. This is all the more important in a world where companies are seen as being responsible and accountable to their wider stakeholders rather than just shareholders, and where environmental, ethical and humanitarian issues increasingly influence their financial performance and valuation.

These opportunities are mirrored by the biggest downside risks from failing to comply with the Green Deal. The risks include a strongly rising carbon price, increased costs passed on to consumers and business customers, reputational and financial damage, and – most important of all – a failure to halt the rise in global temperatures that’s threatening the future of the planet and mankind.

While the EU Green Deal raises challenges for EU&R business, it also gives them a chance to be among the leaders in tackling the biggest single threat facing the world today. It’s a role that Europe’s EU&R companies are increasingly starting to play.

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Chris Winkelman

Chris Winkelman

Energy - Utilities - Resources Industry Leader & Energy Transition Leader, Partner, PwC Netherlands

Tel: +31 (0)65 154 18 97