Efficiency and renewables make Europe competitive, EU study says

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EXCLUSIVE / European industry has maintained its global market position thanks to relatively low energy intensity levels and high renewables penetration, according to a study into the continent’s competitiveness due to be released by the European Commission as part of its clean energy package today (22 January).

Renewable energies “help reduce fuel import costs and contribute to improving the energy trade balance,” says the report by the EU’s economic and financial affairs directorate (DG Ecfin), which EURACTIV has seen. 

Energies derived from replenishable sources such as the wind and sun also “provide opportunities in terms of industrial equipment and trade flows,” and “contribute to reducing our energy dependence,” the paper says.

In 2010, renewable energy used in electricity generation avoided €10.2 billion of imported fuel costs, €2.2bn of which came from wind alone.  

Overall, renewables covered almost the entirety of expenditure from support schemes, and avoided €30 billion of fuel imports that year. But such savings were “still too low”, the report says, apparently indicating a need for further renewable energy deployment.

Josche Muth, the secretary-general of the European Renewable Energy Council, an industry association, said that, there was a “complete disconnect” between such glowing analyses and the austere policy announcements expected today.

“With a binding renewable energy target of 30% or 35% for member states, we would see lower costs for energy intensive industries, more jobs and less fossil fuel imports,” he said.

“Regardless, we are going down the opposite line.”

A 2030 climate and energy package due to be released today is expected to aim at a 27% share of the energy market for renewables by 2030. But this will not be binding on member states, and is in line with business-as-usual trends.

The proposal appears at odds with a widely leaked version of the impact assessment accompanying the 2030 package which found that ambitious renewables and energy efficiency targets could create half a million jobs in Europe.

Energy prices

A separate paper on energy costs prepared by the Commission’s energy directorate, which will also be released today, reportedly says that Europe’s industrial electricity price is twice that in the US and 20% higher than in China – and that the figure is widening.

Similarly, the Ecfin paper finds that Europe has higher real energy prices than its competitors, and that renewable generation increases consumer electricity bills.

Support for renewable electricity generation makes up 7.2% of end-user electricity prices for industry and 5.4% for households.

But this is considered less of a factor in electricity prices by Ecfin than Europe’s heavy reliance on energy imports – for 54% of its fuel in 2011 – and the index-linking of the majority of gas contracts to oil prices, a phenomenon that has often left them as ‘stranded assets’ that are too expensive to operate.

"Half of [the] natural gas supply in the EU is still indexed to oil," the report says.

Fossil fuel import dependency remains the main driver of price increases but their high price has to some extent spurred energy efficiency improvements in Europe, the report finds.

“In a global context, the EU manufacturing sector exhibits a low level of energy costs relative to both output and value added,” it says. “This positive outcome is mostly explained by the low energy intensity of the sector. The EU manufacturing sector has so far responded to energy price increases through sustained energy intensity improvements, thus maintaining its relatively favourable position.”

Pause in energy efficiency

The expansion of shale gas production in the US is described as a “spectacular development” which has reduced the EU-US energy trade balance in GDP terms. But it has only had a “limited” impact on the EU-US goods trade balance.

However the paper cautions that high energy prices for EU industries should remain a policy concern because “energy efficiency improvements may slow down in the EU and speed up in the US due to diminishing low cost options, and increased policy effort.”

Indeed, the EU will today announce a pause in new energy efficiency legislation until after a June review of the Energy Efficiency Directive, and a ‘pledge and review’ system for future EU climate measures that may well see Brussels lose its power to initiate some policies.  

Claude Turmes, a Green MEP from Luxembourg who has helped draft some of the EU's energy laws, said this was ironic. “There is no relation between the Commission’s analyses and the energy efficiency and renewables policies being announced today,” Turmes said. “The architecture of the Energy Efficiency Directive was not even analysed in the paper.”

Ingrid Holmes, the associate director of the environmental NGO E3G agreed. “The Commission’s analysis shows that prioritising energy efficiency is the best way to protect energy intensive industry from energy price rises," she said. "I am at a loss to understand why the Commission has failed to reflect this in its communication. Low ambition on energy efficiency will erode rather than build upon the great success of European industry in decoupling profits from energy prices.”

Carbon prices

One other climate mitigation measure, carbon prices, are “not found to have any statistical significant impact on electricity retail prices,” by the Ecfin paper although energy intensive industries and the employers’ confederation, BusinessEurope, last year ran successful campaigns arguing that it did.

One study by the European Aluminium Association (EAA) last November argued that “a significant part of the increase [in energy prices] is attributable to EU climate and energy regulations and national implementation of EU targets.”

The result, the EAA said, was uncompetitive pricing in Europe’s electricity markets and “massive production losses” due to carbon-leakage, or the relocation of industry to regions with laxer climate laws.

But the EU study says that the carbon price – currently around €5 a tonne of carbon – is far too low to have such an effect. It also "fails to provide a strong price signal for consumption behaviour and for investments in clean production technologies,” the paper finds.

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.

But the consultation document suggests that progress on a new energy savings goal be delayed until after a review next year of progress towards reaching the bloc’s 2020 target, despite recognising that this is non- binding, and unlikely to be met. 

The EU currently has three 2020 climate plans – for 20% improvements on the continent’s CO2 emissions, renewables and energy consumption performances. This latter is to be met by a variety of means.

  • February 2014: European parliament Plenary will vote on their position on 2030 targets, which conflicts with the Commission's
  • March 2014: EU Council will discuss climate and energy issues
  • May 2014: New EU Parliament to be elected
  • May 2014: EU member states must prepare schemes for their energy companies to deliver annual energy savings of 1.5% as part of the Energy Efficiency Directive
  • June 2014: Review of progress towards meeting the 2020 energy efficiency target
  • June 2014: EU Council will discuss energy and climate issues
  • 2020: Deadline for EU states to meet binding targets for 20% cuts in greenhouse gas emissions, improvements in energy efficiency, and market share for renewable energy

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