Remarks by Giorgio Squinzi, President, Cefic
Cefic Economic Outlook
2011 Press Briefing
Hyatt Regency Hotel, The Dolce Room, Birmingham, United Kingdom
Thank you Hubert for your remarks on the latest economic forecast. I would like to thank also the CIA for helping put together today’s briefing here in Birmingham.
My part in today’s programme is to discuss the importance of energy policy for the chemicals sector.
The most important point that I want to make with you is that more than ever, EU energy policy must take a global view. We are in a rapidly globalised chemicals market, and energy policy must reflect that reality.
As we have seen this year, events that unfolded in Japan and unrest in the Middle East have injected new urgency into discussions about the future energy policy for Europe.
But even before the aftermath of Fukishima, the topic was already gaining attention. Most notably, the Commission released its roadmap for moving to a low carbon economy in 2050. The European Parliament debated the Emissions Trading Scheme packages on allocation rules and benchmarks, and the European Council concluded earlier this year priority actions for energy and innovation policy.
Achilles heel of EU industry
Energy policy in Europe needs a serious rethink. I look upon energy prices as an Achilles heel of EU industry. Europe’s industrial electricity bill is considered higher than that in many developed and developing markets. So to keep production in Europe, energy must be affordable.
Why is energy so important? A chemical plant is highly energy-intensive. Base chemicals, energy and feedstock together can exceed 50 per cent of total production cost, and on average amount to 40 per cent of costs. The industry, accounts for 12 per cent of total energy demand and for one third of all industrial energy (and feedstock) use in the European Union.
Our industry takes a keen interest because it affects how we work and it affects the energy bills we get each month.
European policy: let’s keep to the 20 per cent emissions reduction
Related to energy policy is emissions policy, as energy use is a large part of our emissions footprint. Europe set itself the bold target of reducing total carbon emissions by 20 per cent by 2020. Now, some voices are calling for an even bigger cut. Is this feasible or desirable? I believe the answer is no, and I’ll tell you why.
The data show that global CO2 emissions reached an all-time high in 2010, while emissions in the European Union fell by a remarkable eight per cent.
That is an impressive performance by many of Europe’s big energy users. It shows not only that Europe can play a strong part in tackling global warming, but has effective policies in this regard. However, many other states clearly lack both the determination and the policies to make a difference.
Europe, nevertheless, remains determined to lead the battle. On June 21 EU governments considered a European Commission Roadmap intended to take us to a competitive low-carbon economy by 2050. The European Parliament also will consider this roadmap during a vote scheduled for the July plenary on a report that responds to the 2010 Communication calling for Europe to target reductions greater than 20 per cent by 2020 and beyond.
Targeting greater CO2 reductions when other markets outside of the European Union are dragging their feet would be a lonely and bold move. But it would not necessarily be the right one, and might achieve perverse effects. Indeed, there are sound reasons why we should stick to what industry and policymakers previously agreed.
Competitiveness
Some businesses that generate little carbon can live with tighter targets. But some parts of the manufacturing sector certainly cannot. For the chemicals sector, we see a three-fold set of competitive pressures that have to be weighed before changing the emissions game-plan.
First, unlike utilities, whose local customers are locked into their suppliers by geography, much of the chemical industry faces global competition – and a growing share of chemicals output is already being produced in emerging markets.
Second, moving the goalposts would cost the chemicals sector a lot. As things stand, a potential worst case scenario is several billions of euros per year [covering 12 chemicals benchmarks] in direct and indirect costs to be incurred during 2013-2020, depending on the emissions price.
Third, EU chemicals firms, including small ones, already face energy supply and feedstock uncertainties, further compounded by the policy aftermath that I mentioned before of the Fukushima nuclear accident and developments in the Middle East.
Energy savings, emissions and decoupling: not there yet
The chemicals industry already has every reason to cut its carbon emissions. It is a big energy user, as I said before, accounting for 12 per cent of EU energy demand and one third of its industrial energy use (energy and feedstock).
That cost pressure helps explain why the chemicals sector has an astonishing record of improving energy efficiency. During the past 20 years its energy use has remained stable whilst production, including pharmaceuticals, has risen by 69 per cent. Enormous efficiency gains have often come from “one-offs”, step changes which cannot be repeated or extrapolated into the future - such as switching from coal to gas.
There are some further bright spots. One example is Cefic’s CARE+ energy saving programme, co-funded by the European Commission, which helps small- and medium-sized chemicals firms lower their relative energy use, and ultimately their carbon emissions.
Carbon through the backdoor
Energy use, emissions and climate change policies need to be carefully designed, taking global competition into account, in order to achieve the desired objectives...and outsourcing production out of Europe is not a solution to address climate change. There is a lot of debate about where carbon emissions consumed comes through the back door – via imports into the EU. If EU industry moves abroad, won’t our carbon footprint get bigger?
Chemicals innovation help save energy, reduce greenhouse gases
In Europe, the chemicals sector has shown how its products and services help save energy and greenhouse gas emissions. A McKinsey & Company study found that for every tonne of greenhouse gas (GHG) emitted by our industry, its products save over two tonnes of greenhouse gas emissions. They concluded that by 2030 – with the right policies under a global framework – the GHG emissions savings enabled by the chemical industry could rise to more than four tonnes for every one tonne of chemical industry emissions.
The sector has joined up with the rest of industry to support the EU 20/20/20 goals. For the chemicals sector, this means reductions of up to 40 per cent in some areas, and the industry continues to struggle to get to the best available technology. We fear that without a global international agreement and support from the European Union to innovate, the “real” economy – manufacturing – cannot commit to further reductions.
Tapping more innovation
Policymakers say that a higher emissions target will lead to more innovation and create more green jobs, but that will not happen in the current EU policy environment. It’s true that the industry can supply innovative products that help users save energy. Europe’s chemical industry can be relied upon to seek innovative solutions that will help tackle climate change. But innovative chemicals-based solutions can only be achieved through sensible long-term investment.
If billions of euros of industry cash is sucked away to lower its own emissions further, where will money for innovation come from? Regardless of where the targets are planted, the next great breakthroughs require additional money, not less. This can, and should be obtained from EU sources. After all, the Emissions Trading Scheme is like a tax on business, and there is no reason why 50 per cent or more of revenues should not be devoted to speeding innovation that curbs global warming.
Conclusion
So to conclude, the EU chemicals sector, along with European manufacturing as a whole, needs safe, secure and reliable energy at competitive prices. To achieve the goals of a low-carbon economy in Europe, more emphasis must be placed on research and development and the future innovations that will lead us to even more efficient energy use. China and the United States are putting their money on innovation, shouldn’t we? ETS revenues placed into R&D for the next “breakthroughs” that help mitigate climate change would be a step in the right direction.
Let’s make sure that the next great breakthroughs happen here in Europe. Let’s make sure we focus on growth and innovation.