To the European Commission
Directorate-General Climate Action
Unit A.4 – Strategy and Economic Assessment
Directorate General Energy
Unit A1 – Energy Policy
Register ID: 76331988454-11
A long term stable climate policy is an important prerequisite for industrial development and investment in Europe. The consultation is an important initiative in this respect. It has to be recognized that true climate effects can only be reached through global actions. Hence this has to be the highest priority in EU climate policy. For European industry to contribute to globally reduced emissions it has to be attractive for industry to invest in Europe. That would mean increased production of efficient products in efficient production sites. Future energy and climate policies and instruments have to be based on this fundamental condition.
The main goals for the EU related to energy and climate should be decreased climate related emissions globally, increased competitiveness for European industry and increased security of energy supply.
Targets and instruments:
• A target on climate change related emissions have to be balanced by a target on competitiveness.
• Separate targets on renewable energy or energy efficiency are not needed. These are rather means to reach the target on climate change and competitiveness and may as such be promoted but are not targets in themselves.
• A target for security of energy supply is relevant especially for electricity and natural gas.
• In the absence of global commitments that results in a level playing field for industry there should not be further European targets or instruments towards industry that limit the competitiveness and thereby the production in Europe, as is now the case for EU-ETS.
• Instruments that engage and encourage creativity and competition are better than negative instruments like legal limitations and detailed regulations. Flexibility concerning techniques and measures is important in industry to avoid suboptimation.
The current energy and climate policies and instruments have had effects on emissions and energy system. GHG-emissions have decreased towards the 2020 target and in the European energy system the amount of renewables has increased.
One problem is that the energy and climate policies have not been able to adapt to other global processes like the economic crisis and changes in the energy market like the US shale gas development. Another problem is that the RES target and related national subsidiary systems has affected power costs including both financing subsidiaries and increased grid costs. On top of that there is also the effect of ETS on power price. The effect on the deregulated Scandinavian power market has been especially troublesome. The full cost of CO2-emission has been added on all electricity based on marginal pricing although the power production is almost CO2-free. This combination of a deregulated low carbon electricity market and the EU-ETS does not create the right incentive to replace fossil fuels with low carbon electricity. On such a deregulated market, all instruments intended to increases the effective cost for fossil fuels will increase the cost of electricity even more. This kind of effects has to be considered carefully when designing new instruments.
The energy efficiency target is formulated as a cap on energy use which gives an incorrect signal to industry and society. Energy should be used in an efficient way but there is no purpose of its own to limit all energy use.
The purpose of EU-ETS was to decrease the emissions in the most cost efficient way. The system has prompted action in industry and the target appears to have been achieved at low cost. In this respect, the EU-ETS has been a great success. A low carbon prices is only a testament to this but is also connected to the economic crisis and the increase in renewable power production. Since EU-ETS is a cap and trade system it indirect sets a cap on production within EU for industries that are not able change to low carbon techniques. For manufacturing industry ETS directly influence mainly smaller investments since the cost of allowances are included in the investment calculation. For larger investments (including investments in CO2 abatement), which normally have the purpose to increase capacity, the cap creates uncertainty about future costs which either delays the investment or moves it to some other region. In this respect, the EU-ETS is a clear limitation to competitiveness. It fails to create incentives for investments in new resource efficient plants and risks to discourage growth. Only a global level playing field for industry can overcome this major problem. Furthermore, the EU-ETS has generated a large and complex administration that results in loss of transparency and further costs for industry. Finally, the credibility of the system has deteriorated since there is a continuing flow of proposals and changes that threatens the political stability around it. New and changing political ambitions and interventions into the system is the greatest threat to its effectiveness.
Important for future policies
The green paper has an important focus on creating the necessary conditions for the power industry to reduce GHG-emissions. However, there seems to be little concern for the fact that high energy costs will make it hard for energy intensive industries to invest in Europe. Investments in manufacturing industry are essential for EU growth and for reduction of industrial GHG-emissions. Policies have to be designed to promote these investments. Investments in the energy sector are also important but are in fact dependent on growth in the industrial sector. Focus for the European policies for 2030 therefore has to be on competitiveness for industry. This will enable EU to get the economic capacity to contribute to global emission reductions through efficient production and efficient products.
Efficient quantitative targets must be closely connected to the goal they are set to achieve. Hence targets that are more of a mean to reach the goal or that are driving towards certain technologies will always result in inconsistencies and should be avoided. The overall goals connected to energy and climate policy is decreased climate related emissions globally, increased competitiveness for European industry, and security of energy supply.
The most important activity is to reach climate commitments on a global level to actually achieve any effect. EU will never be able to solve the climate issue on its own and ambitious targets in EU do not necessarily bring the rest of the world along. On the contrary, ambitious and rigid framework may move efficient production in Europe to less efficient production in other regions with less stringent policies. Still the climate policy has increased the awareness of climate issues and may therefore be relevant on EU level. Any climate target formulated as an emission level has to be balanced with a competitiveness target to avoid actions that will only move emissions to other parts of the world. An even better climate target should take into account the global effect of imports and exports to and from EU. That would give credit to low carbon production within Europe and make the effects of imported products visible.
Renewable energy and energy efficiency
Specific targets for renewable energy and energy efficiency are not relevant. These are means to drive towards the objectives of climate and competitiveness but have no purpose of their own. Renewables have an important role in the energy system to increase the diversification of the energy supply and to decrease emissions. This is also achieved by eg nuclear power and a specific target for renewable energy does not necessarily lead to the most efficient power system neither economically nor concerning resource use. A target or indicators to measure security of supply should be considered at least for the power system and for natural gas.
Energy efficiency could be promoted and incentivized for the purpose of competitiveness and resource efficiency. Energy efficiency is always using less energy for the same benefit or the same energy for more benefit but any targets or instruments that caps the energy use is contra productive.
Different sectors have different possibilities to contribute to the targets and are subject to different level of global competition. Targets and instruments connected to the targets, have to take this fact into account. They have to be based on the technical and economical capabilities for the sector to contribute. This also has to take into account the market conditions for the sector and possible or lack of carbon constraints on competitors. For steel industry currently known techniques that are economically viable cannot reach the emission reductions that are proposed for 2030 in the Commission low carbon roadmap. Hard regional reduction targets will not accelerate the development and implementation of new technology in this time scale. Future policies have to consider the cost efficiency and competitiveness for different sectors through a bottom-up approach. Support for research, development and demonstration is also important.
Current policy instruments focus on the production of materials and products but do not take into account the use phase and benefit of the product in the end use. A broader view is desired in the future perspective to be able to cover also aspects like recyclability and material and product properties. The more narrow policy instruments should therefore never limit production of materials or products since this may counteract the overall objectives.
Instruments and measures should promote interest and creativity and give the possibility for industry to choose the best solution. This flexibility is especially important for instruments to promote energy efficiency since this covers a large variation of activities. The EU state aid regulation should open for simple and flexible incentives for promoting energy efficiency. The value of recognition for efforts and good examples should not be underestimated.
Concerning national subsidies for renewable energy or capacity mechanisms this should be limited and preferably avoided. It increases costs and creates distortions on the market. The current combination of deregulated electricity market and an increasing number of regulations affecting the market is unfortunate and not cost efficient.
Competitiveness and security of supply
European energy and climate policies cannot be separated from competitiveness and growth. Energy and climate objectives can only be reached if industry can afford to invest and develop their activities. An investment decision is based on various aspects like raw material and energy supply, closeness to customers, transport costs, time to market etc. Policies affecting these aspects all have to be balanced towards industry competiveness.
For energy intensive industry the cost of energy is important and energy policies should be designed to drive towards the most cost efficient pathway to reach low emissions and stable supply. This is today not the case for electricity due to the combination of renewable energy target and the climate change target. The energy policies should not limit the use of any specific technique or energy source. The European environmental legislation makes sure that any activity that might affect the environment is regulated properly. A wide variety of energy sources could stabilize energy costs on a lower level and increase security of supply. The development of a full functioning internal electricity market has to be allowed to take reasonable time not to create unreasonable costs.
The innovation ability in industry is best promoted by true belief in a long term, stable policy for industrial growth. This would give industry the security to reinvest in production within Europe and to develop new products and new processes that increase their competitiveness and ability to contribute to the climate goals.
Capacity and distributional aspects
Cost efficiency should be the base for actions towards climate and energy objectives.
We also refer to the response from Eurofer which we support.
Swedish steel producers' association
Director Energy and Environment
Phone: +46 8 679 17 39