2030 energy and climate package risks 'losing Europe's competitive advantages'

Policymakers must ensure that they plan for Europe's future competitiveness, as well as for today's, argues Henry Derwent.

By Henry Derwent

25 Feb 2014

The debate over the European Union's climate and energy package for 2030 risks being dominated by familiar claims of increasing energy prices damaging Europe's competitiveness or Europe having burdened its economy with the energy transition while struggling to overcome its debt crisis.

But the key question is about our future: how far should we invest in low-carbon energy use and energy efficiency to secure Europe's competitive edge in the decades to come?

Europe is still a global leader on low-carbon, but our competitors are catching up fast. It has been argued that Europe is diluting its competitiveness through its concern for carbon and others are taking advantage, but, in fact, competitors including China, India and the United States are steadily investing in low-carbon technologies and unlocking their own energy efficiency potential.

While European politicians and economists debate how far taking action on carbon is justified, or investable, in the absence of certainty about international targets, other governments are acting.

Renewable energy targets now exist in 138 countries. More than 60 countries, including Australia, South Korea, South Africa, Canada and Brazil have emulated the feed-in-tariffs widely used in Europe.

Around 70 per cent of new wind power capacity and 40 per cent of new photovoltaic panels were installed outside Europe in 2012 with China and the US attracting a combined average of 60 per cent of new wind investments in the period 2009 to 2012.

And the United States has the highest sales of electric vehicles with about 53,000 new vehicle registrations in 2012, including about 38,000 plug-in hybrid and about 15,000 battery electric vehicles. Across Europe, except in Norway, registration numbers were significantly lower.

A recent report, 'Staying with the Leaders', from several leading European economic research institutes convened by Climate Strategies - a London-based grouping of research institutions - sets out the key facts about low-carbon action and investment worldwide and shows how much deeper the European debate needs to go.

The report points out how little - for most of the European economy - current energy prices have to do with global competitiveness, taking the world economic forum's indicator on national competitiveness as one illustration.

What is far more important is the innovative environment. Switzerland, Finland, and Germany are among the top four countries in terms of competitiveness.

There are important energy-intensive industries for which this assessment does not hold, but existing provisions in the EU emissions trading scheme and other legislation recognise their exposure to energy prices and provide special provisions for climate policies to provide the protection that is needed.

However, energy prices as a whole are dominated by basic resource costs. Some countries and regions have easier access to energy resources, and this changes over time as resources are discovered or depleted.

Adjustments to carbon costs cannot eliminate these differences, but an intelligent use of renewables and energy efficiency can make a big difference to total costs.

In the European energy roadmap 2050, for example, the scenario showing renewables contributing up to 75 per cent of gross final energy consumption and 97 per cent of electricity consumption, show similar total energy system costs to the reference scenario, which has much lower shares of renewable energy.

The difference, however, is visible in energy import and investments. Energy imports are set to be reduced by about €160bn in 2030, with reductions rising to €550bn in 2050.

While the EU has been preoccupied with the effects of the euro crisis, many of its competitors have been investing heavily in renewables and energy efficiency across industry and transport, and have supported CO2 emission reductions with some form of carbon pricing.

[pullquote]So until there is a clear and ambitious policy framework for 2030 and beyond, Europe is facing the risk of losing the competitive advantages it has gained in the industries that will drive the future global economy[/pullquote].

Above all, these advantages build on high energy efficiency and advanced low-carbon technologies which in turn require a robust and stable investment framework. That is how tomorrow's competitiveness can be assured.

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