INSIGHT: Europe in dire need of a lower cost energy policy

17 May 2013 16:24  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--The European chemical industry makes strong arguments for a simplification of EU energy policy and laws which aim for lower costs. Both industry and consumers should benefit from a broad energy mix, and from efficient delivery networks and pricing mechanisms.

But currently, however, EU nations fail on most if not all these fronts. The drive to reduce greenhouse gas emissions, which is a core strategy for the EU, works to push prices up.

The chemical industry suffers because it is a huge consumer of energy and despite the fact that its products can help reduce greenhouse gas emissions and are important for all sectors of industry.

Further innovation from chemical producers, particularly in collaboration with firms in other sectors and European research institutions, should lead the drive towards more energy efficient buildings, better power and transport options. But sector firms do not work in a vacuum and are starkly exposed to high and volatile energy costs and the better energy competitiveness of other regions.

The European industry is particularly concerned that its competitiveness and growth prospects are damaged by isolated energy and climate change policy actions at the national and supranational level.

Indeed, the sector talks a great deal about a level playing field in terms of energy policy goals, at least. It is deeply concerned that its companies will continue to look elsewhere to grow and in doing so hollow out European chemicals production. Europe’s high cost operating environment does primary materials manufacturers no service.

Yet, trade group Cefic and the consulting firm Ecofys have produced a study which suggests that Europe can pursue and achieve low-carbon economy goals while retaining a vibrant chemicals sector with producers active upstream and down.

The long-range energy roadmap considers a series of energy scenarios for Europe and the implications for chemicals.

“Our report plots a course which delivers a low-carbon economy while keeping industry firmly docked in Europe, ensuring jobs and growth,” said Cefic’s executive director for energy on publication of the report at the end of April.

Cefic used the European Business Summit in Brussels on Thursday to present the findings of the report.

The trade group explores in the study the impact of different energy policy scenarios in the 2020-2050 timeframe.

The “optimum” scenario as far as the sector is concerned produces considerable climate change benefits. It depends on what Cefic calls a “level playing field based on uniform, global carbon prices and a push to meet the overall 2050 target by halving carbon emission levels”.

If the playing field is not levelled, chemicals production will move outside Europe.

Three of the four energy scenarios presented in the report, their names are self-explanatory: Isolated Europe, Continued Fragmentation and Differentiated Global Action, suggest better greenhouse gas emission reductions for Europe but at the expense of the relocation of chemicals manufacturing.

Therein lies the chemical industry’s dilemma. It can make clear arguments for retaining large parts of the sector, indeed for keeping a well-balanced production base of commodity chemicals alongside intermediates, specialties and fine chemicals, in terms of EU jobs and economic growth. But other options – generally the offshoring of manufacturing – produce better GHG reduction outcomes for Europe, although arguably greenhouse gas emissions are exported elsewhere.

“The issue is not whether the EU should aim for a sustainable, competitive economy, but how Europe gets there,” said Garcia.

The report says: “In the absence of an international climate change agreement, the future of the chemical industry in Europe depends on smart policies that avoid further policy-induced energy cost burdens. Strengthening external relations with other regions, further diversifying energy supply and ensuring a well-functioning integrated energy market is essential for more globally competitive industrial energy prices in Europe.”

“If [energy] prices climb, expect a vicious circle of low investment and less innovation,” Garcia added.

A panellist at the European Business Summit, Cefic board member Tom Crotty, said: “A policy shift towards reducing EU energy and policy costs is needed to ensure industry stays globally competitive. It’s a question of whether policy will continue to be based on pushing up energy prices, or seek instead to make low-carbon energy cheaper and bring focus back to investment that ensures breakthrough products can still be made here at home.”

The energy roadmap did not consider a shale gas scenario but acknowledged the potential for change and the negative impact of lower energy and feedstock prices outside Europe on producers in the region.

Currently, European chemical firms are clamouring for access to shale gas although shale gas exploration and development in Europe lags far behind that in the US.

The UK has considerable shale gas reserves, the potential for which are being re-assessed now.

The UK Chemical Industries Association (CIA) is expected to call for an all-out push for shale gas in a report to be published within the next few weeks.

Cefic wrote on Friday to European Council president Herman Van Rompuy outlining the industry’s position on EU energy policy and costs ahead of a key energy and climate policy debate on 22 May. It calls for encouragement for the exploitation of shale gas in the EU.

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By: Nigel Davis
+44 20 8652 3214

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