Industry needs affordable energy and feedstocks

  
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Europe's goal to rebuild an industrial base is welcome but it does not get much help from the Commission’s latest energy and climate package for 2030 unveiled on January 22, writes Hubert Mandery.

Hubert Mandery, is Director General at the European Chemical Industry Council (CEFIC).

As Europe crawls out of economic crisis, we find ourselves in a fundamentally altered world, in which the centre of economic growth is shifting to Asia and back to the reindustrialising US. After years of economic contraction, more than 20 million people are now jobless in the EU.

Though the economic sky is lightening at last, economic growth in 2014, forecast by the European Commission at 1.4%, will do little to ease the scourge of persistently high double-digit unemployment.

To turn the tide, the EU’s heads of state and the European Commission have rightly declared rebuilding Europe’s industrial base a top priority. The aim is to raise industry’s share of European gross domestic product (GDP) to 20% by 2020, from around 16% today.

We support this worthy and ambitious goal, but it does not get much help from the Commission’s latest energy and climate package for 2030 unveiled on January 22. This seeks to further slash emissions by further 40% yet includes no targets for industrial growth and jobs. If they are to deliver the growth Europe’s 500 million citizens request and enable industrial expansion, they must overhaul their strategy in three vital ways.

First, they must re-energise Europe. Industry needs affordable energy and feedstock. The chemical industry, which alone employs 1.2 million Europeans and contributes €558 billion to Europe’s GDP, is energy-intensive.

Another Commission report also published on January 22 showed a widening energy cost gap for EU industry with major competitors like the US, where energy prices are falling. Up to 15% of recent industrial energy cost increases in the European Union were attributable to recent policy-induced taxes and network charges.

We have lived with energy cost disadvantages for years but we now urgently need completion of the single market in energy, with effective competition between suppliers, and access to affordable and reliable energy and feedstock throughout the EU.

Energy supplies that support a cost-efficient and competitive transition towards a low-carbon economy, including unconventional sources like shale gas, must now be developed. Our trade agreements with third countries need to provide for competition and fair access to energy and feedstock.

Second, we also need a responsible climate policy. Renewable energy sources must increasingly compete under market conditions. Member states should choose the most affordable low-carbon energy schemes and drive improved energy efficiency of buildings and transport – the low hanging fruits.

Third, the emissions trading system (ETS) needs fundamental long-term reform. Fiddling with the system before 2020, by introducing short-term, panic-driven fixes – raises the risk we will fail to achieve the emissions target at lowest-possible cost.

The ETS reserve mechanism proposal is shrinking the allowances supply excessively and is only targeted at pushing up EU carbon costs. But the higher the cost, the earlier the bidding war of EU industry with the power sector, a bidding war we can only loose. This policy boosts the risk of EU production moving offshore together with EU employment.

It took 20 years for the chemicals sector to cut emissions by 50 per cent, a performance helped greatly by one-offs such as the switch from coal to gas as well as modernisation in Central and Eastern Europe.

Unilateral and unconditional targets of -40% GHG emissions from 1990 level translates to a -70% for the EU chemical industry: this is a recipe for de-industrialisation. This additional 20% cut from 2020 to 2030 will be much more difficult and costly for industry.

EU policymakers must decide whether or not to balance climate policy with competitiveness.

Beyond 2020, the carbon credit system will need a thorough overhaul to encourage high- performing companies to expand in Europe. An output-based, ex-post system founded upon realistic benchmarks would work best. The ETS should by then include two pathways within the same framework. One with full direct and indirect compensation should allow benchmarks-based users to grow. The other must enable a sustainable cut in CO2 emissions from power generation while ensuring industrial energy users pay no more than their fair share of the shift from fossil to renewable power.

And finally, any energy and climate framework designed for Europe must be complemented by a CO2 emissions reduction agreement with global partners. Europe can’t go it alone, especially as its share of global emissions will drop to 4.5% by 2030. There must be a change in policy thinking, giving priority to energy policy over climate policy.

We have to choose energy and climate policy that is affordable – not what is desirable at any cost.

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