Public authorities should now reduce uncertainty in the energy sector and the regulatory environment regarding supply contracts, while maintaining the European aim to widely increase the use of renewables by a long-term commitment to this form of energy generation – argues Thomas Sattich

Industry, energy and environmental policy evolved from barely developed policy fields to a triple pillar of the European Union fused together in an eco-innovation strategy whose central leitmotif is sustainability. This strategy may provide Europe’s economy with a good starting position for global economic competition in the 21st century, yet over the past years the emphasis between the three policies slowly shifted away from environmental and climate to energy and industrial policy; high energy prices and their impact on energy intensive industry are only the latest controversy in this regard. Some adjustments between the different elements of this tripartite eco-innovation strategy seem therefore to be necessary in order to reduce evolving inconsistencies.

In its latest communication on energy prices and costs in Europe (COM(2014) 21), the European Commission describes an unfavourable development of energy prices in the EU, which seems to compromise the competitiveness of the continent’s energy intensive industry. In view of this assessment, the question arises – what actually could be done in order to realign energy policy to the needs of energy intensive sectors, which are exposed to global competition? Moreover, one has to ask, whether a simultaneous adjustment to the needs of energy intensive industries and better support for green growth strategies is conceivable – and how energy and industrial policy could be realigned in a manner that conforms to the overarching EU eco-innovation and sustainability strategy.

If policy-makers adhere to several key principles of the sustainability agenda, strategic development could indeed be the possible despite the given risks and difficulties. The realignment should, however, be based on three key elements of the eco-innovation concept: the development of an interconnected European energy system, the increase of renewables and energy-resource efficiency. In their core, these three policies should rest unchanged in order to make selective adjustments possible.

Existing gaps in the physical cross-border infrastructure, for example, result in weak competition, and therefore still constitute a major impediment for cost-effective manufacturing. Policy and decision makers should then be aware of the potential efficiency gains of a pan-European approach to energy policy. Investing in physical interconnection does not only increase security of supply but also lead to stronger competition, lower prices, less misallocation of generation capacity and a more efficient equilibrium in the energy sector in general. Moreover, this approach goes well together with the Brussels eco-innovation strategy that provides investments in energy infrastructure as a prerequisite for the increase of renewable generation capacity.

New generation capacities are, indeed, needed for the competitive operation of energy intensive industries. Renewables are the fastest growing segment in the power system and can hence be regarded a potential key element for the realignment of energy policy to the needs of energy intensive industries. Risk-sharing instruments such as long-term, fixed price contracts and consortiums between suppliers and customers may be an answer to secure continuing investments. Although despite strong demand from energy intensive industries, these were in short supply due to concerns over their compatibility with internal market rules – and due to strong uncertainties in the energy sector in general. Regulatory clarification on this seems to be necessary.

Public authorities should now reduce uncertainty in the energy sector and the regulatory environment regarding supply contracts, while maintaining the European aim to widely increase the use of renewables by a long-term commitment to this form of energy generation. Moreover, the regulatory framework should guarantee that the most advanced energy conservation and recycling technologies encounter as few barriers within the single market as possible. The use of these technologies should actively be encouraged by standards and minimum requirements on the one hand and the development of lead markets by information, logos and fiscal as well as purchasing practises on the other. These measures should also reward frontrunners through the stimulation of markets for their more sustainable ways of production.

Thomas Sattich works out of the Institute for European Studies at the Vrije Universiteit Brussels