Industrial competitiveness and reindustrialization in Spain

Modern competitiveness is not based on a race to lower wages or accumulate trade surpluses. Competitiveness is, above all, a matter of productivity, industrial capabilities, access to technical knowledge, continuous innovation, and strategic security. 

Europe is starting from a position of strength, thanks to the size of its market, its business, its industrial capabilities, and its technological know-how. 

The GDP per capita gap between the European Union and the United States has widened in recent decades, largely due to lower European productivity growth. According to the Draghi report, about 70% of this gap with the United States is due to this reason. In Spain, the share of industry in the economy is below the European average, highlighting the potential to strengthen its role as an engine of competitiveness and growth. But understanding what it means to be competitive is not enough: it is also necessary to analyze the factors affecting our industry’s capacity to grow, invest and generate value. 

In this way, high energy costs have become one of the main obstacles to investment by European companies, especially in sectors with higher energy intensity. Industries of this type, such as chemicals, basic metals, minerals and paper, account for 16% of European manufacturing value added, but have seen a 10% to 15% drop in production since 2021. 

Although gas account fora small share of European electricity generation, its cost heavily impacts final electricity prices because it tipically sets the market price. All this has caused the European Union's fossil fuel import bill to skyrocket, going from €341 billion in 2019 to €416 billion in 2023, equivalent to 2.7% of the continent's GDP. In the case of Spain, recent reports indicate that the industrial energy cost is 2.5 times higher than that of China and the United States.

The European Union has one of the most ambitious climate frameworks in the world, with the goal of reducing its net emissions by at least 55% by 2030 compared to 1990. In direct contrast, the United States has set a non-binding target of 50-52% compared to 2005, while China aims only to reach its peak emissions before the end of the decade. This regulatory asymmetry generates highly uneven operating costs. 

Transforming processes to reduce carbon intensity in the four main European industries will cost around €500 billion over the next fifteen years. Today, these investments lack standalone commercial viability in the face of international competition. 

We note with concern how Europe’s demand for technology is growing while it loses industrial ground. The European Union is the world's second-largest market for deploying solar and wind technology, but our global share of wind turbine manufacturing fell from 58% in 2017 to 30% in 2022. In solar photovoltaic technology, production is largely dominated by China. During 2023, Europe imported 43 billion euros worth of emission reduction technologies from China, of which more than €17 billion was accounted for by battery purchases. 

The asymmetry in public incentive programs is clear. China has funded these technologies with a share of GDP twice as high as that of the European Union. At the same time, regulations such as the US Inflation Reduction Act (IRA) offer between €37 billion and €250 billion in direct incentives for industrial manufacturing. By contrast, the European Union expects to provide a maximum of €8 billion to support its industrial manufacturing in the 2021-2027 period. 

The result of this dynamic in essential sectors is clear: the rate of closures in the chemical industry has increased sixfold since 2022, losing 37 million metric tons of capacity. This represents the loss of around 20,000 direct jobs and puts 89,000 indirect jobs at risk. 

Spain has ideal technical and industrial conditions to lead this mode shift. We benefit from abundant renewable energy, a diverse industrial network, and a refining capacity that ranks among the most modern and efficient in Europe. An investment that strengthens our autonomy: renewable fuels generate between 10 and 30 jobs for per million dollars invested, compared with 5 - 10 jobs for conventional fossil alternatives. Much of this job base is also built in rural areas through raw material supply chains.

For this industrial opportunity to materialize, we consider it essential to establish a clear and operational framework in Europe.

• Reducing energy costs for industry. Simply adding generation capacity is not enough: Europe needs to redesign its market mechanisms to deliver efficiency to the end consumer, accelerating long-term electricity contracts and Contracts for Difference. Likewise, investment in transmission networks is critical. The deployment of new electricity generation must be accompanied by significant investments in networks to integrate that capacity and bring energy to consumers.
• Genuine technological neutrality. We are committed to an approach where all options play a role. In the short term, electrification cannot address hard-to-abate sectors such as aviation, shipping, heavy-duty trucking, or high-temperature industrial processes. Renewable fuels can complement electrification and other technologies in applications with significant technical or economic barriers to electrification. European regulation should assess energy options based on their full life-cycle emissions, rather than solely on use-phase emissions. Likewise, applying a differentiated tax regime for renewable fuels would facilitate investments and accelerate their commercial deployment.
• Coordinated industrial policy at the European level. Current fragmentation among Member States weighs down competitiveness. By way of example, consider the energy price gap within the European Union itself, which doubled in 2022 and increased by 15% in 2023. Long lead times for new energy infrastructure can hinder the pace of investment required for industrial transformation. Transforming the European economy will require mobilizing substantial public and private investment.

Through concrete investments, Repsol is demonstrating that this operational deployment is possible. Active projects across the country’s industrial complexes show how industrial investment and the energy transition can move forward in a coordinated way:

Our company is already demonstrating that this operational deployment is possible. In the Cartagena complex, we have invested more than €250 million in a plant that has the capacity to produce 250,000 metric tons of 100% renewable fuels per year, avoiding up to 900,000 metric tons of CO₂ per year. A productive effort that we have replicated in Puertollano, where we have invested over €130 million to convert a plant that can produce up to 200,000 metric tons of renewable fuels per year and avoid around 700,000 metric tons of CO₂ per year. In addition, we are driving pioneering infrastructures such as Ecoplanta in Tarragona, whose industrial complex also features a groundbreaking 100% renewable gasoline plant, and new renewable hydrogen electrolyzers in Bilbao and Cartagena. These projects show how investment and innovation can translate into new industrial capacity and efficiency-enhancing solutions.

Reducing emissions and industrial competitiveness are not inherently contradictory goals. However, the data shows that they are not automatically compatible either. Managing a industrial transition of this scale without a pragmatic and coherent industrial policy comes at a heavy price: closed operating plants, structural loss of qualified employment and new unaffordable external dependencies. 

Europe has industrial, technological and human capabilities that can become a competitive advantage in the new energy economy. The key question is whether all the parties involved today have the institutional will to coordinate them.