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:
- Innovation and investment in six priority action areas,
- Access to internal and international markets,
- Access to finance
- 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.
