Opinion of the European Economic and Social Committee on The possible positive or negative impact of increased environmental and energy requirements (policies) on the competitiveness of EU industry
Date: 2008-02-13
Institutions: European Economic and Social Committee
Subjects: climate change, energy policy, environmental protection, exhaustion of resources, reduction of gas emissions

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Opinion of the European Economic and Social Committee on The possible positive or negative
impact of increased environmental and energy requirements (policies) on the competitiveness of EU
industry

(2008/C 162/14)

On 20 September 2007, the Slovenian presidency asked the European Economic and Social Committee to
draw up an exploratory opinion on

The possible positive or negative impact of increased environmental and energy requirements (policies) on the competi-
tiveness of EU industry.

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for
preparing the Committee's work on the subject, adopted its opinion on 23 January 2008. The rapporteur
was Mr Wolf.

At its 442nd plenary session, held on 13-14 February 2008 (meeting of 13 February), the European
Economic and Social Committee adopted the following opinion by 128 votes with 1 abstention.

Contents

1. Summary and conclusions

2. Starting point and general comments

3. Specific comments — Analysis and conclusions

4. Specific observations and recommendations

1. Summary and conclusions

The Committee has focused this opinion on issues
1.1
surrounding energy policy and climate change. It will examine
the question of under what circumstances advantages or disad-
vantages arise for EU competitiveness if energy consumption
and the emission of greenhouse gases are significantly reduced.
Here it focuses mainly on the economic aspects.

1.2
Given the interdependency between competitiveness,
economic performance, jobs and citizens' social prosperity, the
matter under consideration is also of major importance for
Europe's social future.

1.3
The Committee concludes that the challenges linked to
this bring with them an opportunity to generate a wave of inno-
vation and investment and thus to strengthen the economy and
the (global) competitiveness of European industry.
this
succeeds, the advantages outweigh the disadvantages, inter alia
in terms of the impact on employment and strengthening the
European social model.

If

1.4
A key prerequisite for this is that, in the areas of energy,
the economy and research, the right policy measures are taken,
the right principles are applied, and overregulation is avoided.
Failing this, there is cause for concern that the disadvantages —
excessive use of overly expensive energy,
loss of economic
competitiveness, relocations, putting the European social model
at risk — will outweigh the advantages and allow crises to
develop. Affordable energy is the life blood of modern industrial
and post-industrial societies with all of their social and cultural
achievements. Therefore, the cost of energy must not — beyond
what is necessary to protect the climate and because of scarcity

resources — be further

of
measures.

increased by additional

state

1.5
The guiding principle of energy policy targets and instru-
ments must therefore be the greatest possible efficiency. Only
then will the economic costs and the social burden on the
public be kept to a minimum. The measure of this regarding
climate change is the cost of avoiding the emission of a particu-
lar quantity of greenhouse gases (e.g. CO2). Regarding energy
consumption and security of supply, the best measure is energy
efficiency. (In each case, it is important to define these measures
meaningfully.) Therefore, European energy and climate policy
instruments
energy efficiency
measures and the use of economic and sustainable energy tech-
nologies.

should focus on economic

1.6
The guiding principle of European policy measures
should be an energy and climate policy that encourages coop-
eration involving partnerships between the public and private
sector and brings together and makes best use of the economic,
geographic and resource-related strength of each Member State.
For example, techniques for using renewable energy should be
used in those locations in Europe where the best conditions (in
particular weather conditions) exist, including appropriate trans-
mission pathways, and not where the biggest national subsidies
happen to be. Beyond this, however, efforts should be made
towards global cooperation on the development and use of
energy-saving and greenhouse gas-avoiding technologies.

Although the climate issue is urgent, the speed of the
1.7
to energy supply and
required changes and adjustments
consumption should not overstretch the capacity of business
and society to make them. Yardsticks include depreciation
cycles, the time it takes to train people, the stages of develop-
ment of new technologies, and, in particular, adjustments to the
social contract, training measures and other societal changes.
Research and development have a major contribution to make.

Reflecting a bottom-up approach, the initiative of all
1.8
stakeholders and the diversity, diversification and flexibility of
technical and economic methods should be facilitated and
encouraged. Only from diversity and healthy competition

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between the various approaches, innovations and methods will
the strength needed to withstand individual crises arise and the
most efficient technologies emerge. Accordingly, a wide-ranging
energy mix is needed, which means that no useful technology (1)
should be abandoned prematurely.

1.9 When establishing energy policy targets, regulations and
instruments, physical limits should be taken into consideration.
It is imperative that over-regulation and duplication leading to
contradictions should be avoided. The latter lead to misalloca-
tion and thus to unnecessary cost increases that damage pros-
perity and competitiveness.
Just as importantly, these targets
and instruments must have long-term credibility, as very costly
investments and new developments will be made based on
them. An economic return on these investments, and the jobs
and prosperity that follow, can only be achieved if they are used
for long enough.

1.10 Wherever possible, market incentives such as sensibly
defined allocation of emission rights should be used in prefer-
ence to detailed regulations. Affordable energy remains a prere-
quisite for global competitiveness, for basic social cover, and for
the accumulation of capital by European industry that is neces-
sary to fund new investment and R&D expenditure.

1.11
In addition, significantly increased and wide-ranging
research into and development of climate-friendly and resource-
saving energy technologies is necessary, along with training of
the necessary engineers, scientists and technicians. New techni-
ques for using renewable energy that are still a long way from
being economically viable should be actively further developed,
but should not be prematurely forced upon the market through
expensive subsidies (or artificial purchase prices). Instead, this
money should be invested in increased research and develop-
ment of sustainable and CO2-avoiding energy technologies until
these approach viability. For this reason, the emphasis of all
measures should be placed on the innovative development and
efficient use of energy-saving, climate-neutral and competitive
energy technologies.

1.12
However, global climate change targets that are binding
on all significant emitters are necessary if a global level playing
field is to be created. Only then can a scenario be avoided
where the — in other respects — high energy costs in the EU
lead to detrimental worldwide distortions of competition, begin-
ning with the gradual relocation of energy-intensive industries
without having in any way contributed to climate protection
(‘carbon leakage’). The Committee supports the efforts of all
European stakeholders towards this aim (e.g. Bali conference).
Until
it is achieved, competition-distorting burdens on these
industries must be avoided. Without these industries, Europe
cannot remain competitive in the long term.

2. Starting point and general comments

2.1
Significance of energy. The development and intensive
use of energy-consuming industrial processes, machines and
systems has made a significant contribution to
transport
achieving our current standard of
living: Energy has freed
people from the burden of the heaviest physical labour, multi-
plied their productivity, provided heating and lighting, revolutio-
nised agricultural yields, and made previously unimaginable
mobility and communication possible. Energy has become the
life blood of modern social market economies and is a prerequi-
site for the supply of basic needs.

2.2
The problem. Most forecasts predict that, as a result of
population growth and the developmental needs of many coun-
tries, worldwide demand for energy will double (or even treble)
by 2060. It is well known that two significant developments
stand in opposition to this, which need worldwide political
action if serious conflicts and economic crises are to be avoided:
the depletion of resources and the protection of the envir-
onment. While the main environmental problem in this context
is the human contribution to climate change (‘climate gases’ or
‘greenhouse gases’,
in particular CO2, methane and nitrous
oxide), the impact of any measures on biodiversity, health and
sustainable use of resources and waste must also be taken into
account.

European Council. Accordingly, the following energy
2.3
policy priorities were outlined in the spring 2007 Council presi-
dency conclusions:

— enhancing the security of supply;

— maintaining the competitiveness of European economies

and the availability of energy at affordable prices;

— promoting environmental

sustainability and combating

climate change.

2.3.1
The Committee, has drawn up major opinions on this
subject that point the way forward. These are listed in the
appendix (2).

Request from the Slovenian Council Presidency. The
2.4
Slovenian economic minister, Mr A. Vizjak,
informed the
Committee in a letter that the Slovenian presidency's priorities
in the area of industrial policy would include the aim of a
highly energy efficient European economy emitting as few
greenhouse gases as possible. For this,
incentives to innovate
and to use environment-friendly technologies and products were
particularly important. The letter went on to say that a corre-
sponding action plan for sustainable industrial policy was being
prepared, and that the European Council would discuss it at its
spring summit in 2008. In this context, the Committee was
asked to produce an opinion on the possible positive or negative
impact of increased environmental and energy requirements (policies)
on the competitiveness of EU industry.

(1) Notwithstanding individual decisions by Member States on nuclear

(2) The Committee's relevant opinions from the last four years are listed in

energy.

the appendix.

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Competitiveness, economic performance and social
2.5
prosperity. Recent publications (3)
from the Committee's
Consultative Commission on Industrial Change (4)
(e.g. 58
concrete measures to ensure the success of the Lisbon strategy) have
made clear
the close relationship between competitiveness,
economic performance and the room for manoeuvre for the
necessary social provision. For this reason, this opinion focuses
on the relevant economic aspects (5) of the issue.

Industrialised countries. Highly developed,

industria-
2.6
lised countries have a special responsibility in this area, firstly
because they emit a higher proportion of
these gases, and
secondly because they are ahead in terms of the development of
new technologies. These include energy saving, higher energy
efficiency, the use of emission-free (or low-emission) energy
sources (6)
technical
and the development of appropriate
processes. The task is to identify the right course of action
against the background of the tension between what is neces-
sary, what is desirable, and what is economically realistic, and
then to take such action in a focused and decisive manner.

for

Costs (7). However, the use of climate-friendly types of
2.7
in most cases, associated with significantly higher
energy is,
costs (8)
individual consumers and industrial processes.
Examples are wind and solar energy (9)
(in Germany alone,
around EUR 4 billion were spent in 2007 on consumer-subsi-
dised renewable energy (10)) or coal-fired power stations with
carbon capture and storage (CCS) that are currently under devel-
opment. Heat pumps and vehicles with reduced CO2 or even
CO2-free fuel consumption also require more complex and
hence more costly technology.

If

Risks.

2.8
these considerable costs are not offset by
equivalent savings from reduced consumption of resources, and
as long as the competing third-country economies are not
bearing similar costs, this will place a burden on European
competitiveness.
‘Europe can be an example for the fight against
climate change, but Europe cannot accept unfair competition from
countries
limits on their busi-
nesses’ (11). Staff costs (wages and social security contributions)
are already significantly higher in Europe than in the emerging

that do not place environmental

(3) Own-initiative Opinion of the Consultative Commission on Industrial
Change on European environmental rules and industrial change CESE 696/
2007, Rapporteurs: Mr Pezzini and Mr Nowicki.

(4) CESE-2007-09, preface by Mr Sepi.
(5) Some of the social aspects that are also relevant for this opinion will be
dealt with in the forthcoming own-initiative opinion on The social impli-
cations of transport and energy developments.

(6) There have been disappointments here, too, as in the recent case of the

hopes sparked by biofuels. See TEN/286.

(7) On this subject, see the European Commission's assessment of the costs
of the EU climate package, published on 23 January 2008: 0,45 % of
GDP or EUR 60 billion a year or around EUR 3 per citizen per week
(more than EUR 600 per year per family of four).

(8) With the exceptions of hydro power and nuclear energy.
(9) The storage technology that would become necessary if supply were to

increase would lead to a further dramatic rise in costs.

(10) And on the jobs thus created.
(11) From President Sarkozy's speech on 13 November 2007 to the Euro-

pean Parliament in Strasbourg.

economies of countries such as China and India, and by them-
selves place considerable strain on Europe's competitiveness; any
further, unilateral measures inspired by climate change that
increase production costs would be very dangerous.

2.9 Opportunities. To be sure, in the event that a significant
majority of non-European states, such as China, India and the
USA, adopted similar climate protection measures, the opportu-
nity would arise for Europe to export the energy technologies
that it had developed, thus not only benefiting the European
economy, but even contributing to a reduction in global
consumption and CO2. Furthermore, economic history shows
that periods of near-crisis were often followed by a greater will-
ingness to innovate, and the development and use of new tech-
nologies, which then led to an upswing and economic growth
in the longer
to date, with increased energy
consumption). For this reason, the emphasis of all measures
within Europe should be placed on the innovative development
and efficient use of energy-saving, climate-neutral and competi-
tive energy technologies. At the same time, foreign policy efforts
towards appropriate global agreements should be vigorously
pursued: the results of the Bali conference demonstrate that
there is at least room for further negotiation (see point 2.11).

term (albeit,

In certain industries,

2.10
Problems. However, if these efforts are not successful,
serious problems will arise. Firstly, sectors of industry whose
production costs are largely determined by energy and CO2
costs will no longer be competitive on world markets. They will
cease their production here and move it to countries with lower
energy costs and without CO2 costs, taking the associated jobs
with them.
such as aluminium and
cement (12), this process has already begun. The Commission is
certainly aware of the problem thanks to an impact assess-
ment (13); however, in the Committee's opinion, a good solution
needs to be found quickly in this area if damage to the economy
is to be avoided. Above all, alongside the relocation of existing
international capital will no longer invest in new
industries,
plant in Europe, but in regions with lower energy and CO2
costs.

level,

if not more;

Relocation and leakage. Moreover, whilst such relo-
2.10.1
cations would lead to less CO2 being emitted in the EU, but on
just as much CO2 as ever would get into the
a global
atmosphere,
the relocated production uses
cheaper technologies than those used here now or in the future,
this will generally mean that even more greenhouse gases will
be released (with the exception of hydro power, e.g. in Norway).
Transport-related increases in CO2 emissions must also be
factored in.

if

(12) See CCMI/040, The development of the European cement industry.
(13) ‘Commission eyes end to free pollution credits’, EurActiv, 10/01/08,
http://www.euractiv.com/en/climate-change/commission-eyes-free-
pollution-credits/article-169434.

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Energy-intensity in the economy. If this were to
2.10.2
happen,
important
the European economy would have lost
industrial production and jobs, without having achieved
anything for the climate. At the same time, the EU would have
achieved (apparent) short-term (14) success in the competition
for economic energy efficiency,
i.e. so-called energy intensity
(energy consumption/gross domestic product) because energy-
intensive industries would have emigrated.

Service sector. Even the

2.10.3
sector, which
accounts for a large proportion of Europe's economic output,
can only prosper in the long term if European industry remains
competitive, and is thus also affected by excessively high —
compared to the rest of the world — energy costs.

service

Global agreements. Thus, binding and balanced global
2.11
agreements to reduce emissions of these climate gases must —
not just for the climate's sake — be the priority aim of all inter-
national efforts in this area, as a noticeable impact can only be
expected if the significant emitters of CO2 such as China, India
and the USA also take on board the relevant climate-protection
measures. Therefore, the Committee welcomes any efforts by
the Community, the Member States and such organisations as
the G8, the UN, UNESCO, OECD, IEA, etc. to move in this
direction, e.g. the Bali conference that has just taken place.

3. Specific comments — Analysis and conclusions

3.1
Energy and climate policy. An effective energy and
climate policy must ensure a significant reduction in energy
consumption and greenhouse gas emissions, prepare society and
relevant stakeholders (e.g. architects,
investors, entrepreneurs,
teachers, pupils, the general public, consumers, etc. — as this is
a matter that concerns everyone from one end of the chain to
the other) for the necessary changes, and, at the same time,
shape this process of change in such a way as not to impair the
global competitiveness of the European economy, thus main-
taining a balance between the objectives set out in point 2.3.
This presents both challenges and opportunities.

3.2
The challenge. Both the growth in the global demand
for energy and European energy and climate policies over the
few years have resulted in energy and its derivatives
last
becoming significantly more expensive. In order to give equal
priority to the three objectives set out in point 2.3 while gener-
ating the requisite capital for future investments in innovative
technologies, energy should nonetheless be made available to
the European economy at prices which are affordable as
possible, notwithstanding growing global demand, and at the
same time as ensuring requisite climate protection. Therefore,
the cost of energy must not — beyond what is necessary to
protect the climate and because of scarcity of resources — be
further increased by additional state measures.

In terms of the individual measures required and their impact,
interests between
there is a strong probability of clashes of
energy suppliers and energy users.

(14) Specifically, as long as there is no generalised recession.

3.3
Incentives and emissions trading. To achieve this, suffi-
cient market incentives are needed to ensure that the investment
cycles result in the use of energy-efficient technologies, even
where this may involve higher investment costs. If, despite their
economic viability, no such investments are made, the obstacles
involved need to be analysed and removed, since, in the vast
majority of cases,
investments in energy efficiency (see also
point 4.1) are the cheapest way of preventing CO2 emissions. In
theory, emissions trading could be one such market instrument.
However, substantial improvements are needed in current usage
(see also point 4.3) if a specific quantity of CO2 is to be saved at
lowest cost. The overlap with instruments to promote renewable
energy, and inappropriate incentives in the allocation of certifi-
cates, in particular the lack of a correlation between allocation
and actual production (so that emissions trading effectively also
amounts
in windfall
profits, which have pushed up electricity prices by billions of
euros. The full-scale auctions proposed by the Commission
would if anything push these up even further.

to a decommissioning grant),

results

3.4
Real opportunities. If we succeed over the next 15 to
25 years in focusing the numerous new investments and re-
investments occurring over this period on cost-effective, energy-
efficient and lower emission technologies, climate protection
may well have a positive impact on the competitiveness of Euro-
pean industry and thus present an opportunity for greater pros-
perity despite higher energy prices.

3.5
Prerequisites and recommendations. For this reason,
some of the prerequisites for capitalising on these opportunities
are discussed below, along with a few appropriate recommenda-
tions. A key prerequisite is that,
in the areas of energy, the
economy and research, the right policy measures are taken, the
right principles are applied, and overregulation is avoided. The
policy instruments must
stimulate and facilitate the most
economically profitable solutions; the quantitative targets must
take into account the pace of the requisite restructuring that is
compatible with a healthy economy. Yardsticks of the possible
pace include depreciation cycles,
takes to train
people, the stages of development of new technologies, and, in
particular, adjustments to the social contract, training measures
and other societal changes. Research and development have a
major contribution to make.

the time it

3.6
Broad action — diversity, diversification, flexibility
and reciprocity. Reflecting a bottom-up approach, the initiative
of all stakeholders and the diversity, diversification and flexibility
of technical and economic methods should be facilitated and
encouraged, without giving preferential treatment to individual
sectors. Only from a broad-based approach and healthy compe-
tition between the various options,
innovations and methods
will the strength to withstand individual crises arise and the

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most efficient methods, technologies and optimal combinations
thereof emerge. Accordingly, a wide-ranging energy mix is
needed, which means that no useful technology (15) should be
abandoned prematurely. The most effective way to ensure
security of supply is by appropriate linkage of producers,
suppliers and users through the supply chain, from the wellhead
to the consumer. This requires reciprocal economic relations, i.e.
secure investment conditions for foreign capital in the EU, and,
conversely, secure conditions for EU investments in supplier
countries.

— Further disadvantages and complications arise if actual
economic energy efficiency (see point 2.10.2) is set as an
additional, explicitly quantified target (20 %), given that the
simplest way of achieving this target is for industry to relo-
cate or — because of
the way that energy efficiency is
defined — to switch the energy mix from nuclear energy
and coal to (significantly more expensive) gas and renewable
energy sources (19). These undesirable side effects show that
energy efficiency should not be an end in itself, but a means
— admittedly a very important one — of sustainably
achieving the three fundamental objectives set out in point
2.3.

3.7
European policy measures and global cooperation.
European energy and climate policy should encourage coopera-
tion involving partnerships between the public and private
sector, bringing together and making best use of the economic,
geographic and resource-related strength of each Member State.
For example, techniques for using renewable energy should be
used in those locations in Europe where the best conditions (in
particular weather conditions) exist, including appropriate trans-
mission pathways, and not where the biggest national subsidies
happen to be. Beyond this, however, efforts should be made
towards global cooperation on the development and use of
energy-saving and climate-gas-avoiding technologies.

Contradictory (16)

3.8
quantitative
and
targets. Ensuring the greatest possible economic efficiency will
keep the economic costs and the social burden on the public to
a minimum.

overlapping

However, overlapping energy and climate policy targets lead to
an overregulated system and to uneconomic solutions;
they
should therefore be avoided. The following example may serve
as an illustration:

— The overarching EU climate objective of a 20 % reduction in
CO2 emissions over the 1990 to 2020 period, in line with
the Council decision of March 2007, would result in a GDP
loss (17) of between EUR 480 billion (European Commission
estimate, 23 January 2008)
and 560 billion (GWS/
Prognos) (18) over the 2013-2020 period; this needs to be
accepted and should therefore be the main guiding principle
for further action.

— However, an additional ambitious target of a 20 % share for
renewable energy sources would increase these costs further,
since the costs of avoiding CO2 in renewables are signifi-
cantly higher than other CO2 reduction measures.

(15) Notwithstanding individual decisions by Member States on nuclear

energy.

(16) Carbon capture and storage (CCS) technologies currently under devel-
opment could be particularly effective at reducing CO2 emissions.
However, this process lowers the energy efficiency in comparison to
similar plants without CCS. Thus, there is a clear contradiction
between CO2 reduction and energy efficiency. In view of the large coal
reserves that are still available, this loss of energy efficiency could
temporarily be absorbed. In this case, however, energy efficiency must
not be called for as an additional quantitative target.
(17) Speech by Commission President Barroso, 23 January 2008.
(18) Study by GWS/Prognos on behalf of the German federal economy

ministry, October 2007.

The Committee therefore recommends that any climate protec-
tion targets should first be carefully and objectively assessed for
their impact on GDP so as to safeguard the competitiveness of
European industry and to ensure optimal allocation of resources
while at the same time achieving the necessary reductions in
greenhouse gases.

3.8.1

Studies. Studies (20) suggest that

— an objective of reducing EU CO2 emissions by somewhat
less than 20 % (21) is economically viable if policy makers
and society succeed in consistent implementation of
the
most cost-effective measures (McKinsey bottom-up study,
which precisely identifies
the necessary and possible
measures for this purpose); whilst other studies exist, which
portray higher
reduction targets as being economically
viable, these are top-down studies that do not really show
how this is to be done;

— the cost of each additional percentage point of CO2 abate-
ment rises increasingly steeply however (a cumulative GDP
loss of EUR 480-560 billion, see point 3.8); thus, a target of
reducing CO2 by 20 % requires a costly switch of the energy
mix from coal to gas and renewable energy sources;

— setting an additional renewable energy target of 20 % will
cost many extra billions of euros, as this goal could only be
reached through massively subsidised use of uneconomic (at
least at the current state of the art) technologies.

3.8.2
Balance among the objectives set out in point 2.2.
Bearing in mind the balance that is needed among the three
energy and environmental goals set out in point 2.3, the aim of

(19) The reason for this is the definition of energy efficiency as the ratio of
primary energy consumption to GDP. Primary energy consumption by
electricity producers is in turn calculated using what is known as the
‘efficiency method’. This means that energy efficiency can triple if for
instance a nuclear power station is replaced by wind or solar energy
without saving even one kWh of electricity. Replacing a nuclear power
plant by natural gas would also increase energy efficiency, even
although CO2 emissions would actually increase.

(20) McKinsey, German Cost Curve for CO2 Reduction, September 2007;

EEFA, study for energy-intensive industries, September 2007.

(21) To be more precise: 26 % in Germany; around 15-20 % across the EU

as a whole.

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the policy instruments should be to use economically attractive
CO2 reduction measures to achieve everything that can be
achieved without damaging the economy. However, calls for a
shift in the energy mix to an excessively high share of renewable
energies — which, with technology at its current state of devel-
opment, would be premature and therefore costly — and for an
economically over-prescriptive target for energy efficiency would
result in a misallocation of production factors across the entire
economy (22) and would also involve a risk that European
production would,
in itself, no longer be able to meet the
demand for particularly efficient environmental technologies.
For example, a study by the European Commission (23) showed
that CO2 prices of EUR 20-25/t already significantly impact on
the competitiveness of many industrial sectors.

3.9 Research and development, training

3.9.1
Increased research and development (R&D) along the
entire energy chain is an essential element of the technological
developments that are needed to open up new options, cut
costs and improve efficiency when tapping into and promoting
resources, in energy conversion and energy storage, and in end
use by industry,
and the private
transport, households
repeatedly stated, R&D
consumer. As
funding should be massively increased if this is to be achieved.
Such funding should also benefit from a reduction in heavy
market
from
for
attaining market viability in their own right.

the Committee has

that are very far

technologies

subsidies

State support

3.9.2
for energy research should focus on
crucial basic research (e.g. catalysis, white/green biotechnology,
materials research, nuclear fusion, actinide decay, etc.), while
support for applied R&D should primarily come from business
(including SMEs). Beyond this, intensive training of all the neces-
sary specialists, from technicians to engineers and scientists, is
needed, as
those indirectly
involved with energy, including consumers.

is awareness-raising among all

4. Specific observations and recommendations

— A sine qua non of optimum energy efficiency is the removal
of conflicts between different legislative objectives: tenancy
law, recycling quotas.

— ‘Measuring’ the energy efficiency of a given country must
focus on how its consumers actually use goods, and not
exclusively on energy consumption over GDP.

— Where there are conflicting aims in respect of energy-
powered goods, the focus should be on the product's active
life.

— Energy efficiency should be promoted most heavily where
there is potential for significant savings, i.e. mainly in build-
ings and power stations.

— Investment cycles and payback periods determine whether

or not it is economic.

— These should also be a key factor in renewable energy (see

the section on renewable energy for more details).

— Industrial plants that already comply with energy efficiency
benchmarks must not be burdened with any additional costs
through policy instruments such as emissions trading (e.g.
auctions).

— The potential for higher global energy efficiency should be

explored sector by sector (25).

4.2 On renewable energy

4.2.1
Renewable energy contributes to sustainable energy
supply (greater security of supply, and virtually CO2-neutral or
CO2-free energy production). In the longer term,
it must do
without subsidies and thus become significantly more efficient.

4.2.2
Hence, future support for and development of renew-
able energies should take the following into consideration, with
a view to making support more economically viable:

— Support should be geared to achieving maximum economic

4.1 On energy efficiency, a no-regrets option

viability.

— Energy efficiency improves security of supply, cuts pollution

and stabilises energy prices.

— At global level, enhancing energy efficiency could cut CO2
emissions by about 6 Gt (billion tonnes) by 2030, at nega-
tive costs (24).

— Energy efficiency is the key to including non-European

countries in a global climate protection agreement.

(22) This is reflected in existing short-term political measures involving
five-year plans for the — often national-level — shares of renewable
energies and CO2 allocations

(23) ‘EU ETS Review. Report on International Competitiveness’, European

Commission/McKinsey/Ecofys, December 2006.

(24) McKinsey, cost curve.

— Lead markets

should be developed mainly by putting
suitable conditions in place and should be compatible with,
and not at
the expense of, existing sectors which have
already proved their worth.

— Support instruments should give preference to the most
suitable locations in the EU. Biomass should be used for
energy where it was produced (transport costs).

— Renewable energy technologies that are still a long way
from being economically viable should first be further devel-
oped through R&D instruments rather than being prema-
through expensive
turely forced upon the mass market
subsidies.

(25) In line with the IEA's approach.

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Official Journal of the European Union

25.6.2008

— Support for energy efficiency and renewable energies should
be in a meaningful way;
the initial priority should be
energy-efficiency measures, followed by moves to promote
the use of renewable energies. For example, the planned
directive on renewable energy and heating should provide
for support for the use of renewable energy for the heating
only of buildings that have first been renovated to reduce
heating requirements.

4.3 Further recommendations for action

— Before setting future targets,

the technical prospects for
implementation should be analysed, together with economic
and social implications. Targets should then be set on the
basis of a European agreement, or indeed preferably a global
one.

(e.g.

— Policy instruments should therefore aim to exert the desired
in economic
for
influence
measures, development of new markets), while avoiding
undesired impacts (e.g. relocation of investments and high
costs for business and consumers).

investment

incentives

— Policy instruments should be more consistent than hitherto
in taking climate, energy efficiency and capital efficiency
into account on the basis of quantifiable values. The best
measure here is the cost of preventing CO2 emissions.

— The EU should tidy up its over-prescriptive set of instru-
ments (emissions trading, support for renewable energies,
support for cogeneration of heat and power, energy taxes,
and regulatory law, with its proliferation of individual direc-
tives). Clashes between differing objectives need to be
resolved; cost-effective measures must be given priority over
those that are not cost-effective (in general, energy efficiency
should have priority over the further development of renew-
able energies).

— Emissions trading should be changed in order to promote
energy efficiency and avoid production shutdowns. In order
to ensure that businesses have the necessary capital to invest
in energy efficiency, certificates should not be auctioned, but
instead be issued on the basis of efficiency benchmarks
linked to actual production volumes. Emissions trading

Brussels, 13 February 2008.

would then have just as strong an impact
in terms of
increasing energy efficiency as in the case of full auctions,
but it would avoid negative repercussions, such as consoli-
dating unnecessary electricity price hikes — windfall profits
— and placing burdens on energy-intensive industries. The
overlap with instruments to promote renewable energy, and
inappropriate incentives in the allocation of certificates,
should be avoided. Instead, the correlation between alloca-
tion and actual production should be taken into considera-
tion (so that emissions trading does not become a decom-
missioning grant). In some sectors, auctioning would see
production costs alone rise by over 10 %, thus blocking
plans to raise salaries.

— Support

for

renewable energies

should be harmonised
throughout the EU so that wind farms and photovoltaic
plants are constructed in the most suitable locations in the
EU. Extensive support for renewable sources of heat, electri-
city and fuel should be provided not on the basis of regional
needs but of
local climatic (and transmission) conditions
which are most conducive to efficiency.

— Energy as a production factor should be largely exempt from
additional (i.e. additional to those incurred by the energy
supplier and factored in to the relevant purchase price of
energy) government-imposed energy and climate costs
(emissions trading,
renewable energies and
cogeneration of heat and power, energy taxes, etc.), in order
not to undermine global competitiveness and to avoid relo-
cations. Only economically sound companies are in a posi-
tion to undertake the steps needed to improve efficiency,
develop new technologies and raise the requisite capital.

support

for

— The focus of global agreements should be on relative targets
(energy efficiency, greenhouse gas emissions/GDP) so that
countries with high potential for economic growth (and thus
for increases in greenhouse gas emissions) have incentives to
participate. These incentives should mainly take the form of
technology transfer — like, for instance, the objective set by
the AP6 forum (26) of six countries from the Asia-Pacific
region — so that efficient technologies quickly reach regions
where the need to catch up is most acute.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

(26) The ‘Asia-Pacific Partnership on Clean Development and Climate’ is a
new forum aimed at speeding up the development and use of clean
energy technologies. Participating countries are Australia, Canada,
India, Japan, Korea, and the USA. The aim is to work with business to
achieve energy and climate goals in such a way as to promote sustain-
able economic development and the fight against poverty. The focus is
on investment, trade and technology transfer.