Fair Play provides deep-dive political analysis on the big-impact stories dominating the Competition and Industrial Policy conversation. [POLITICO Fair Play] VIEW IN YOUR BROWSER OR LISTEN TO AUDIO By SIMON VAN DORPE WITH GIORGIO LEALI, PAOLA TAMMA, THIBAULT LARGER AND JAKOB HANKE. SNEAK PEEK — DON’T TRY TO FIND ONE PERFECT THREAD OF LOGIC running through the industrial strategy documents published on Tuesday. They are a useful reminder that the EU speaks with many voices. An eclectic alliance of EU capitals welcomed the strategy, SMEs had hoped for more. — EU COMMISSION PRESIDENT URSULA VON DER LEYEN is trying to reaffirm her leadership in the face of an ever-expanding corona crisis. — VESTAGER AND BRETON GAVE us pretty different nuances on what competition rules are all about DRIVING THE DAY THE INDUSTRIAL STRATEGY PUDDING: That was it. The EU presented its industrial strategy, complete with press release and four papers. But before you all go home and wait for the lockdown, there are a few things worth mentioning. First, as Paola already wrote, this involved a lot of repackaging of existing and already planned proposals. Second, what is published reflects the diversity of and the tensions between the people holding the pen. When Margrethe Vestager wants to defend competition policy and Thierry Breton is Mr Big Business, when you want to please SMEs, lobbyists for a range of economic sectors, 27 capitals and Greta Thunberg, you get… this. Finally, there were a lot of resolutions: Set up a single market task force, appoint an “envoy” for small businesses, change competition rules, support strategic sectors… but the proof of the pudding will be in the eating. Will Vestager be more lenient when reviewing mergers that create a European champion? Will she rubber stamp state aid for strategic alliances mentioned in the strategy? Will Breton make sure the SME envoy and the single market task force have teeth? There is only one way to find out: Keep reading Fair Play. UNHOLY ALLIANCES: One of the most concrete bits was the Commission’s announcement that a “European Clean Hydrogen Alliance” would be launched soon. The alliance is a first step in trying to create a public-private partnership between EU countries and companies to set up an EU-based ‘strategic value chain’ in hydrogen. The document listed three more sectors that will be granted greater leeway to receive state support with Brussels’ blessing: Low-carbon industries, industrial clouds and platforms and raw materials. More here. These alliances are expected to apply for funding under the IPCEI rules, but we can also expect DG COMP to verify their compatibility with cartel rules. More on that from Vestager below. Thibault takes a deep dive into the hydrogen saga here, or below. SMALL BUSINESS: The Commission will set up a “virtual observatory” focused on ensuring prompt payment from large business and governments, as well as a dispute resolution mechanism with the same aim. This was an important demand from SMEs. There will also be sustainability advisers and digital innovation hubs to assist small businesses in the green and digital transitions, as well as an SME “initial public offering fund,” measures to stimulate investment in women-led SMEs and one-stop-shop assistance to help start-ups grow. A “high-level EU SME envoy” and national SME envoys will follow up on the implementation of these measures. SINGLE MARKET: In one of two reports on its prized single market, the Commission identified obstacles ranging from restrictive and complex national rules, to limited administrative capacities and defective transposition and enforcement of EU rules. The second report contains an action plan and the creation of a joint task force between the Commission and the member countries (which smacks of the European Competition Network). REACTIONS COUNTRY ALLIANCE: An eclectic alliance of member countries — Bulgaria, France, Germany, Greece, Italy, Luxembourg, Romania and Spain — welcomed the publication of the strategy, saying they had “long been calling for an ambitious European industrial strategy.” SMES UNIMPRESSED: Small businesses were not as enthusiastic about the announcements as one would have thought based on the amount of measures for them. GERMAN ENGINEERING BODY VDMA said that the strategy should not seek to “forge markets and SMEs.” The body’s Executive Director Thilo Brodtmann said: “a focus on a few value chains and technologies ignores the broad spectrum of small and medium-sized enterprises.” SMEUNITED acknowledged that the strategy developed a very clear picture of the challenges SMEs were facing, but fell short of being a game changer in policy making. Secretary General Véronique Willems said that the SME envoy should have been part of the Commission’s body checking all new rules to make sure they were “SME proof,” as Brussels is increasingly losing touch with the workload it imposes on small businesses with GDPR-style rules. NORDIC BUSINESS: Nordic business associations said that Europe’s strategy needed to focus on competition and the single market. Confederations of entreprises from Sweden, Norway, Finland and Denmark wrote a letter in the FT where they pledged to promote strict enforcement of competition rules, and prevent political meddling in the EU rulebook. They also called for “clear and predictable common rules in international trade.” MORE RESEARCH: The four lobbies also stressed the importance of research in enhancing EU’s competitiveness, as they asked for more EU and national funds invested in research. ”Particular attention should be paid to instruments and infrastructure that promote innovation,” the letter read. Finally, they said that “the free movement of services within the EU is crucial and needs to be made easier.” EU PARLIAMENT: MEPs from the Committee on Industry, Research and Energy will also have a say on what the EU’s industrial policy should look like, as they will draft a report on the topic in the coming months. According to a preparatory document, proposed measures will include a review of “certain principles of state aid and antitrust policy” to compensate the negative effects of decarbonization. ITALY’S MEP CARLO CALENDA, who is in charge of the report, told POLITICO that the Commission’s industrial strategy outlined strategic objectives without detailing how to reach them. The Commission wants to achieve objectives but it doesn’t have money and doesn’t want to change state aid rules, he said. He added that the Parliament’s report would focus on the means to achieve the objectives, for example by proposing a system ensuring that big companies resulting from mergers would not abuse their position with regards to their suppliers. “If you clear mergers with a continental dimension, you need to find a system … to avoid suppliers — which are often SMEs — being ‘strangled’ by the continental champion,” he explained, adding that he already shared the proposal with Breton. **DOES EUROPE’S INDUSTRIAL STRATEGY TICK THE GREEN BOX? POLITICO’s first Competitive Europe Summit is heading to BRUSSELS ON JULY 1 to debate that question.Book your discounted spot today.** CORONA UPDATE NEW AIRPORT SLOT RULES: The European Commission will “very rapidly” propose legislation that will temporarily allow airlines not to use their slots at airports without fear of losing them, President Ursula von der Leyen said on Tuesday. Italian carrier Alitalia is one of the airlines worse hit by the coronavirus after it was already in dire need of state aid, Saim Saeed reported on Tuesday. BROADER EU RESPONSE: Von der Leyen’s press moment following the meeting of the college of commissioners looked like an attempt to establish leadership after criticism she hardly mentioned the topic in her press conference looking back on her first 100 days. The European Commission president said that aviation was just one example. “We will address the overall impact the coronavirus has on the economy throughout Europe. Many sectors are already suffering and we will have to look for ways to support them,” she said. GRIM ECONOMIC PICTURE: It has in the meantime become clear that coronavirus will lead to a major economic slowdown. As the devastating impact for the aviation and tourism sectors is becoming clear, the Italian lockdown is increasingly affecting other sectors and countries. ING for example predicted that the Italian situation will cause a recession in Belgium in the first two quarters. The Italian government will suspend payments on mortgages during the outbreak, the FT reported, at a time when European banks face an estimated €34 billion loss because of the virus. If China and Italy’s lockdown provide a playbook for countries where the virus is in an earlier stage, we ain’t seen nothing yet. ‘BLINDFOLD’ COMMISSION: Speaking with POLITICO, Italy’s MEP and former ambassador to the EU Carlo Calenda said the Commission is still in a “business as usual mode” despite the emergency. “The €7,5 million injection is totally insufficient. A 1 percent of GDP [measure] is needed immediately,” he said. “Europe is putting a blindfold on its eyes” and populists will take advantage of its failure to act, Calenda added, suggesting that Europe might ‘explode’ if the Commission acts too late. COMPETITION VESTAGER VS BRETON ON COMPETITION RULES REFORM: We asked competition chief Margrethe Vestager and Internal Market Commissioner Thierry Breton a simple question. What’s the primary purpose of competition rules in the EU? VESTAGER said that competition rules and state aid should first and foremost “make sure that customers and consumers have the benefits of competition: affordable prices, quality, choice, and, of course, innovation.” The ongoing review should “make sure that this is actually happening.” She would like to allow horizontal cooperation between businesses while “resting assured that they’re not doing a cartel by mistake.” The review should ensure that “rules are understandable and easy because partnering up, for instance, in a data driven economy could be a very good thing to do, because you could share your data, but you don’t want to be making a data cartel.” FOR BRETON, competition rules are “absolutely essential,” but “that being said, and I said so myself, we need to recognize the central role of our companies providing us with jobs, well-being, progress, sovereignty.” The two are at odds over whether consumers or businesses should benefit most from the ongoing review. But Breton conceded: “I don’t think that we should expect Margrethe to change all our rules. They are here. It’s just good governance to just look if everything fits with today’s world.” EXCESSIVE PRICING IN PHARMA: The U.K. Competition and Markets Authority (CMA) welcomed the Court of Appeal judgment confirming much of its excessive pricing probe into Pfizer and Flynn Pharma. The court overturned a previous decision by the Competition Appeals Tribunal, which had partially annulled the CMA’s 2016 decision fining the companies £90 million for overcharging for capsules used to treat epilepsy. The CMA called it “an important step forward in clarifying the legal test for excessive and unfair pricing.” UK PUBLISHING MERGER PROBE: The CMA is concerned that the merger between educational publishers MCGraw-Hill and Cengage will result in increased prices for textbooks. The British watchdog required companies to submit commitments, otherwise it will open an in-depth investigation. POLITICO PRO ARTICLES EU LAUNCHES ITS QUEST FOR AN ELUSIVE HYDROGEN GRAIL — By Thibault Larger Brussels on Tuesday fired the starting gun in what it hopes will be a landmark shift toward hydrogen as a global energy source for everything from trains to steel production. But the big question is whether the EU has left it too late in the hydrogen race with Asia and the U.S. Launching its industrial strategy, the European Commission announced Tuesday that it would “shortly” corral a group of investors, companies and governments to create a European Clean Hydrogen Alliance. The Commission did not give more details about what the first big EU hydrogen project would be. Brussels has, however, already released details of 10 potential initiatives ranging from a scheme along the Danube to produce hydrogen from wind and solar energy, to another that foresees hydrogen filling stations along roads from Germany to Bulgaria. The companies interested across the range of hydrogen projects included Germany’s Siemens, Austria’s OMV and the Dutch bank ABN Amro. The alliance finally chosen would not necessarily funnel EU funds, but Brussels would apply more lenient anti-subsidy rules so that national governments can get big hydrogen projects up and running. EU Energy Commissioner Kadri Simson sang the praises of hydrogen as the energy of the future: “It has significant potential to decarbonize some sectors where cutting emissions is not straightforward: for example steel and cement industry and heavy-duty vehicles.” Over the next decade, optimists hope hydrogen will propel trains, trucks and even potentially long-haul flights, with water vapor as the main residue. That’s to say nothing of the role that it’s supposed to play in decarbonizing dirty, old businesses ranging from cement and construction to chemicals. And companies are queuing up to receive preferential treatment from the EU for their hydrogen investments. On March 5, 43 companies committed to produce up to 95,000 hydrogen-propelled trucks by 2030 provided the EU offers incentives, changes regulations and allows more public funding. TIME TO CATCH UP The problem with hydrogen is that Europe is already lagging behind Asian powerhouses such as China, Japan and South Korea in the hydrogen vehicle race. The U.S. is also gearing up. Nikola, a heavy-duty truck maker based in Phoenix, Arizona, has announced it would be the first manufacturer offering hydrogen trucks, with pre-orders representing more than $10 billion in potential revenues. With such competitors, Europe is not going to win by dabbling with state money. Experts argue the hydrogen shift will require a massive overhaul of the economy and its energy and transport networks. It will need to go all in rather than make marginal investments, and will need fickle governments to stick religiously to targets of carbon neutrality by 2050. David Hart, an expert in hydrogen policy and a visiting professor at Imperial College in London, said the fuel made a lot of sense in terms of “reducing carbon emissions, building a new competitive industry, improving air quality.” The Hydrogen Council, a group of chief executives of leading global businesses aiming to support the development of the technology, estimates it could represent almost 20 percent of final energy demand by 2050 Hart warned, however, that this would take a big heave. “The industry just needs to scale up,” he said. Experts agreed that would require a lot from public authorities — at least initially. “We need to start the process with some subsidies, but we also need to make sure the industry will continue on its own,” said Petr Mervart, an official at the Czech industry ministry. Hart stressed that it needed a holistic approach to climate and industry for a broad shift. “If you tackle these [policies] one at a time, it will probably be suboptimal,” he said. And the clock is ticking, according to Pierre-Etienne Franc, chairman of the Hydrogen Council and a director at France’s gas giant Air Liquide. If the Commission is really serious about fostering a leading global industry, “we’ve got to stop waiting. With batteries, we’ve already lost the battle of the first generations in Europe, with hydrogen, it starts now.” “This is the decade where it all comes down to Europe winning the hydrogen battle,” he added. SCALING UP Ursula von der Leyen was adamant in her inaugural speech as president of the European Commission in July that she wanted Europe to become the first climate-neutral continent in the world by 2050. That’s where green hydrogen has a big role to play. “Over the last 15 years, some companies spent a lot of time and a lot of money developing a technology that is now really good,” said Hart. The cost of renewable energy is also falling, which makes the production of green hydrogen more attractive financially. Green hydrogen means the gas is produced with renewables. (Blue hydrogen is produced with natural gas and brown hydrogen from fossil fuels.) “That’s really exciting, thinking about what can happen when you get this supply of green hydrogen. It will create more supply, that will drive down the prices,“ said Edward Lees, a portfolio manager at BNP Paribas who specializes in sustainable investments. “But we do need a place for it to be used in Europe,” he added. Mervart added there were uncertainties around the development of hydrogen uses because “it is expensive”. Hydrogen Europe, an EU lobby, reported a kilogram of hydrogen costs between €10 and €15. But for transport applications, hydrogen would only become competitive at cost levels below €3 per kilogram, the lobby estimated. To help decrease costs for the production, transport and use of hydrogen, EU countries, with the help of the Commission, have been working on a subsidy scheme to support specific industrial projects in a hydrogen alliance. Hart warned that “the greatest risk is the expectation mismatch.” The ability of the European industry to deliver at large scale in the short term is limited, the consultant for E4tech explained: “There are not enough companies, not enough production lines, not enough people with the right skills.” EUROPEAN CHAMPIONS Franc noted that “the paradox is that Europe has the vision, the actors, but not the development at scale,” which is necessary for the emergence of European giants. Scaling up will be a key challenge for the EU hydrogen industry to become competitive against the U.S., China, and Japan. This will require huge investments — many billions a year over the next decade, according to the Hydrogen Council — and could well lead to a Catch-22 situation. “The real money won’t come in until there are more proven commercial applications” Lees said. This difficulty highlights the key role of public support in building the industry, especially in channeling private investments. Despite the funding gap, Europe is still in the global race. Hart noted “there is a lot of supply chain capability” in Europe, and Lees acknowledged that “there is excellent engineering talent,” and technologies that are “competing on a global stage.” Lees also noted that Europe has a “very interesting structural supply advantage.” Wind power in the EU has been “so far ahead” of the U.S. that Europe has this “fantastic resources now starting to be explored: using excess power to produce green hydrogen,” the asset manager said. In Europe “you have very strong support in high levels of governments … that could be a big competitive advantage.” Kalina Oroschakoff contributed to the report. _Fair Play is_ POLITICO’_s must read __daily briefing on the hottest issues in competition, industrial policy and much more. For a free trial of our new Competition and Industrial Policy Pro service, which includes Fair Play, deep analytical articles, real time updates and more, email pro@politico.eu._
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