Charting a path for green industrial innovation in Central and Eastern Europe at COP29 and beyond
Under United Nations rules, Eastern European countries were set to host this year’s 29th Conference of the Parties (COP29), six years after Poland hosted COP24 in Katowice. However, geopolitical tensions and Russia’s opposition to EU-member countries in Central and Eastern Europe (CEE) hosting led to the vetoing of Bulgaria and other contenders as hosts. Now, as tens of thousands of delegates prepare to gather in Baku for negotiations, the need for policymakers, industry leaders and financial institutions to reckon with the full scope and scale of the climate challenge and take swift, decisive action to address has never been greater.
Understanding the full scale of the challenge requires recognition that climate action should account for regional diversity and resource endowments, ensuring that the narrative does not continue to be set by the major economies that have dominated international climate discussions. The sooner we understand regional energy resources, security concerns, and development needs, the more effectively we can tailor mitigation strategies, identify regional champions, and foster collaboration. As we navigate the “super-year” of elections, it is clear that the European Commission’s new five-year mandate (2024-2029), which will take us close to 2030 climate targets, will increasingly focus on making industrial competitiveness a driving force for the energy transition. With countries motivated by the idea of reducing dependencies and incentivizing domestic manufacturing to strengthen both energy and economic security, Central and Eastern Europe has a particularly important role to play.
Resilience à la carte: How Central and Eastern Europe adapted to the energy crisis
In the wake of Russia’s invasion of Ukraine, Poland and Bulgaria were among the first countries in the European Union to have their gas supplies cut off by Russia in April 2022, soon followed by other countries in the region. Just two years before the war, most countries in the region were more than 50% dependent on Russian gas, with Latvia at a staggering 92%, followed by Bulgaria (79%), Slovakia (68%), Hungary (61%), Slovenia (60%), Czechia (55%) and Poland (50%).
Despite this heavy dependence, the region has demonstrated exceptional resilience. CEE countries managed to secure alternative gas supplies, increased ambition and the deployment of renewable energy sources, announced plans for scale-up of nuclear energy among other clean technologies, and forged new, reliable partnerships in a remarkably short time. While ambition and execution will need continued support through long-term planning and durable policies, the region has already made great strides. Slovakia’s electricity grid, now one of the cleanest in the EU, is a prime example of this progress.
Driving Innovation: Central and Eastern Europe’s manufacturing momentum
CEE countries already have a significant manufacturing base and the industrial sector already represents a considerably higher share of employment and gross value added (GVA) than the EU average. In his much-anticipated report on the Future of EU’s competitiveness, former Italian Prime Minister Mario Draghi rightfully notes that Europe urgently needs to accelerate its rate of innovation both to maintain its manufacturing leadership and to develop new breakthrough technologies. While Draghi’s report could have benefited from stronger CEE representation in its long acknowledgement section, capitalizing on existing manufacturing potential and driving innovation will be the litmus test for CEE’s industrial leadership.
Let’s start with good news: Poland’s battery sector development within the last few years shows how the country managed to surpass the US as the world’s second largest producer of lithium-ion batteries. The steady incoming flow of foreign investment, particularly from LG Energy Solutions near the city of Wroclaw, and a substantial €627 million investment from Korean SK Nexilis, has given a boost to Poland’s lithium-ion battery production. Success stories in heat pump manufacturing and a rising wave of investments in clean tech startups across the Baltic states, along with Estonia’s highly developed Information and Communications Technology (ICT) sector, offer valuable insights for accelerating technological innovation across the region.
Societal buy-in is critical for accelerating industrial transformation; Project Tempo’s recent polling looks at CEE voter preferences across multiple energy and climate issues. A majority of voters recognize that there are clear economic benefits to the EU’s Clean Industrial Deal.
So, what’s the problem? Automative, lithium-ion battery, and heat pump manufacturing across the region share three critical challenges: 1) manufacturing remains largely labor-intensive with little to no innovation, 2) it relies heavily on Foreign Direct Investment (FDI) and the assumption of relatively cheap labor 3) key components needed for manufacturing are mostly import-dependent. Addressing these hurdles is critical to fostering green industrial innovation in Central and Eastern Europe, which will be a key focus at COP29 as countries look to establish resilient, sustainable manufacturing that aligns with global climate targets.
Charting CEE green industrial leadership to COP and beyond
Central and Eastern Europe’s leadership opportunity is here. Strengthening regional collaboration on supply chains, remaining vigilant against malicious external dependencies, including the spread of misinformation as part of Russia’s continued hybrid warfare will be critical for accelerating green manufacturing in the region. Moreover, CEE governments must develop coherent industrial strategies and capitalize on the existing surge in investment to create more value-added products both domestically and across Europe. At the heart of this transformation should be a sustained focus on innovation, and as my colleague David Yellen in his earlier paper mentions, this should be driven by the following principles:
1. Building human capital and expertise.
Human capital, in the form of researchers, engineers, and other skilled professions critical to each stage of the innovation life cycle – is perhaps the most important component of innovative capacity.
What’s next for CEE: The region already has a substantial base of skilled workforce, however years of underinvestment in innovation as well as the impact of intra-European migration (often from CEE to West and Northern Europe) is creating strain on the talent pool. Government, industry and academia should work closely to develop: 1) centers of excellences, like one in Poland, 2) re-skilling programs, like RenewAcad led by Monsson in Romania and 3) clean tech accelerators to support regional green startups to tap into existing funds and scale.
2. Developing technology push and demand-pull policies.
Technology push and demand-pull policies should go hand in hand to ensure that while there are funding and regulatory support mechanisms to de-risk clean tech innovation through robust research and development (R&D), demonstration and deployment programs, there are also proportional market incentives for early adoption.
What’s next for CEE: Governments across the region are already making progress in this direction, however key challenges remain ranging from fiscal constraints to ageing infrastructure and access to the workforce. Central and Eastern European countries should leverage COP29 fora to take stock of their challenges and achievements, forge alliances for more innovative policy and financing mechanisms for technology deployment, and create a path for leadership in Europe (for example by leveraging carbon capture and storage to future-proof the region’s industrial base). This needs to go hand in hand with discussions on how mechanisms like the Social Climate Fund can be used to avoid a two-speed transition in Europe.
3. Assessing and accessing key energy resources.
Understanding the region’s comparative advantage by carefully assessing its energy resources is critical. Access to an inexpensive and reliable source of key resources can determine a country’s ability to compete and is a factor governments can directly assist with.
What’s next for CEE: Countries in the region have diverse energy resources and geographic properties, with those neighboring the Baltic Sea (Estonia, Latvia, Lithuania, Poland) and the Black Sea (Bulgaria, Romania, Ukraine) having the advantage to explore offshore wind or submarine cable projects, or in Croatia’s case creating a European gateway for various clean technologies. Hungary’s geothermal energy resources, Czechia’s lithium deposits as well as several other countries’ CO2 storage capacity should help decision-makers understand that in this diverse region there are multiple pathways for making durable and competitive energy transition choices. Countries need to better assess the available resources and understand how to best utilize them.
As preparations for COP29 ramp up, Central and Eastern Europe has a unique opportunity backed up by its exceptional resilience, strong and established manufacturing base, and public support to intensify coordinated efforts that embed innovation in its vision for industrial transformation.
