Energy efficiency and competitiveness

The EU debate wrongly focuses on high energy prices rather than looking at strategies for getting the costs down.  Energy efficiency is the most powerful and quickest way to cut the energy costs of European businesses, and thereby boosting their competitiveness.

Europe is concerned about our economic competitiveness, especially as foreign competitors appear to gain advantage because of various factors of production that many consider are harmful to Europe. For energy policy, the main concern is about the tumbling price for natural gas that the United States is experiencing is in large part as a result of the exploitation of shale gas.  Undoubtedly, the price differential between the US and Europe has increased in recent years, although because of low taxes, fuel prices have traditionally tended to be lower in America.

Figure 1: Evolution of Natural Gas Prices 2000 – 2011 in Selected Countries (average price per MWh in US$ on a gross calorific value basis)


Source: IEA, Natural Gas Information 2012

What is the concern that Europe should be focusing on? The US has taken an energy supply-side approach, benefiting from the low cost and abundant availability of domestic natural gas from shale deposits. Europe has to find a different approach because the supply-side options are significantly different.  However, an approach based on greater energy efficiency (the demand-side approach) may bring more benefits in the long run for Europe.

Background

In 2010, the EC published a Communication on An Integrated Industrial Policy for the Globalisation Era: Putting Competitiveness and Sustainability at Centre Stage [COM(2010) 614].  The Industrial Policy Communication was adopted in order to favour a recovery of industrial investments and to reverse the decline in manufacturing's share of EU GDP. The Communication identified four pillars for a reinforced industrial policy:

  1. Innovation and investment in six priority action areas,
  2. Access to internal and international markets,
  3. Access to finance
  4. Human capital and skills.

The Communication proposed a “fresh approach to industrial policy that will put the EU economy on a dynamic growth path strengthening EU competitiveness, providing growth and jobs, and enabling the transition to a low-carbon and resource-efficient economy.”

The fresh approach included:

  • Bringing together a horizontal basis and sectoral application.
  • The whole value and supply chain must be considered, from access to
    energy and raw materials to after-sale services and the recycling of materials. And some parts of this chain are bound to be outside Europe; hence it is necessary for all industries to have a ‘globalisation reflex’.
  • The Commission will regularly report on the EU’s and Member States’ competitiveness and industrial policies and performance.

The framework included:

  • Competitiveness-proofing and implementing smart regulation, and
  • Improving access to finance for businesses

In 2012, the Commission published the European Competitiveness Report 2012, Reaping the Benefits of Globalization (Staff Working Document SWD(2012)299 final).  One of the important topics of the report was “energy efficiency as a determinant of export performance.”  There is detailed analysis on energy efficiency that deserves more attention.  There are two main points to consider: [1]

  • For EU countries (as a whole) globalisation appears to also represent additional channels for minimising the negative competitiveness effects of the energy-price increases. Overall, EU countries have been able to export more and at the same reduce significantly the energy embodied in their exports, in particular the proportion of energy that is sourced domestically.
  • EU firms that introduce[d] new products with energy-saving features tend to be more successful innovators, particularly in the case of manufacturing firms. Controlling for other determinants of innovation success in the market, these eco-innovators sell more new products (in terms of the firm’s total sales) than conventional innovators, which may represent an important competitive advantage.

EU firms are leading in the growing phenomenon of internationalisation and in cross-border ‘eco-investment’ in clean and more energy-efficient technologies and products and services, exploiting many business opportunities offered by the global environmental and societal goals and challenges ahead.


[1] See pp.113-114.

eceee Resources

eceee Discussion paper on competitiveness. The EU debate wrongly focuses on high energy prices rather than looking at strategies for getting the costs down. Download

The way forward

A new discussion paper by the eceee states:

  • First, the initial response to high costs (in particular when they are induced by high prices) should be vigorous application of energy efficiency.
  • Second, it should be remembered that when industries in different parts of the world compete, energy price is only one component and production factor. A higher price for the input of energy can and almost invariably will be offset by higher security of supply and less exposure to risks.
  • Third, competitiveness is to a considerable degree an issue of quality rather than of price for the products. European industry should not to any large extent compete with low-priced products. Focusing on price competition rather than innovation and high quality when Europe tries to get out of a long and deep financial crisis might be the worst thing that our governments could do to their industry!

A strategic framework for increasing the competitiveness off Europe should be:

  • Map out and harvest the existing cost-effective potential for energy efficiency, based on life-cycle costing analysis. This will reduce the bills and costs for energy for enterprises as well as individual consumers, and take the pressure off the problem of import dependency and uncertainty about future price increases;
  • Develop the methodology for implementation of energy efficiency in programmes that encourage new business models, smarter systems and a more holistic approach in dealing with the market and the customers. Behavioural economics is a key element;
  • In the process to ensure that technologies and applications for appliances, equipment design engineering, and systems development are put in place and made fit for penetrating global markets while meeting domestic market needs, with European industry as leaders, both regarding innovation, and understanding the needs of the users of the services provided by energy and energy-related products;
  • Fine-tune these activities for a roll out of distributed generation with renewables in smart grids, as well as full regard to passive technologies; and
  • Position Europe as a market leader in sustainable energy and resource efficiency for the long haul.