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The EU is ‘trampling on Europe as a business location’

Global warming deserves full attention but the way the European Union is addressing climate change will drive energy-intensive industries out of Europe – argues Arnaldo Abruzzini

The alarming findings of the World Energy Outlook underpin the business community‘s demand to reverse the declining role of industry in Europe. According to the International Energy Agency, European Union exports of energy-intensive goods will decrease by one-third by 2035 – whereas the market share of our major competitors is expected to grow.

Against this background, it is encouraging that the European Commission in 2012 adopted a new target of boosting industrial production’s contribution to European gross domestic product from its current level of around 16 per cent to 20 per cent by the end of this decade.

However, behind this headline target, the EU is not practicing what it preaches. While policy-makers regularly reiterate their commitment to much-needed reindustrialisation of the continent, new obstacles are being created almost on a monthly basis. The European Parliament’s December 2013 approval of the planned carbon market intervention – the so-called European Union Emissions Trading Scheme-backloading – marked another step in the wrong direction.

As a key tool in achieving the 20 per cent CO2 reduction target, the EUETS has been working as planned. The cap and trade principle guarantees that, independent of the price level, this goal will be reached. Fluctuations in the CO2 price are a natural process, caused by ups and downs in supply and demand that correspond to the overall economic situation. Reductions in emissions will always result in decreased prices.

It is therefore all the more incomprehensible that the commission broke a taboo by intervening in a market system, which ensures that emission cuts can be achieved at lowest costs. Supporters of backloading argued that the current price creates little incentive for investment in low carbon technologies. However, it is highly questionable that CO2-intensive businesses will be willing or able to invest in green technologies if their financial capacity is undermined by higher carbon costs.

It is even more worrying that the backloading might only prove to be a foretaste of European Commissioner for Climate Action Connie Hedegaard’s plans regarding a more comprehensive reform of the EUETS. A supply management mechanism, as currently under consideration, would fundamentally undermine the market-driven principles of the system.

The effects caused by arbitrary market interventions are anything but foreseeable. As a consequence, it would be more difficult for businesses to produce cost-effectively in the EU – which increases the probability of carbon leakage. Instead of creating new obstacles for industry, policy-makers would be well-advised to turn their attention to the global level.

Limiting the long-term rise in the average global temperature to two degrees Celsius, as agreed in the 2009 Copenhagen Accord, requires a huge effort. This cannot be shouldered by Europe alone, especially when considering that by the end of this decade the EU’s share of projected world greenhouse gas emissions will decrease to below 10 per cent.

We need then to put every effort into the conclusion of an international climate change agreement by 2015, which includes all major emitters. Unilaterally stepping up the CO2 target, as repeatedly envisaged, would not only lead to a skyrocketing of EU energy prices but also cause a further transfer of carbon emissions to third countries. That would be to the detriment not only of the European economy but also of the global climate change response.

Our economy still lacks the right framework conditions to regain competitiveness on the global market and to finally put the crisis in the past. In particular – there is underperformance in efforts to minimise regulatory and administrative burdens, a shortfall in measures to stimulate innovation and entrepreneurship, a mismatch in the supply and demand of skilled labour and the growing problem of unavailable or unaffordable resources.

It is time to set all of the machinery for growth in motion, to keep well-established industries in Europe and to provide a long-term guarantee for cost-effective production conditions within the EU. At the same time, policy-makers must cease creating more and more obstacles to competitiveness. This is a basic requirement for the continent to thrive in the world economy and to ensure its growth and employment for the years to come.

Arnaldo Abruzzini is Secretary General of EUROCHAMBRES – the association of European Chambers of Commerce and Industry representing 20 million enterprises and 46 member associations

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