The marriage of greens and industrialists

  • 2014-02-06
  • By Dorian Ziedonis

Moving targets: Europe’s push for green energy is impacting industry.

BRUSSELS - Environmentalists’ efforts to push Europe forward as a global leader in tackling climate change have come up against a roadblock they probably weren’t expecting: jobs. Current trends show business in Europe losing competitiveness, and with it, jobs. EU unemployment rates remain stubbornly high at over 12 percent. And Eurostat data indicate that investment has been steadily dropping over the past two years.

Against this backdrop, Vice-President of the European Commission Antonio Tajani, speaking of his ‘Industrial Renaissance’ for the EU in a meeting with journalists in Brussels on Jan. 21, said his number one priority in driving a competitive industrial policy is the workers’ interest, in providing “jobs for all.” Higher employment is the target, and strong industry is the way to achieve it.

Indeed, manufacturing makes outsized contributions to trade, research and development, and productivity. The sector generates 70 percent of exports in major manufacturing economies - both advanced and emerging - and up to 90 percent of business R&D spending, says a McKinsey Global Institute report on manufacturing from November 2012. And who are the manufacturing leaders in Europe? Four countries – Finland, Denmark, Germany and Sweden – said member of Tajani’s cabinet Silvia Bartolini at the Brussels’ meeting.
Can a green economy co-exist with industrial development? After all, as Europe moves forward with a green agenda, its industry has been getting less competitive compared to economic powerhouses such as the U.S. and Japan, says Bartolini.

The economic crisis, and self-inflicted wounds, such as Germany’s generous support of renewable energy projects, paid for by consumers and business through increasingly unaffordable tariffs - green energy subsidies now cost around $32 billion a year - have been blamed for lost competitiveness.

It’s a problem especially for the Baltics. Kristine Berzina, Program Officer, Energy and Society at the The German Marshall Fund of the United States in Brussels, told TBT that “Energy prices are a major concern in the Baltic States. Electricity prices have grown more than 30 percent in Latvia, Lithuania, and Estonia between 2008 and 2012.”
What is noteworthy, she says, is that “The new 2030 EU-wide target is a more flexible approach to increasing renewables, one that could help moderate the increase in prices.”
News agency Stratfor, in a January report, wrote that “Europe’s high energy and electricity costs have become politically and financially untenable and have sapped support for costly, environmentally friendly policies in many member countries.”

The report highlighted that “average industrial electricity prices in the European Union are more than double those in the United States, while industrial natural gas prices reach up to four times that figure.”
It’s difficult for European business to carry this burden. It also means that as customers look elsewhere for purchases, jobs disappear through lost business or as companies move production abroad.
So, with an eye to the future for Europe’s economy, and in support of the battle against global warming, a green energy and climate package proposal meant to boost industrial competitiveness by 2030 was announced on Jan. 22 by European Commission President Jose Manuel Barroso in Brussels.

The ‘pillars’ of the proposed 2030 framework are: reducing greenhouse gas emissions by 40 percent below 1990 levels and an EU-wide binding target for renewable energy, to 27 percent.
The 40 percent emissions reduction would have to be met through domestic measures alone – not through trading quotas. The 27 percent renewable energy target is to force a transition towards a “competitive, secure and sustainable energy system... driven by a more market-oriented approach with enabling conditions for emerging technologies,” said one official in Brussels.
The framework builds on the existing ‘climate and energy package’ targets for 2020, which specify a 20 percent requirement for clean energy.

Energy pressures
What’s behind Europe’s difficulties? The high cost of energy for industry, and low innovation levels, are at the top of the list.
Natural gas foreign dependency in EU-27 was 65.6 percent in 2012, slightly decreasing from 67.3 percent in 2011, with The Netherlands and Denmark the only net exporters. In 15 of the member states, energy dependency is higher than 90 percent, show Eurostat data. This is both economically, and politically, costly.

Barroso says his proposal will reduce industrial needs for gas and oil through greater efficiencies. Part of the Commission’s efforts will also be devoted to identifying the “real reasons for why energy costs keep rising,” he said. Some of these reasons are tied to the already mentioned green energy subsidies; others can be tied to what some will call extortionist policies by Russia, and also the cost to bring new sources of supply online.
Berzina states that “The process of bringing renewables into the grid is driving up prices across the EU. In a research study released alongside the new 2030 framework proposal, the European Commission argues that taxes, levies and network costs are behind the recent rise in energy prices in the EU.

One EU official speaking on the subject said that part of the problem is that there is “little competition between retail [energy] markets,” which keeps prices high. And there is “no harmonization across the EU in taxation policy.” These issues are compounded by “trade restrictions, infrastructure limitations and the indexation [of gas] to oil prices,” added the official.

Solutions to Europe’s high-cost energy structure include finishing the internal energy market, providing support to the industry, better governance of networks and better overall competition.
There needs to be “one voice, one negotiator” for energy across the Union. This doesn’t mean one price across the EU, as there will be differences due to sources of energy, dependencies, but more coordination is needed.

Focus on innovation
Tajani’s ambitious plans for European industry set a target of increasing the industrial sector from 15 percent of GDP today, to 20 percent by 2020. He wants to see a “good energy policy,” to better compete with U.S. industry with its shale gas cost advantages. SMEs (small and medium sized business) also need more support, as these are the drivers of growth, he says.

Innovation plays a leading role in all this. Bartolini said that last year investment in the EU into innovation was just 2 percent of GDP; this has to increase to at least 3 percent.
Leaders in innovation in the EU, she said, are Finland, Denmark, Germany and Sweden. The U.S., leading the global pack of innovators, is also moving production back home, she says, on the basis of cheap energy. The EU needs to follow this example.

To help industry in this sector, Bartolini mentions more EU support on the way, through the Horizon2020 program, for example. This will offer funds to support basic research and product introductions. European companies have to move from a “silo” mentality to one where all the pieces work together.

‘Existential’ crossroads
The share of renewable energy among EU member states rose to 14.4 percent in 2012, compared to 13.1 percent in 2011, according to the European renewable energy barometer EurObserv’ER. Closer to home, Estonia experienced a drop in renewable energy production of 16 percent in 2013 versus 2012. This includes a drop in electricity produced from biomass, biogas and waste.

Nonetheless, Barroso is confident of the 2030 plan. It’s an “existential effort for our planet,” he said, quickly pointing to the fact that since 1990, greenhouse gas emissions are down, while GDP across the EU is up sharply. These apparently are not incompatible goals – clean air and more jobs.
But these new targets are aggressive; will they lead to a greener environment, while at the same time helping EU industry?

Yes, notes Berzina, “I would say that across the European Union these targets are feasible.”
The energy expert says that “across the European Union these targets are feasible,” acknowledging that “the Commission is concentrating ever more on competitiveness.”
Commissioner for Climate Action Connie Hedegaard in Brussels said that it will take great effort to reach the targets, but the “economy, energy transition and climate change have to go hand-in-hand.”

The tricky thing about the 2030 program is that the emissions and renewables targets are not “binding” on individual member states, but are an EU-wide goal. This provision makes direct enforcement much more difficult by relying on a nebulous concept of ‘harmonization’ for countries to move away from fossil fuel energy generation, warns Stratfor.
Environmentalists complain that they are a retreat from previous goals.

The new framework, says Berzina, is “First, a response to the gains Europe has made so far on climate and renewable energy goals. Europe has made great gains in reducing its greenhouse gas emissions compared to 1990 levels. The target for 2020 was a 20 percent reduction, and by 2012 the EU had already reduced emissions by 18 percent. The EU is on track to reach a 24 percent emissions reduction by 2020. Even so, the 2030 target of 40 percent greenhouse gas emissions reduction is ambitious.”

She adds: “Secondly, the new framework recognizes that economic recovery in the post-recession period will not come automatically. Businesses will need greater flexibility in choosing their energy sources while keeping climate change and energy security goals in mind.
Energy Commissioner Gunther Oettinger speaking to the press in Brussels noted that the new targets are designed “to narrow the cost gap between the EU and U.S. and Asia” for business.

Optimistic Estonians
Estonian Economy Ministry energy department head Timo Tatar is optimistic about the goals, saying they are “reachable” for Estonia, reported Postimees Online. “It is positive that the aim of reducing the emissions is a pan-European Union one and every member state can find its own way to achieve that aim,” he said.
At face value, says Berzina, Latvia has already met the general 2030 targets. “In 2010, Latvia used renewable sources for 34.5 percent of its final energy consumption. Latvia is similarly ahead on emissions reduction compared to 1990 levels, with emissions declining by over 50 percent between 1990 and 2011.”

But Latvia could be chasing a moving target. “In the past, Latvia’s success in using renewable energy sources has meant that its share in meeting EU goals has been higher. In order to contribute to the EU’s 2020 target of 20 percent renewable energy, Latvia’s 2020 target was 40 percent. Therefore the feasibility of Latvia meeting the new 2030 renewable energy target will depend largely on Latvia’s share of the collective burden,” notes Berzina.

And, “the EU-wide target only refers to renewable energy,” she adds. “In the proposed 2030 framework, the EU as a whole will have a target of 27 percent renewable energy in its final energy consumption. Currently, the EU is using renewable energy for approximately 13 percent of its final energy consumption. The Baltic States are doing well in renewable energy. Latvia, for example, used renewable sources for 34.5 percent of its final energy consumption in 2010. In the same year, the consumption of renewables in Estonia exceeded 24 percent and was just under 20 percent in Lithuania (Eurostat).”

The budget for 2014-2020 allows the EU to invest up to 960 billion euros up to 2020, according to Sufficient funding should therefore be available in the search for solutions. Will we see results: progress on climate initiatives, and more competitive industry and jobs? These will offer yardsticks to measure performance.
Tajani promises that his policy won’t make business less competitive. “There is a lack of investment today. Companies are not innovating. Europe needs to produce solutions,” asserts the industrial policy chief.
The solution, he says, lies in “marrying industrial policy and environmental policy.”

While the EU debates these new initiatives, global business keeps moving forward.