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Europe needs an ambitious climate, security and competitiveness package

In a week that marks the on-going challenge of Climate Change, I am in Brussels making the case and drumming up support for the right climate change and energy policies until 2030. This will prepare the ground for when Europe’s leaders gather at the end of March to agree the best way to tackle one of the most challenging issues of our time and ensuring our energy security.

This is a once in a generation chance to ensure that ageing power stations across Europe are replaced with clean, efficient, reliable energy sources. A chance to drive the momentum to get a global deal on climate change in Paris, in November 2015. A chance to make sure that, as we rebuild economies across Europe after the deepest recession in our history, we are making sure that future growth is green.

That’s why Britain has been fighting for an ambitious 40% emissions reduction target by 2030 for the EU itself, and has agreed to support an EU-wide renewables target of 27% on the basis that this will not be binding on individual Member States. This will allow Member States to work flexibly to meet their greenhouse gas targets in the most cost effective way.

We must not allow these ambitious targets to be watered down. The economic, social and environmental costs of inaction are too great.

Yet we must also recognise and respond to the impact of high energy prices on consumers and industry and fashion our climate change policies for green growth.

We must in particular be alive to the significant gap that has opened between EU and US energy prices in recent years – and we must understand the causes of it. Today, an average US company will pay around half for electricity, and a third for gas, of what a European company will expect to pay.

For most sectors, this is a small proportion of production costs – around 3% on average for UK and German manufacturers, and the European Commission’s analysis has not found that the disparity has led to industrial relocation. But the impact on certain energy intensive industries, operating in a highly competitive international marketplace, is much more challenging.

There are two questions we need to address: what is causing this price disparity, and how should we respond?

Evidence from the International Energy Agency is clear – the vast majority of the price gap is due to Europe’s high gas import bill, pitched against a dramatic fall in energy costs in the US since their shale boom.

Right now, Europe imports 80 per cent of its oil and 60 per cent of its gas – an import bill of around £550 billion a year, at the mercy of volatile markets and decisions and events in foreign countries outside our control. This is a major cause of Europe’s global trade deficit. As our fossil fuel resources continue to decline, the EU is on course to be dependent on imports for 90 per cent of its oil and 80 per cent of its gas by 2035.

That’s why this is a chance we must grasp – the chance to rebuild our energy infrastructure in a way that protects the EU from price shocks and volatile markets, that dramatically reduces our reliance on foreign imports and that creates a sustainable supply of home-grown energy.

To water down the EU’s climate and energy policies on the basis of a price gap that is not caused by those policies would be disastrously short-sighted – particularly when we have better information than ever before about the economic costs of climate change to Europe.

At the same time, we must address the competitiveness challenge.

Some argue that the answer is a European shale gas boom – and shale will have a role to play as part of a wider strategy. But it’s no silver bullet. Our geology, our economics, our politics and our gas markets are very different – and we will not know until much more exploration has taken place exactly what contribution shale gas will make in Europe.

My firm view is that we have to work with industry to make sure we have policies that decarbonise Europe’s economy at the least cost, alongside a new industrial competitiveness strategy. We must support those energy intensive industries that are genuinely at risk of relocating outside Europe to ensure they can compete during the transition to a low-carbon economy. That includes freely-allocated Emission Trading System credits, and an EU state aid framework that enables this support.

And industrial competitiveness must be prioritised across Europe. Britain is leading the way on this, with our Industrial Strategy, supporting innovation and, in the energy sector, developing new low carbon and energy efficiency technologies.

Meanwhile the EU’s 2030 energy and climate policy framework must be designed to deliver the maximum economic and environmental benefits at the least cost to consumers. Only by giving the clear signals now can Europe stimulate the huge investments needed in our energy infrastructure and keep capital costs down, to develop a truly diversified lower carbon energy mix.

This should be combined with a renewed drive to unlock the full benefits from internal energy market integration and interconnection; an ambitious innovation and energy efficiency strategy to unlock the new technologies and huge savings possible; and a strengthened ETS to help drive cost-effective emission reductions and low carbon investments.

Energy and climate policy is often presented as a conflict between fundamentally contradictory competitiveness, security and environmental policy objectives. It’s a false conflict, not backed by analysis. Failure to address one will lead to inevitable failure of the others.

By setting out a smart, cost-efficient and ambitious 2030 package early, national leaders have a historic opportunity to harness the linkages between competitiveness, security and climate change, and meet Europe’s objectives in all three. They must seize it.


3 Responses to “Europe needs an ambitious climate, security and competitiveness package”

  1. Keith Lodge says:

    The technologies to capture, conserve and recycle ambient energy sustainably are all well known. They need to be harnessed to replace fossil fuel dependence and related harmful emissions at a rate to avoid fatal depletion of fuel and increase in GHG emissions. Investment and taxation systems should ensure that only a policy for sustainability is profitable. The economic costs of environmental and atmospheric destruction should be paid by those causing them. The scale of action necessary can only be delivered through mass application of alternative energy systems – with corresponding wealth creation opportunities – and the dismantling of redundant wasteful systems. The cost of ‘business as usual’ is economic and social collapse. Europe should lead the way to sustainable climate and economic security. .

  2. Roger Parker, Com' Energy Assessor says:

    Mr Davey,
    Perhaps it is an inevitability of high Office but Ministers seem to become detached or forget from where they have come. Policies, strategies, vested interest, international travel, etc.,etc., all seem to combine to shape the view of a Minister that the only way forward is to promote a relatively few in number of macro-energy-production projects. These privately-owned, capital-intensive projects, say, off-shore wind, nuclear, fracking, are then subsidised directly or indirectly by Gov’t; all to the benefit of their shareholders and senior executives. Earned income from the many, through taxation, going to the benefit of the few. And these macro long-term capital-intensive projects are predicated on a ‘guaranteed’ income flow from the sale of their energy to their populace customers.

    Thus, there is a strategic and structural Disincentive for root and branch reform of populace and business energy consumption in order to Cut Demand. Yes, there are Gov’t schemes tinkering about with this, more for political expediency to be seen to be doing something, but nothing substantive and on the scale and of a radicalness required to Cut Demand, and to facilitate the War on Carbon.

    The prevalent and dominating perspective of “from the many to the few” in my view is where the problem lies. Yes, there is a role for such macro-production but the emphasis, the focus, should be on “from the many to the many”. Unfortunately, because of the disincentive outlined above, we have seen and are seeing the effective down-scaling of the democratisation of on-site/ community energy production and of on-site energy-efficiency. The Gov’t is even being pursued in the EU Court of Justice for non-enforcement of Existing energy-efficiency legislation.; and update Reviews of existing legislation are dragged out to the very last by-date or even delayed.

    The technologies exists now for: nearly or zero-carbon buildings whether new build or retrofit; for the thousands of car engines to capture the heat generated during journeys and transferred to office or home at journey end; and for all the on-site energy Renewables, etc., etc. The many doing for themselves and/or their neighbours.

    It just needs a political will and a new perspective to do it. So come on Mr Davey, resist the VIP lifestyle and get down to the nuts and bolts of facilitating and enabling the populace to do for themselves, thereby freeing up energy for these energy intensive industries from our Existing macro-production capacity; no need to build new.

  3. Clive Best says:

    My firm view is that we have to work with industry to make sure we have policies that decarbonise Europe’s economy at the least cost, alongside a new industrial competitiveness strategy. We must support those energy intensive industries that are genuinely at risk of relocating outside Europe to ensure they can compete during the transition to a low-carbon economy. That includes freely-allocated Emission Trading System credits, and an EU state aid framework that enables this support.

    Meanwhile Asia is investing in cheap abundant coal powered stations. 60% of CO2 emissions originate there and this will increase for decades to come. – see recent IEA report on coal production. Realistically the only way to decarbonise Europe’s energy is a massive expansion in nuclear capacity and this is not yet politically acceptable. The lights will have to out first to change this illogical position. Wind doesn’t stand a chance of replacing fossil fuels.

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