EU Competitiveness Compass
On January 29, 2025, the European Commission unveiled the Competitiveness Compass, a strategic framework aimed at boosting Europe’s economic position while prioritizing sustainability. The initiative focuses on three core areas: innovation, decarbonisation and competitiveness, and increased security and resilience. with the goal of securing Europe’s leadership in the global market. This blog will focus on the sustainability concerns related to the EU competitiveness compass plan.
EU Competitiveness Compass: Decarbonisation
The European Union aims to become a decarbonised economy by 2050, with a bold target to cut emissions by 90% by 2040. This ambitious goal will reshape Europe’s industrial, economic, and trade policies to create a more competitive business environment while providing long-term certainty for investors. At the heart of this strategy is the Clean Industrial Deal, which positions Europe as a global leader in clean manufacturing, sustainable technologies, and circular business models.
However, this transition is not without challenges. Energy price volatility, exacerbated by Europe’s reliance on fossil fuel imports and ongoing geopolitical tensions, particularly the conflict in Ukraine, complicates the shift to a greener economy. In response, the EU introduced the Affordable Energy Action Plan, aimed at reducing energy costs through the promotion of clean energy and improvements in energy infrastructure. This plan is designed to ensure affordable energy for both households and industries while supporting the broader goal of a net-zero energy system.
EU Competitiveness Compass: CBAM
A cornerstone of the EU’s decarbonisation strategy is the Carbon Border Adjustment Mechanism (CBAM), which ensures that both domestic and imported goods face the same carbon pricing. This helps prevent carbon leakage, ensuring that foreign producers adhere to similar environmental standards as their EU counterparts. Currently, CBAM applies to industries like iron, steel, cement, aluminium, fertilizers, electricity, and hydrogen.
The European Commission plans to expand CBAM, extending its coverage to include downstream products like automobiles and packaging materials. Starting in 2026, companies will need to secure CBAM certificates to comply with the mechanism, bringing financial and administrative implications for businesses. This expansion will further ensure that the carbon footprint of both raw materials and finished goods is properly accounted for, supporting the EU’s ambitious climate goals and promoting fair competition in the internal market.
EU Competitiveness Compass: Sustainable Supply Chains
Central to the Competitiveness Compass is the promotion of sustainable supply chains. The EU is pushing for high environmental and social standards at every stage of the supply chain, helping to reduce carbon footprints, improve resource efficiency, and promote fair labour practices. Sustainable supply chains not only support decarbonisation but also enhance competitiveness by lowering raw material reliance and reducing production costs.
The circular economy plays a vital role in this strategy since it focuses on recycling, reusing, and repurposing materials, reducing waste, and optimizing resource use. If these circular models are adopted properly, businesses can lower environmental impact while making their operations more cost-effective.
Digital technologies, such as blockchain, enhance supply chain transparency and traceability, allowing businesses and consumers to make informed, sustainability-driven decisions. This transparency fosters greater trust in products, further improving competitiveness in a growing market that values sustainability.
Moreover, several initiatives contribute to creating a more sustainable transport and industrial ecosystem:
Sustainable Transport Investment Plan:
This plan prioritizes the electrification of road transport, the development of cutting-edge technologies, and the expansion of a high-speed rail network across Europe. These investments will reduce emissions while improving mobility and enhancing Europe’s competitiveness in the global transport sector.
Circular Economy Act:
Focusing on sectors like electronics, batteries, plastics, and food, the Circular Economy Act encourages sustainable consumption patterns and the design of long-lasting, eco-friendly products. By keeping valuable resources within the EU economy, this act helps reduce environmental impact and enhances Europe’s competitive position in global markets.
European Climate Adaptation Plan:
The European Climate Adaptation Plan strengthens Europe’s climate resilience since it concentrates on nature-based solutions and accelerating climate adaptation actions. By improving resilience, this plan safeguards industries and communities, making Europe more competitive and prepared for future climate-related challenges.
The Competitiveness Compass places sustainability at the heart of Europe’s economic future. By focusing on decarbonisation, CBAM, sustainable supply chains, and the Circular Economy Act, Europe aims to lead in global climate action while ensuring industrial competitiveness. Adapting to these shifts will enable businesses to meet environmental targets and seize new opportunities in the green economy.
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