Opening Words by Artur Runge-Metzger, Director for Climate Action, European Commission
Mr Runge-Metzger opened the conference, noting that this event closes the series of expert consultations, an integral part of working towards the Paris Agreement. On one hand, a strong regulatory framework is required; however, companies must also be able to meet their longer-term goals under ETS. Without innovation, the low-carbon objectives are not attainable.
Getting the industries' feedback is critical to understanding what the technological innovations are that we are looking at, he said, in addition to trying to understand what the challenges are and where they lie. To do this, 10 sector specific workshops were convened. 193 industry stakeholders participated overall and they provided invaluable contributions. In total, 250 experts engaged in providing feedback and they did so voluntarily and, thus, he thanked them for their input.
A summary report has been published on the findings and, for him, 3 primary questions emerge from the paper:
- what kind of innovation is required?
- with which type of financial instruments could the EU engage with to promote the attainment of their goals?
- which modalities for public support can make the difference between success and failure?
Concerning EU funding, he said that support had to be made across the board as this item is of key concern for Europe. Furthermore, a sensible framework must be implemented which will be conducive, and not inhibitive, to innovation. As such, any regulation put into force must be measured and balanced.
Towards the Innovation Fund – Feedback from the Industry. Presented by Peter Sweatman, CEO, Climate Strategy & Partners
Mr Peter Sweatman began by quoting Mr Eric Toone, formerly of the US Department of Energy, saying, 'When you're doing innovation, the first question is not is this going to work? But rather, if it works, would it matter?' There is a key difference between innovation funds and innovation investments, and this must be understood, he said. The former needs to provide funds for the greater good which may or may not provide a real return on investment and this is key; whereas, the latter is seeking a return on investment.
Concerning the expert consultation work undertaken over the last 6 months, he noted that over 80 specific technologies had been identified, many of which are cross-sectoral. On innovation, no group has a monopoly on innovation and it is cross-cutting. For example, the EU SET-Plan has come up with many innovative approaches over the past few years. In addition, there are other organisations such as the World Business Council for Sustainable Development.
The workshops were well structured, he noted, and it emerged that there are 5 key drivers for decarbonisation:
- costs savings and competitiveness;
- carbon price levels;
- developing inter-industrial collaboration models;
- reduced environmental externalities (delivering improved corporate sustainability reputation);
- international competition for green (or bio) products.
The groups also discussed the barriers and risks with regards to progress. He said he counted over 100 that were identified. However, they mainly fell into 4 clusters:
- the need to strengthen, improve, or identify the business case for long-term and deep decarbonisation;
- the often changing and not fully developed regulatory framework;
- issues around permitting, licensing and technical quality approvals for new technologies and low-carbon products;
- the overall immaturity of 'collaborative solutions' and their frameworks and the need for greater clarity in this area.
He said there was strong consensus in terms of when funding was needed. There are large funding needs and many traditional funders, such as banks, are not willing to take such risks. Thus, he termed this a 'valley of death' with regards to the funding gap. Full roll-outs of a breakthrough technology can entail enormous costs overall. Feedback points to funding requirements ranging from EUR 5 million to EUR 200 million for projects, depending on the technology concerned. Thus, there were calls for grants to form a core part of funding needs; they are a way of recognising the long-term nature of the innovation. Funding should be a mix, however, depending on the project and its stage of maturity. Funds can be blended with many different instruments to also mitigate risk.
Participants wanted a process that was open and transparent; a simple set of criteria should be required when submitting applications for any funding under the first stage. This will attract true innovators and would reduce the overall administrative cost. However, he noted that consensus was not found when it came to how long it would take to achieve decarbonisation goals; thus, funding needs to be available for the long-term.
Funding for innovation also has in-built expected returns. However, the returns in this instance are binary, he said. In other words, there will either be 'superstars' or failures where this technology is concerned. So, perhaps the right question is what sort of funding is needed to take account of these realities.
Other recommendations set out in the report include milestone-based support and adequate resources being made available. Concerning the former, funding should be available when certain criteria are met. Thus, 'zombie projects' which are destined to fail immediately will not take too many resources. He also pointed to project supported assistance for innovation funding (IF) and advantages for 'collaborative consortia' with cross-sector technologies. While a 'one-stop shop' regarding funding would be desirable, he could not see this being feasible in practice.
Panel I: Energy Intensive Industry. Moderated by Sami Andoura, European Political Strategy Centre
Moderator Sami Andoura took the floor and commenced the first panel's discussion. Climate change is more than ever a mainstream economic challenge. This is good for the planet and economy, he said, as it has taken centre stage and is providing new challenges, ultimately making our economy cleaner and more cost effective. However, if we do not seize these opportunities, others will, he stressed. Europe must be at the forefront of innovation. It cannot develop in isolation and, therefore, the Commission is dedicated to developing pieces of the puzzle to aid industry, he clarified. The enabling framework is designed to shift innovation towards decarbonisation and the EU is committed to the fight against climate change. We are trying to make Europe a better destination for investment, he underlined.
Jean-Pierre Birat, IF Steelman, (ferrous metals) said he had five or six main statements to make:
- the steel industry has been good at achieving energy consumption reduction in the past and will continue to seek out new initiatives to ensure efficiency;
- the steel industry has been working in the field of low-carbon technology for quite a while; however, these breakthoughs take a long time and do not come quickly;
- some projects had suffered from 'valley of death' syndrome i.e. a lack of funding, particularly due to the financial crisis in 2008, and, as such, he welcomed the possibility of more grants reaching the innovation process;
- innovative ideas should include carbon capture usage instead of merely carbon storage;
- possible synergies regarding the steel industry would be the introduction of demand-side management to reduce consumption; using hydrogen has also been floated as an idea;
- he wanted to again stress that innovation is a complex issue and it takes a lot of time to come to fruition. One technology will not solve it all and there should be several different approaches undertaken simultaneously to ensure that emission reduction is achieved.
Mukund Bhagwat, Aurubis, (non-ferrous metals) said we were discussing going from upstream to downstream; each stage involves seeking to achieve decarbonisation. Non-ferrous metals are united by their diversity and cover a broad spectrum. Starting from upstream, they are looking into decarbonisation with regards to their fuel consumption. Going to zero energy is not an option, but going to decarbonised energy is; the question is, when will this be possible? Developing simulation models to build innovation possibilities and see their interaction with other collaborative industries is key to moving forward. Carbon capture and utilisation will ultimately allow, in a circular way, the removal of carbon from the equation, he concluded.
John Cooper, Fuels Europe, (oil refining) said his organisation makes liquid fuels, which he predicated as being needed for decades to come. A refinery is basically a massive factory mixing hydrogen and chemical to produce energy, he noted. Reducing the carbon footprint is their goal, particularly with regards to the circular economy. He said what struck him was the possibility of overlap with other sectors. A lot of technologies should be tested out, but this is not happening due to silo approaches. In terms of technologies, the reduction of emissions and heat recycling are central to their goals. Green and low-CO2 hydrogen and alternative feedstocks and advanced bio-fuels are also central to their agenda. Additionally, on the innovation fund, he believed that grants are the best way to provide funding for innovation, as often industry cannot justify expenditure on research and innovation. In the long-term, a strong and stable carbon policy is desirable. There are many shortcomings with the current ETS and they need to be addressed as a matter of priority.
Bernard de Galembert, Confederation of European Paper Industries – CEPI, (pulp & paper) stated that this conversation comes at a very important moment, as President Trump is trying to 'Make America Great Again.' Europe must be a leader in reducing carbon emissions. He said that there is huge potential for technologies to decarbonise the sector. However, the low-hanging fruits have already been picked. The holy grail is to reduce the water content required for paper industries. There are alternatives in this regard, such as using super-heated steam or other innovative technologies, or electricity-based drying techniques. Another approach is to switch fuel. A lot of the energy was wood-based traditionally; however, 56% is now powered by bio-mass fuel. The use of Nano-cellulose is being increasingly explored in the paper-making process; changing the fibre itself would require less drying techniques and, thus, less energy. He said that they are among the champions of recycling across Europe and this is a way to extend the carbon cycle. However, many techniques need to be applied to make this process even more efficient.
Marco Mensink, European Chemical Industry Council – CEFIC, (chemicals & bio-based industries) believed that there could be no innovation without chemistry. Thus, there should be a lot of cooperation with the chemicals industry. It is good to see that we are at the end of a process, he said, and progress is being made towards the future. He would like to see a few seeds for future legislation in this area. He stressed the need for retrofitting in addition to pure greenfield sites. One remark he wanted to make was that, if all sectors use bio-mass, would there be enough bio-mass; the same is true if all sectors switch to renewable energy. What is clear is that CO2 should be used and not stored. Where Europe can stand out is in cross-sectoral collaboration as this will not be seen in other parts of the world, he held. This fund is more of a political than a technical tool and should come in addition to Horizon2020. This tool should attract real investment in Europe. What is needed is an industrial fund that does not fragment, but rather consolidates core projects across Europe. He said he was looking for ambitious action from the EU.
Fabrice Rivet, Fédération Européenne du Verre d'Emballage – FEVE, (glass & ceramics) said his industry transforms materials into diverse processes; it is a capital-intensive industry. All participants remarked that working on the processes were key to attaining energy savings; any savings would more likely be incremental than enormous, he said; however, breakthroughs concerning energy are required for decarbonisation to be attained. Additionally, barriers were also identified: today, it is not affordable to produce mainstream glass from electrical-powered furnaces. Competition with other parts of the world, particularly in terms of the costs of offsetting carbon emissions; the security of biofuel supplies; the state of the current network in Europe; the need to ensure product quality; the time it takes to recoup investment, these are all challenges that Europe is facing and needs to act on.
Claude Lorea, European Cement Association – CEMBUREAU, (cement & lime) remarked that last week was the 200th anniversary of the invention of artificial lime. Now we are looking to the future to achieve a low-carbon economy. The process of emissions for cement and lime are unique; huge savings in emissions are possible, but breakthroughs in innovation are required for this to become a reality. She said she had seen 40 possible innovations in this sector which could cut emissions which shows that the targets are attainable and that great ideas are out there; however, funding is required. Other innovative ideas include self-healing concrete which would make concrete more durable and last a lot longer. Both industries need the innovation fund, she reiterated, and more horizontal integration across other industries is needed. However, she stressed that any innovation funding should also be sector specific, covering all levels of innovation and not solely concentrating on ETS, as many great initiatives could be missed if that were the case.
Edvardas Bumsteinas, European Investment Bank, stated he would summarise the outcome of the Working Groups. Firstly, is there a role for financial instruments? From what he heard, he would say yes. One reason would be to help achieve leverage and to contribute to building demonstrable effects and to help to attract private level financing for the initiatives. The role of the innovation fund would be to 'de-risk' projects through layered financial structures, for example. Equity and venture capital could also be considered as an option.
The second role of funding is to be bring the projects to fruition to ensure that funding gaps do not occur. The European Investment Advisory Hub and other such tools are available as a resource for enterprises. He then wanted to address the importance of the simplification of rules and the need to avoid overlaps. The streamlining of governments and avoiding unnecessary duplications are also important, he finished.
Moderator Sami Andoura thanked the panellists for their contributions. There are a lot of issues which were highlighted and need to be addressed, particularly in terms of avoiding silo thinking and engaging in cross-sectoral strategies. The energy union should be more than the sum of its parts when properly implemented, he said. 'How can we enable cross-sectoral collaboration?', he asked. The moderator then opened the floor for questions and comments.
A representative from DP Energy asked if the new funds should have conditionality attached to them when possible. For example, should large industrials be encouraged to offer power-purchase agreements to improve storage projects? He then said he had a question on green hydrogen: will hydrogen production from conventional sources be excluded from all this?
A representative from the audience said it was interesting that everyone was talking about electricity. The heat we produce must also be considered, in addition to cooling. Cross-fertilisation in terms of using heat as 'renewable energy' is key, he said.
A representative from EOS Technologies asked the Commission if there should be a different route for those technologies that can provide energy consistently, 24 hours a day.
A representative from ACO Energy said she was astonished by the CCS and CCU figures which were provided. Concerning, the CCS, we are still in the past, she said. Is the Commission willing to move forward with this, she asked?
Moderator Sami Andoura said he wanted to remind everyone that this afternoon's session would take up several of the comments which had been made.
A representative from the Critical Raw Material Alliance had a question: what is the international dimension of the fund? Most of the raw materials come from outside Europe.
Claude Lorea stated that there should not be conditionality tied to the funding. For example, her industry also tries to capture and store emissions and it is not considered as a renewable, therefore, such conditionality may miss technological advances due to limiting nature.
Fabrice Rivet , on renewables, stated there should be a series of conditions tied to the funds, but it should be open and not as limiting as conditionality. Concerning concentrating on heating and cooling and not just electricity, he said this was an important point and they were working towards incorporating these aspects as a dramatic reduction in emissions is the target.
Marco Mensink said the question is: if we all switch to electricity, what sense is there if it is not low-carbon? It is interesting that the industries are on the panel and energy are posing the questions, he said. Hydrogen should also be eligible if it concerns one of the sectors covered by the ETS. We are down to the final two or three choices with regards to technology and there is not much time left if ribbons are to be cut by 2020.
Bernard de Galembert said he had three comments: the focus of this is decarbonisation, so why would conditionality be implemented? On heating and cooling, this is nothing new for the paper industry; however, selling excess heat has proved to be a challenge. On cross-sectoral work, several sectors building projects together is a great idea.
John Cooper remarked that sustainability criteria and definitions are key. His industry started NGOs support of bio-fuels reversing within a few short years. 'How could they have foreseen that?', he wondered. There are many opposing voices on just bio-fuels; thus, he said a definition that lasts for 15 or 20 years must be found. Concerning carbon, there are already NGOs changing their stance on what exactly constitutes carbon capture. If one is doing business in Europe now, one is expected to be part of a set of environmental rules. Ensuring a level-playing field is critical. Industry has been supportive of Paris Agreement and Europe should continue to be competitive worldwide.
Mukund Bhagwat noted that innovation must be revolutionary and it will not be a one-time breakthrough; rather, several solutions must be worked towards. The EU must continue being attractive to invest in. There is a lot of know-how that can also be offered to other industries in Europe; we have the possibility to store electricity, he said, and best use will only be found through collaborative innovation.
Jean-Pierre Birat stated that synergies were an area which had been mentioned. There is another important dimension and this is materials. All sectors in the economy can cut their CO2 emissions only when they have the materials required to do so. There is a lack of tools in place in terms being able to harness synergies and Europe needs to take a more holistic view of the economy.
Edvardas Bumsteinas, European Investment Bank, said that, considering the Paris Agreement, the EIB committed to increasing lending to 35% to combat climate change. This means that any project designed to address climate change will be prioritised by the EIB.
Moderator Sami Andoura, summing up, noted that he had three main messages:
- it is about clean energies and synergies, which must be reflected in value chains and networks;
- there is a win-win relationship between the regulatory framework and the enabling funding instruments;
- businesses and investments cannot be fragmented and the Commission will also have the role of facilitator in addition to regulator going forward.
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