Industry: EU's energy efficiency bill unfair to big manufacturers

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The energy-intensive metal industry feels under threat by the EU's  energy efficiency bill, which, once implemented, would push electricity prices up and could bring their businesses close to closure, Brussels chief of German non-ferrous metal group WVM told EurActiv.

Rolf Kuby is the chief of the Brussels bureau of WVM - WirtschaftsVereinigung Metalle federation, representing the economic concerns of  the non-ferrous metal industry in Germany, comprising 658 companies.

Kuby spoke to EurActiv's Ana-Maria Tolbaru.

Read here an article on how energy prices affect large manufacturers.

How do you assess the exact impact that energy prices have on your business? What models or scenarios do you use?

The non-ferrous metal industry is very energy-intensive and has therefore always used all possibilities to measure the amount of energy used. Energy-intensive industries have a strong incentive to reduce their energy intensity due to the high share of electricity in their total production costs. 

Modern energy management systems are used to support this effort. Because high electricity prices have been providing huge energy efficiency incentives, our industries have been optimizing their energy efficiency for a long time, leading to impressive results. We are now at the physical limits of improvement; this was e.g. also recognized by the Fraunhofer Institute during the technical preparation for the ETS benchmarking process.

The European non-ferrous-metals industry is a global leader as regards to productivity, energy efficiency, and especially its environmental standards. Here, the European non-ferrous metals industry has more than fulfilled its pioneering role. But being the best in the class makes it difficult to improve even further. The potential for additional efficiency improvements has reached technological limits.

How badly can higher energy prices affect your business? Could ‘slightly’ higher prices affect the industry, or do they need to be above a certain limit, starting from which it becomes unprofitable to run the business?

Taking the example of the aluminum industry, the share of electricity cost in the total production costs is approximately 50%. Increasing the electricity price will consequently immediately lead to a significant rise in the overall costs. Very low carbon prices woldwide impact the profitability of the NF-Metals production in the EU. Prices are set at the London Metals Exchange for the whole world, but up to now these prices are only charged in the EU.

Also, the difference of the cumulative EU power costs is very substantial with other regions, ‘’slightly’’ higher prices will just contribute more to that unequal playing field.

The effect is that there have been many closure announcements in the industry in many countries and the situation is critical. Investment in metals production in the EU is virtually impossible because of the unilateral energy and climate costs.  These missed investments and closures lead to this situation: Europe’s policy is actively creating a fast growing metals imports dependency. Despite the growing market for aluminum, only 14% of consumption was covered by primary production in 2013, which reflects the increasing need of import.

Industries that use lots of energy need more help in the face of rising electricity prices - but where would this help come from?

An international level playing field for our industries on the costs of power is required, including ETS, renewables, and CHP costs, until competitors, elsewhere, bear similar costs. We require appropriate pricing of grid levies, given our user profile and recognition for ‘interruptability’ services (our capacity to free large amounts of power, at short notice, for load balancing, preventing blackouts).  All these factors must be combined in the long-term over 20-year power contracts, just like it is the case for this industry in most countries in the world. Only this will give us the long-term stability we need to make the very large investments, which can only be recovered over such long time periods.

What do you think about the current form of the EU’s Energy Efficiency Directive? It is the EU’s main tool to achieve energy savings.

The energy-intensive NF metals industry commits to sustainable international climate protection. This is documented by several already more than fulfilled voluntary commitments dating from between 1996 and 2006. The NF metals industry promotes and demands an international climate agreement with a level playing field.

Only under these circumstances will further investments in climate-friendly technologies be possible. The EU Energy Efficiency Directive should be done in a cost-efficient way and not to the detriment of the competitiveness of European companies. There are too many instruments which mutually affect each other and which lead to raising energy prices and multiple burdens for manufacturing industries. We are strictly against binding energy efficiency targets. With a binding ETS CO2-reduction target there is no need for binding energy efficiency targets (this would otherwise lead to double regulation in the ETS-sector). 

The Energy Efficiency Directive has the potential to act as a catalyst to strengthen the market for energy efficient products and services. In particular, it must encourage an ambitious policy framework for medium- and long- term renovation of private and public buildings where significant untapped potential exists.

The Energy Efficiency Directive should help member states decouple growth from energy use. The Commission, Parliament and also Council – formed by the 27 member states – have accepted this principle. What are your thoughts on this? Do we need an instrument to do that? If so, why isn’t the proposed directive good?

A well-designed framework for energy efficiency can be a major lever for sustainable growth by boosting jobs in new economic areas and reducing CO2 emissions while enhancing the competitiveness of the EU’s industrial base. The energy efficiency directive should therefore:

  • allow Member States sufficient room to develop tailored approaches that best meet individual circumstances;

ensure that companies have the possibility to choose the technologies in which they wish to invest;

  • avoid adverse interaction with other climate and energy policies, including the EU Emission Trading Scheme Directive;
  • result in innovative improvements in energy efficiency rather than imposing a blunt cap on consumption that would place downward pressure on growth.

What regulatory framework would your industry need in order to continue making profits, but also make significant energy savings?

A focus of energy savings is key for the energy-intensive NF-Metals industry. Electricity efficiency benchmarks should be based on electricity use per ton of production and not in absolute reductions.

What technologies, services, tools is the industry using at the moment as a voluntary approach to energy-efficiency improvements? Do you get help in becoming low-energy from specialized bodies or companies?

The European non-ferrous metals industry is a global leader as regards productivity, energy efficiency, and especially its environmental standards.

The specific CO2 emissions of the NF-metals industry have been reduced by 28 %. Thanks to the recycling of NF-metals alone, the industry currently saves 8 million tonnes of CO2 per year. Industry is therefore an essential pillar of the German climate protection agreement. With its study on the “Costs and potentials of reducing greenhouse gas emissions in Germany” (2007, updated in 2009), the Federation of the German Industries, in cooperation with McKinsey, has successfully proven that industry is a problem-solver. Practically all the technologies analyzed in the study are based on the use of NF-metals, which are indispensable for climate protection due to their material properties.

How do energy-intensive businesses fund these services? Where does the money come from?

Up to now innovation is funded through national and European Innovation and research programs.

Have you found it harder in the current economic crisis to invest in energy efficiency improvements? Why? How did that reflect in terms of the growth in demand for energy efficiency services?

Creation of positive framework conditions for energy efficiency measures and energy services should take precedence over restrictive requirements. 

What would happen if the Energy Efficiency Directive came into force next year and energy prices would go up as a result? Is moving to another continent an option? If so, where? And would that not be too difficult, would it be more profitable?

To avoid any disproportionate legislation which could jeopardies seriously the competitiveness of EU non-ferrous-metals industry, all EU measures must undergo a competitiveness proofing. The effects of new legislation on particularly sensitive sectors must be taken into account and the impact of any new legislation must be considered in the context of already existing measures and burdens.

What is the biggest concern of the energy-intensive industry when it comes to the Energy Efficiency Directive, in just one sentence?

The prime consideration for all energy efficiency measures should be cost-effectiveness. 

If governments say they would fund such a shift for energy companies from an energy-selling business model to one based just as much on selling energy efficiency services, prices might not need to go much, if at all. Would the business you represent trust the government? Would you take the government’s word for it?

The Energy Efficiency Directive does in many aspects not respond to the veritable needs and challenges of the market and the society (which are linked to high financial risks and a lack of adequate financing / credit facilities). We fear that absolute energy consumption caps for Member States or binding energy saving targets for energy providers will lead to increasing energy prices and have negative impacts on the competitiveness of European companies. 

What incentives do you need in place in order to accept slightly higher energy prices?

In the first place we should all strive for lower energy prices and not accept it as a given that prices rise. We need policy measures which foster innovation, lower market entrance barriers for new technologies, provide for financing facilities and encourage best-practice-platforms. Energy savings in the industry sector are already incentivised by the ETS and should therefore not be imposed by the Energy Efficiency Directive.

Do you have a ‘plan B’ if energy prices do go up more than usual? If the Energy Efficiency Directive doesn’t drive prices up for the next few years, energy imports might – the prices for imports have been soaring in the past years.

No! In our primary industries we are already in plan B, in survival mode or closing.

It is a myth that the EU should have high energy prices or that these are higher here because of imports alone. The EU has a very favorable primary energy mix. The main reason for the high power costs and uncertainty is the short term marginal price based system, the lack of the possibility to have normal long-term power contracts, and the several high additional power costs.

How do you see energy efficiency, why is the industry already implementing it voluntarily?

The non-ferrous-metals industry is very energy-intensive and has therefore always used all possibilities to measure the amount of energy used. Energy-intensive industries have a strong incentive to reduce their energy intensity due to the high share of electricity in their total production costs.

Do you fear your industry might become uncompetitive if EU energy prices go up? If so, then what countries do you compare the EU to when you say this?

Yes indeed, the threat of being uncompetitive vis-à-vis non EU countries. Competitors are based all over the world.

Would you like to be exempt from the EU’s Energy Efficiency Directive, if this will result I higher energy bills for consumers (since businesses are also a consumer) ?

For the energy intensive Industries energy savings are already incentivized by the ETS and should therefore not be imposed by the Energy Efficiency Directive.

How would you propose the directive should look like then? How would you improve this point that affects your industry?

The Energy Efficiency Directive has the potential to act as a catalyst to strengthen the market for energy efficient products and services. In particular, it must encourage an ambitious policy framework for medium- and long- term renovation of private and public buildings where significant untapped potential exists.

We fear that absolute energy consumption caps for Member States or binding energy saving targets for energy providers will lead to increasing energy prices and have negative impacts on the competitiveness of EU non-ferrous-metals industry. 

Danish energy-intensive companies now think that energy savings are good – the price for energy imports does not affect them as much, plus they need to import less. 

Denmark is probably the least representative example for this. There is no genuine electro intensive non-ferrous metals industry in Denmark. The industry that is (still) there is in a different situation. Only 1-2 energy intensive industries still are operating in Denmark and you find the highest energy prices in Denmark compared to the EU. The actual energy savings obligations are mainly realized in industry and should they be exhausted the potential will only lie on households.

Also, the Danes believe it is much better to have the government implementing such a savings obligation scheme for energy companies and then monitoring the scheme, than having private companies using this scheme as a business model and drawing in power utilities with different incentives (Prices will go up anyway, so is it not better to trust the government? How hard is it to trust governments?)

It is not a question of trust in governments. The EU legislator and the Member States have certainly to regulate the internalization of climate and environmental costs to society. Ideally this should happen through international agreements to solve the overall impact of society on the worldwide ecosystems.

It is a question of doing the right thing to achieve a positive result for the environment in a cost-effective way. Increasing unilaterally compared to non-EU the production costs for non-ferrous-metals industries is reducing their competitiveness.

What do you think of short-termism? Do energy-intensive companies invest money in energy efficiency renovations, even if the payback is sometimes very long? Are they forward-looking much with their budgets? 

The European non-ferrous metals industry is a global leader as regards productivity, energy efficiency, and especially its environmental standards.

How big is the potential of energy efficiency improvements in your industry?

National energy efficiency targets should not result in absolute caps on energy consumption! The EED foresees absolute energy savings of 368 million tonnes of oil equivalent (Mtoe) in 2020. Energy efficiency should be defined as energy consumption in relation to economic indicators such as the production index. Early actions as well as remaining potential for cost-efficient energy efficiency improvements should be taken into account. Remaining potentials in industry sector are low according to the impact assessment on the EED. High potentials in the buildings sector should be in the focus of the directive and not only public buildings! Aluminum, Copper, Zinc, Magnesium, Nickel and all other NF-Metals perform at the start of the value added chain often an invisible, but indispensable contribution to solve the problem of energy saving. The material characteristics of metals open new chances for technological applications and support energy efficiency product properties.

Innovation in climate protection is impossible without non-ferrous metals: from copper connectors for electric vehicles, via aluminum bodywork in automobiles, galvanized building material resistant to corrosion and lithium-ion batteries, to recycled lead starter batteries. Wind turbines, solar cells and electric vehicles can only operate by using the energy-intensively produced (base) materials of the NF metals industry.

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