The Draghi Report's proposals for the energy sector
Summary of the Draghi Report
The Draghi Report, presented in September 2024 by economist and former European Central Bank President Mario Draghi, is a call to action. In the midst of escalating protectionism around the world, the document analyses the challenges facing the European Union in the next decade, proposes solutions and quantifies the investment needed to implement them. Find out what the Draghi Report is, what its key points are, how it impacts the energy sector and the proposals for a real competitiveness for the EU-27 as a whole.
The global economy is undergoing a profound transformation. The Covid-19 pandemic paralysed international trade and burst the seams of global supply chains, calling into question long-held concepts such as globalisation. But just when the world thought it had overcome the major obstacles and was preparing to restructure its economies, more shocks arrived: the Russian invasion of Ukraine, the escalation of conflict in the Middle East and the increase of protectionist measures coming out of the United States and China.
In this context of international uncertainty, the European Union (EU) is seeking ways to consolidate its competitiveness and ensure its leading role in the global economy with new rules of the game. The Draghi report – presented in September 2024 by the economist, former president of the European Central Bank and former Italian prime minister Mario Draghi – delves into the great challenge of ensuring that the EU-27 as a whole is a global economic power.
What is the Draghi Report?
The future of European competitiveness 
Enlace externo, se abre en ventana nueva. , popularly known as the Draghi Report, is a document that analyses the situation of the European Union in the global economy and highlights possible steps to increase its competitiveness in the future. It is the result of the request that the European Commission, led by Ursula Von der Layen, made in 2023 to Mario Draghi to initiate a strategic reflection on the EU's competitiveness and growth. In it, the economist also identifies the challenges facing European industry with a clear conclusion: every year that the EU sets aside competitiveness, the strategic distance separating it from major powers, especially the United States, increases.
What is the status of the European economy according to the Draghi Report?
Draghi analyses the EU's starting point and distils some key information:
Europe has the foundations for a highly competitive economy
The European model combines an open economy, a high degree of market competition and a sound legal framework with active wealth redistribution policies. The European economy accounts for 17% of the world GDP.
Growth in the EU has slowed in the last two decades
Draghi points to a weakening of productivity growth, which hinders Europe's ability to meet its ambitions. Over the past two decades, economic growth in the EU has been markedly slower than in the US and China.
World trade, which has benefited Europe so much, is in crisis
International conflicts and economic instability have weakened three key areas that favoured growth in Europe after the Cold War: trade, energy and defence.
Three focal points for action to develop the competitiveness of the European Union
Although EU countries are responding to this new environment, they are doing so in a fragmented way, which undermines the common action of the single market. Draghi proposes three areas for common action to boost economic growth:
Bridging the innovation gap with the United States and China
A joint decarbonisation and competitiveness plan
Strengthening security without dependence on third parties
Bridging the innovation gap with the United States and China
A joint decarbonisation and competitiveness plan
Strengthening security without dependence on third parties
1. How to close the innovation gap with the US and China?
EU competitiveness is coming under pressure from two sides. On the one hand, EU companies face weaker external demand and growing Chinese competitiveness. On the other hand, Europe's star in advanced technologies is fading: from 2013 to 2023, its share in global technology revenues fell from 22% to 18%, while the US’s increased from 30% to 38%.
Both the US and China have taken the lead in innovation, with increased investments in fostering research and development (R&D), boosting tech start-ups and developing emerging sectors such as Artificial Intelligence (AI) and 5G deployment. Meanwhile, Europe specialises in mature technologies and is facing limited investment in innovative areas, market fragmentation that impedes common momentum and a lack of large tech companies comparable to those in the US and China, limiting the capacity for innovation and economic growth.
According to the report, Europe is not lacking in talent and entrepreneurial spirit, but innovation faces a number of barriers to taking a central position in the European economy. Restrictive regulations drive many key players to seek funding in the US: between 2008 and 2021, approximately 30% of European unicorns moved their headquarters abroad, mostly to the US.
Draghi Report proposal:
In this context, Europe must refocus its collective efforts on closing the innovation gap with the US and China. To do so, the European community must increase investment in R&D, strengthen collaboration between countries, support innovative start-ups and SMEs, and develop strategic capabilities in advanced technology.
2. A plan to boost decarbonisation and competitiveness
Although energy prices have fallen considerably from their peaks, EU companies still face prices up to five times higher than the US for natural gas. The report stresses the need to deploy renewables to improve the efficiency and competitiveness of these technologies in electricity production.
The gap is due to some fundamental problems in the EU energy market: investment in infrastructure is slow and sub-optimal, both for renewables and grids and market regulations prevent industries and households from reaping the full benefits of clean energy on their bills. However, one of the key factors here is energy taxation, which is much higher than in other parts of the world, adding a fiscal premium to prices and weighing down the competitiveness of the energy sector and the European region as a whole. Draghi warns that future crises may bring these issues back to the fore.
Draghi Report proposal:
The report highlights the need to accelerate the transition to a carbon-free economy, particularly in key sectors such as energy, transport and industry. A key factor is the need to reduce taxes and charges on energy prices to support competitiveness and the transition to a sustainable model . The EU must also boost technological innovation and investment, create a favourable regulatory environment and align climate policies with industrial policies so that the EU does not stagnate.
3. Keys to consolidating security without dependencies
Decades of globalisation have produced a high level of "strategic interdependence". For example, while the EU needs China for critical minerals, China depends on the EU to absorb its industrial overcapacity. A total of 75–90% of chips are manufactured in Asia, exacerbating vulnerability in the technology sector, according to the Report. The energy sector is not free from this dependence on external countries, especially in raw materials such as gas and oil.
The global balance is shifting due to deteriorating geopolitical relations and international conflicts, and all major economies must increase their independence to prevent price fluctuations or supply disruptions.
Draghi Report proposal:
The EU must strengthen its raw materials supply chain with supply agreements with new partners (such as Africa or Latin America) and alliances between Member States. It must also develop its own technologies and digital autonomy – especially in areas like semiconductors, AI or 5G/6G –, reinforce its energy autonomy by diversifying energy sources, and strengthen defence and security.
Applications of the Draghi Report in the energy sector
The energy sector occupies a central role in the Draghi Report as a key sector for boosting EU competitiveness. According to the economist, the keys are to accelerate decarbonisation and ensure the sustainability of the continent's energy supply. Draghi points out that the success of the energy transition depends on Europe's ability to exploit the available technologies as much as possible.
The path is clear: a joint plan must be undertaken to promote decarbonisation and boost competitiveness in the energy sector. Here are some key proposals from the report:
Energy tax reform
Draghi highlights the high energy taxation in Europe, and how it hampers competitiveness, and proposes setting a common cap on taxes and surcharges on electricity and gas. The aim is to avoid distortions or imbalances between Member States and to create a more unified energy market.
Harmonisation of measures between Member States
La idea es limitar las intervenciones nacionales en los mercados energéticos y, en caso de tener que hacerlas, deberían armonizarse para evitar más distorsiones en el mercado único.
European energy governance
En el informe, Draghi insta a potenciar la gobernanza energética común para que las decisiones y funciones del mercado se tomen de manera centralizada.
Boosting innovation
Draghi subraya la necesidad de que la UE lidere en innovación tecnológica para seguir siendo competitiva en el sector energético.
Proposals for natural gas
The Draghi Report proposes establishing diversified and long-term gas supply agreements to end traditional dependence on Russia, promoting joint gas purchasing mechanisms, developing strategic storage and import infrastructures, strengthening financial regulation to prevent speculation, and decarbonising the sector by focusing on green hydrogen and other renewable gases.
Proposals for the electricity sector
Entre las medidas concretas para el sector eléctrico, el documento aboga por simplificar los trámites administrativos para desplegar energías renovables, mantener la formación de precios marginalistas como elemento básico para el despacho eficiente de generación y demanda, fomentar la contratación a plazo y el impulso de los acuerdos de compraventa de energía (PPAs) entre grandes consumidores industriales y generadores de energías renovables, fomentar la inversión en redes para permitir la electrificación de la economía y evitar que las mismas sean un cuello de botella, acelerar la aprobación de mecanismos de capacidad y flexibilidad con los que garantizar la seguridad de suministro, mantener la capacidad nuclear existente (al tratarse de generación competitiva) y acelerar el desarrollo de nueva nuclear (innovación industrial dentro de la UE) e incentivar el autoconsumo en los sectores industriales de alta demanda eléctrica.
Adicionalmente propone reducir los impuestos y cargos sobre los precios de la energía, que se utilizan en muchos casos para financiar presupuestos públicos, incluso con la armonización de un tope máximo europeo.
"Over time, decarbonisation will help shift power generation towards secure, low-cost, clean energy sources. But without a European plan, it will take a long time before end users see the full benefits."
Mario Draghi, economist and former President of the European Central Bank
Investment plan for the European Union’s sustainable growth
To finance this strategy, Draghi estimates that an additional annual investment of at least €750 to 800 B, equivalent to almost 5% of EU GDP in 2023, will be needed. The economist points out that this investment would increase European output by 6% within 15 years.
The Italian economist told a press conference following the publication of the Report that "common assets", as he refers to joint debt issuance, "are an instrument" to finance this plan and boost EU competitiveness. Although they were perceived negatively after the financial crisis, Draghi believes that it would be positive to use them to finance projects linked to research and development and also defence. He is also in favour of refocusing the budget on strategic priorities and creating incentives for private investment.
Iberdrola's key role in the energy transition
At Iberdrola, we began to commit to renewable energies more than two decades ago as an essential foundation on which to build our clean, reliable and intelligent business model. This purpose has led us to where we are now: world leaders in this type of renewable technologies. With a strategy focused on decarbonisation, at Iberdrola España we work on deploying clean energy around the world and we carry out our business in dozens of countries, mainly in Spain, the United Kingdom, the United States, Brazil, and Mexico.
This commitment is also evident in our intention to mobilise large investments in sustainable energy technologies and infrastructures, as reflected in our Strategic Plan. In addition, aware of our role as a driving force and benchmark in electrification for many other companies, we have extensive experience in the field of PPAs.
Our push for clean energy and smart grids reinforces the decarbonisation targets set by the EU, but also improves European competitiveness by moving towards an autonomous energy market based on cheaper and more secure renewable sources.