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09/12/2016

EU’s re-industrialisation dream ‘hostage’ of high energy prices

Trade & Society

EU’s re-industrialisation dream ‘hostage’ of high energy prices

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Business representatives were unimpressed by last week’s meeting of EU industry ministers, who backed a “European industrial renaissance” without tackling the issue of high energy prices. Hopes are fading that the European Commission can match “nice words” with action, EurActiv was told.

The EU’s 28 industry ministers gathered in Brussels on 20 February for a meeting of the Competitiveness Council which discussed a European Commission policy paper (communication) for an “industrial renaissance”, published earlier in January.

“As you know, for Europe, energy prices are a big problem,” said Antonio Tajani, the Italian commissioner in charge of enterprise and industry behind the industrial renaissance initiative.

Speaking to the press after the meeting, Tajani said: “The first action by the European Commission is to put on the table for the first time the money for European re-industrialisation – one hundred billion euros coming from regional funds.” Other funds available for re-industrialisation include the €40 billion available for innovation and scientific research under the Horizon 2020 programme, which runs until the end of the decade.

“First of all, we aim to address the high cost of energy and the lack of a unified energy market. I believe that this is probably the most important priority,” added Kostis Hatzidakis, the Greek minister for development and competitiveness who was chairing the ministerial meeting.

“We need to mitigate the negative impact of the high cost of energy which is twice higher than in the USA, or Russia. Especially, EU gas is three to four times more expensive [for EU companies] than for the USA, the Russian and the Indian competitors.”

Hatzidakis said the Greek EU presidency was preparing a letter with concrete proposals on energy prices for the spring EU summit on 20-21 March that will feature a debate on industrial competitiveness.

But he warned that the Greek EU presidency “cannot work out miracles within six months”.

“What we can do is lay the foundation for the new European Commission that will be formed after the elections to bring forward concrete legislative proposals,” Hatzidakis said.

‘Nice words’

This came as a major disappointment for business representatives who claim ministers shied away from stating the obvious, that current energy and climate change policies deteriorate the EU’s competitiveness and therefore urgently need correction.

Instead of clear-cut language, the meeting’s conclusions listed a number of research papers, including one by the European Commission on the high cost of energy in Europe, but stopped short of saying what needs to be done to correct the situation.

In the US, cheap shale gas has turned around the fortunes of the world’s largest economy. The cost of electricity in the United States is a third or half that of the EU and gas prices are just one third of those seen on the old continent.

“The USA currently attracts massively industrial investments and jobs: This is a true industrial renaissance in the US,” said Peter Botschek of the European Chemical Industry Council (CEFIC), which represents 29,000 companies, producing about a fifth of the world’s chemicals.

By contrast, EU statements about an “industrial renaissance” were just “nice words”, Botschek told EurActiv.

‘More and better jobs’

The European Commission’s ‘Industrial Renaissance‘ paper is scheduled to be on the table of the next meeting of EU heads of state and governments on 20-21 March, which will mainly focus on “growth, competitiveness and jobs”.

But Botschek said that the EU’s recurring calls for “more and better jobs” would remain empty words if the Commission did not back it with actual policy measures.

Both CEFIC and BusinessEurope, the powerful employer’s association, have underlined the reforms they believe are necessary to that end and will drive those points home again ahead of the March and June European Council meetings of heads of state and government.

“Indeed the re-industrialisation of Europe is the hostage of an ambitious goal given the relatively high energy costs,” said Botschek, adding that energy costs have been relatively higher in Europe than in other regions for many years.

“Two factors are changing the game,” he said – the emergence of shale gas in the US and increasing energy costs in Europe, where energy policy is “subdued to climate policy ambitions”.

“We did so by creating carbon costs, surcharges and taxes in order to stimulate low-carbon investment and to subsidise power production from alternative – but largely uncompetitive and unreliable – energy sources such as solar and wind. Those energy sources have been granted priority access to the grids thereby undermining the EU’s energy market design and the EU’s energy market liberalisation policies that aim for an EU Internal Energy Market to be realised in 2014,” Botschek explained.

The CEFIC representative said EU policies should instead focus on diversifying energy supplies, putting in place a functioning single energy market, and introduce climate policies that encourage rather than hinder growth in the manufacturing sector.

Botschek admitted that such policies would likely run into fierce opposition from environmentalists and some policymakers. “But we have seen also a massive campaign in the run-up to the Commission proposal for the 2030 framework, all geared at pushing further on the current policy which entails higher costs for Europe,” he contended.

“20 million unemployed in Europe speak their own language and this cannot continue to be ignored,” Botschek stressed, underlining the negative economic consequences of the EU’s “unilateral” climate policies.

2030 targets for renewable energy and climate change

A European Commission consultation document, or ‘Green Paper’, for the EU’s 2030 climate and energy policy mentions a potential greenhouse gas emission-reduction target of 40%, and does not close the door on a 30% target for the proportion of energy that renewables should make up by 2030.

For the German chemical company BASF, the difference in energy price between Europe and the US is already driving investment decisions that may have consequences down the line for industrial jobs in Europe and Germany.

“Our sites are in competition with each other and with such a huge difference in energy prices, the decision is clear – the money is not going there [in Europe],” said Claus Beckmann, head of BASF’s energy and climate policy unit.

He cautioned however that decisions to relocate factories or build new ones would not happen overnight but over the long run. “It’s a question of time,” Beckman told journalists at a briefing at BASF offices in Brussels on 25 February. “We think the market for chemicals will increase in the future. The question is only where the production will be located.”

“It depends on what the public is willing to pay for climate action,” added Brigitta Huckestein, a senior manager for energy and climate policy at BASF. “I do not believe that the public is aware of this – that it will cost them money if they are going for such a high goal.”

Positions

The European Federation of Waste Management and Environmental Services (FEAD) called on the European Commission to revise the draft guidelines on environmental and energy state aid for 2014-2020 so the recycling industry is also protected from higher energy costs resulting from funding of support to energy from renewable sources.

FEAD members draw attention to the fact that the draft Guidelines stress that state aid should be limited to sectors that are exposed to a significant risk of carbon leakage due to the funding of support to energy from renewable sources.

“If the draft Guidelines recognise that state aid should be limited only to sectors that are exposed to a significant risk of carbon leakage, the European private waste management industry would have to face high energy costs. Recycling activity benefits the environment through the avoidance of emissions in primary production processes and EU policy is designed to encourage higher levels of recycling. The impact of higher energy prices resulting from the promotion of renewable energies could inadvertently reduce the incentive for recycling activity to be maximised across the EU”, FEAD states.

Background

In May 2013, the powerful employers’ group BusinessEurope called on European Commission President José Manuel Barroso to radically shift the EU's energy policy away from climate change mitigation towards cost-competitiveness and security of supply.

But a EU summit dedicated on energy with the objective of lowering prices and boosting the Union’s industrial competitiveness, held on 22 May 2013, ended up without major decisions. [more]

EU Energy Commissioner Günther Oettinger unveiled last November a document on state intervention in power production that warns EU energy prices will continue to rise unless governments take steps to reduce green subsidies.

As most renewable energies are still more expensive than fossil fuels, a variety of support schemes have been put in place to accelerate their uptake and meet the EU's goal of sourcing 20% of its energy from renewable sources by 2020.

Timeline

  • March 2013: Potential plenary vote in European Parliament on EU carbon trading overhaul
  • 20-21 March: Spring EU summit to focus on growth, competitiveness and jobs

Further Reading