Energy targets

A Poisonous Climate

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Change is in the air for industry.
  • Why it matters

    Why it matters

    Heavy industry fears that E.U. clean energy targets will be costly and make them less competitive than non-European rivals. Green companies fear they will lose business if the goals aren’t strict enough.

  • Facts

    Facts

    • E.U. leaders have agreed to cut the emission of pollutants by 40 percent by 2030.
    • Bloc members will also increase renewable energy use and boost energy efficiency to 27 percent.
    • The cost to the German steel industry of the emissions trading scheme could hit €1.4 billion ($1.77 billion) by 2030.
  • Audio

    Audio

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Forget the policy wonks – the outcome of yesterday’s European Union summit, where leaders discussed the bloc’s three main climate goals, will have been more hotly anticipated across industry. But nerves will have been jangling for very different reasons in different sectors.

Technology companies, for instance, were not expecting government leaders to go far enough in their plans to cut emissions, while energy-intensive industries feared ruin if they went too far.

In the end, the leaders of the 28-country bloc agreed to cut the emission of pollutants by 40 percent by 2030, compared with 1990 levels.

They also vowed to increase renewable energy use to 27 percent by 2030 and boost its energy efficiency savings target to “at least 27 percent.” However, both of these targets were watered down from the hoped for 30 percent level.

The deal was hailed as a landmark agreement, with Herman Van Rompuy, President of the European Council, calling it “the world’s most ambitious, cost-effective, fair climate energy policy.”

Germany, which is committed to the abolishment of non-renewable energy sources under its energy transition (Energiewende) policy, welcomed the deal. Chancellor Angela Merkel said that the renewables target was particularly important to Germany and that those member states that want to go over and above it are free to do so under the agreement.

“Germany will not have a hard time (living up to the targets). We have already set tougher national targets,” she added.

“An unconditional 40-percent goal on greenhouse-gas emissions by 2030 will destroy our competitiveness.”

Utz Tillman, German chemical industry association

But the deal also caused divisions. Member countries in eastern and central Europe, led by Poland, were particularly unhappy, as they fear that the costs of decarbonizing their heavily coal-reliant economies will stall growth.

Great Britain, which is investing heavily in nuclear power and starting to exploit its shale gas deposits, also had concerns, especially about the renewable energy target.

As a result of such worries, none of the targets are legally binding at a national level, and a “flexibility clause” ensures that they are open to re-negotiation before and after next year’s UN climate summit in Paris.

Energy-intensive industries believe they have the most to lose under the targets. Speaking ahead of the deal, Utz Tillman, director of Germany’s chemical industry association, said: “If the summit decides on an unconditional 40-percent goal on greenhouse-gas emissions by 2030, that will destroy our competitiveness.”

The steel and metal industries also have grave reservations about the pollution limits.

“There is a danger that industry will be pressured on two sides – by the weakening economic situation and by excessive goals for climate protection,” warned Oliver Bell, president of the German nonferrous metals association.

Dozens of tech-minded companies have called for a hard-and-fast goal of 40 percent energy savings.

That would turn Europe into an island of high prices amid global competition. The metal industry needs a framework “that allows investment and guarantees jobs in Germany,” Mr. Bell said.

The European Commission, the executive arm of the European Union, believes that one of the most important instruments for reducing greenhouse-gas emissions is a carbon trading system. Currently, major polluters such as power companies must buy a certificate for each tonne of carbon dioxide they emit. But the number of certificates on the market is limited, and is reduced each year by 1.74 percent (2.2 percent from 2020). The increasing scarcity of certificates compels companies to invest in climate-friendly technologies.

This has benefited companies that make such energy-efficient products, a market worth €163 billion ($206 billion) in 2013.

For this reason, dozens of tech-minded companies, including 3M, GE, Knauf Insulation, Philips, Siemens and Velux, wrote to Mr. Van Rompuy, calling for an even more ambitious hard-and-fast goal of 40 percent energy savings.

The political establishment must “bring Europe onto a path of truly sustainable growth, security and prosperity,” the companies argue. An efficiency goal of 40 percent, they say, will guarantee an extra 4.5 percent of growth each year.

Such a move would be alarming for heavy industry. Under the emissions trading scheme, energy-intensive companies receive some free certificates, but these are scarce and, in some cases, are linked to targets that are difficult to achieve. In the near future, many firms will have to purchase once free certificates.

Hans Jürgen Kerkhoff, president of the German steel association, predicts that before 2020, excessively restrictive guidelines “will lead to a severe shortfall of emissions certificates.”

By 2030, further reductions will leave the steel industry with certificates for only 60 percent of its emissions, according to the association. As a result, the costs of emissions trading for the steel industry in Germany would rise to €1.4 billion, or about $1.77 billion.

“In this scenario, the German and European steel industries will not be able to survive over the long run in competition with rivals in countries without carbon offsetting,” warned Mr. Kerkhoff.

From the perspective of the industries affected by it, the 40-percent goal is only acceptable if it is valid worldwide. Otherwise, Mr. Tillmann believes, “the E.U. must … formulate a less ambitious goal.”

 

Thomas Ludwig is Handelsblatt’s E.U. correspondent, Klaus Stratmann covers energy policy from the Berlin bureau. To contact the authors: ludwig@handelsblatt.com, stratmann@handelsblatt.com.

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