Air Pollution Costs the West Almost $1 Trillion Annually

Air Pollution Costs the West Almost $1 Trillion Annually | 07/12/14
by John Brian Shannon John Brian Shannon

Air pollution has a very real cost to our civilization via increased healthcare costs, premature deaths, lowered productivity, environmental degradation with resultant lowered crop yields, increased water consumption and higher taxation.

However, air pollution is only one cost associated with fossil fuel use.

Smokestack Image Credit: Alfred Palmer
Smokestack image credit: Alfred Palmer

There are three main costs associated with energy

  1. The retail price that you pay at the gas pump or on your utility bill for example (which is paid by consumers)
  2. The subsidy cost that governments pay energy producers and utility companies (which is ultimately paid by taxpayers)
  3. The externality cost of each type of energy (which is paid by taxpayers, by increased prices for consumers, and the impact on, or the cost to, the environment)

Externality cost in Europe and the U.S.A.

A recent report from the European Environment Agency (EEA) states that high air pollution levels (one type of externality) in the EU cost society €189 billion every year and it’s a number that increases every year. (That’s $235 billion when converted to U.S. dollars)

To put that number in some kind of context, the cost of the air pollution externality in the EU annually, is equal to the annual GDP of Finland.

Let’s state that even more clearly. The amount of taxation paid by EU taxpayers every year to pay for airborne fossil fuel damage is equal to Finland’s entire annual economic output!

It’s getting worse, not better, notwithstanding recent renewable energy programs and incentives. Even the admirable German Energiewende program is barely making an impact when we look at the overall EU air quality index.

Of the 30 biggest facilities it identified as causing the most damage, 26 were power plants, mainly fueled by coal in Germany and eastern Europe. — Barbara Lewis (Reuters)

That’s just Europe. It’s even worse in the U.S., according to a landmark Harvard University report which says coal-fired power generation alone costs the U.S. taxpayer over $500 billion/yr in externality cost.

Each stage in the life cycle of coal—extraction, transport, processing, and combustion—generates a waste stream and carries multiple hazards for health and the environment. These costs are external to the coal industry and thus are often considered as “externalities.”

We estimate that the life cycle effects of coal and the waste stream generated are costing the U.S. public a third to over one-half of a trillion dollars annually.

Many of these so-called externalities are, moreover, cumulative.

Accounting for the damages conservatively doubles to triples the price of electricity from coal per kWh generated, making wind, solar, and other forms of non fossil fuel power generation, along with investments in efficiency and electricity conservation methods, economically competitive.

We focus on Appalachia, though coal is mined in other regions of the United States and is burned throughout the world.” — Full Cost Accounting for the Life Cycle of Coal by Dr. Paul Epstein, the Director of Harvard Medical School Center for Health and the Global Environment, and eleven other co-authors

The report also notes that electricity rates would need to rise by another .09 to .27 cents per kilowatt hour in the U.S. to cover the externality cost of American coal-fired electricity production.

The externality cost for solar or wind power plants is zero, just for the record

Dr. Epstein and his team notes: “Coal burning produces one and a half times the CO2 emissions of oil combustion and twice that from burning natural gas (for an equal amount of energy produced).”

There’s the argument to switch from coal to natural gas right there

Also in the Harvard report in regards to the intrinsic inefficiency of coal:

Energy specialist Amory Lovins estimates that after mining, processing, transporting and burning coal, and transmitting the electricity, only about 3% of the energy in the coal is used in incandescent light bulbs.

…In the United States in 2005, coal produced 50% of the nation’s electricity but 81% of the CO2 emissions.

For 2030, coal is projected to produce 53% of U.S. power and 85% of the U.S. CO2 emissions from electricity generation.

None of these figures includes the additional life cycle greenhouse gas (GHG) emissions from coal, including methane from coal mines, emissions from coal transport, other GHG emissions (e.g., particulates or black carbon), and carbon and nitrous oxide (N2O) emissions from land transformation in the case of MTR coal mining.” — Full Cost Accounting for the Life Cycle of Coal report

It’s not like this information is secret. All European, American, and Asian policymakers now know about the externality costs of coal vs. renewable energy. It’s just that until recently everyone thought that the cost of switching to renewable energy, was higher than the cost of fossil externalities.

It’s not only an economic problem, it’s also a health problem

Air pollution impacts human health, resulting in extra healthcare costs, lost productivity, and fewer work days. Other impacts are reduced crop yields and building damage.

Particulate matter and ground-level ozone are two of the main pollutants that come from coal.

90% or more of Europeans living in cities are exposed to harmful air pollution. Bulgaria and Poland have some of the worst pollution of the European countries.

An estimated 400,000 premature deaths in European cities were linked to air pollution in 2011. — CleanTechnica

Externality cost in China

Remember the Beijing Olympics where the city’s industry and commercial business were shut down to allow visitors and athletes to breathe clean air during their stay (and Wow!) look at their clear blue sky for the first time in decades. Great for tourists! Bad for Beijing business and industry, with the exception of the tourism industry (for one month) of course.

The Common Language Project reported in 2008 that premature deaths in China resulting from fossil fuel air pollution were surpassing 400,000 per year.

China faces a number of serious environmental issues caused by overpopulation and rapid industrial growth. Water pollution and a resulting shortage of drinking water is one such issue, as is air pollution caused by an over-reliance on coal as fuel. It has been estimated that 410,000 Chinese die as a result of pollution each year. — clpmag.org

The die is cast since it is becoming common knowledge that renewable energy merely requires a small subsidy to assist with power plant construction and grid harmonization — while fossil fuels continue to require truly massive and ongoing subsidies to continue operations.

Subsidy cost of fossil fuels

Already there is talk of ending fossil fuel subsidies, which in 2014 will top $600 billion worldwide

Want to add up the total costs (direct economic subsidy and externality cost subsidy) of fossil fuels?

Add the $600 billion global fossil fuel subsidy to the to the $2 trillion dollars of global externality cost and you arrive at (approx) $2.5 trillion dollars per year. Then there is the more than 1 million premature deaths globally caused by air pollution. All of that is subsidized by the world’s taxpayers.

Compare that to the total costs of renewable energy. Well, for starters, the economic subsidy dollar amount for renewable energy is much less (about $100 billion per year globally) and there are no externality costs.

No deaths. No illness. No direct or related productivity loss due to a host of fossil fuel related issues (oil spills, coal car derailment, river contamination, explosions in pipelines or factories) for just a very few examples.

The fossil fuel industry is a very mature industry, it has found ways to do more with ever-fewer employees, and it gets more subsidy dollars than any other economic segment on the planet.

By comparison, the renewable energy industry is a new segment, one that requires many thousands of workers and it gets only relative handfuls of subsidy dollars. And, no externalities.

It becomes clearer every day that high-carbon fossil must be displaced by renewable energy

No longer is it some arcane moral argument that we should switch to renewables for the good of the Earth; Fossil fuel is proving to be a major factor in human illness/premature deaths, it sends our money abroad to purchase energy instead of keeping our money in our own countries, and the wholly-taxpayer-funded subsidy cost of fossil is out of control and getting worse with each passing year.

The time for dithering is past. It’s time to make the switch to renewable energy, and to start, we need to remove the worst polluting power plants from the grid (and at the very least, replace them with natural gas powered plants) or even better, replace them with hybrid wind and solar power plants.

To accomplish this, governments need to begin diverting some of the tens of billions of dollars annually paid to the fossil fuel industry to the renewable energy industry.

Germany’s Energiewende program was (and still is) an admirable first step. Once Germany has completed it’s energy transition away from oil, coal and nuclear — having replaced all of that generation capacity with renewable energy and natural gas, only then can it be hailed a complete success — and German leaders should go down in history as being instrumental in changing the world’s 21st century energy paradigm.

Dank an unsere deutschen Freunde! (With thanks to our German friends!)

If only every nation would sign-on to matching or exceeding the ongoing German example, we wouldn’t have 1 million premature deaths globally due to fossil fuel burning, we wouldn’t have almost 2 trillion dollars of externality cost, we wouldn’t need $600 billion dollars of direct subsidies for fossil fuel producers — and we would all live in a healthier environment, and our plant, animal, and aquatic life would return to their normally thriving state.

Taxes would reflect the global $2.5 trillion drop in combined fossil fuel subsidy and fossil fuel externality costs, employment stats would improve, productivity would increase, the tourism industry would receive a boost, and enjoyment of life for individuals would rebound.

It’s a truism in the energy industry that all energy is subsidized, of that there is no doubt. Even renewable energy receives tiny amounts of subsidy, relative to fossil.

But it is now apparent that over the past 100 years, getting ‘the best (energy) bang for the buck’ has been our nemesis. The energy world that we once knew, is about to change.

The world didn’t come to an end when air travel began to replace rail travel in the 1950’s. Now almost everyone travels by air, and only few travel by train. And what about the railway investors didn’t they lose their money when the age of rail tapered-off? No, they simply moved their money to the new transportation mode and made as much or more money in the airline business.

Likewise, the world will not come to an end now that renewable energy is beginning to displace coal and oil. Investors will simply reallocate their money and make as much or more money in renewable energy.

As Nuclear steps aside, Renewable Energy steps up to power Europe

As Nuclear steps aside, Renewable Energy steps up to power Europe | 16/08/14
by John Brian Shannon John Brian Shannon

Nuclear reactors are starting to shut down in Europe

It began in earnest in the wake of the Fukushima disaster when Germany inspected its problem-plagued nuclear power plants and decided to take 9 of its nuclear power plants offline in 2011 and the rest offline by 2022.

There is plenty of public support in the country for Germany’s planned nuclear closures, even with the additional fee added to each German electricity bill to pay for nuclear power plant decommissioning, which completes in 2045.

Switzerland likewise has decided to get out of the nuclear power business beginning in 2015 and decommission their nuclear power plants by 2045.

Other European nations are also looking at retiring their nuclear power plants. But the news today is about the UK, Belgium, Germany and Spain.

Heysham_Nuclear_Power_Station UK operated by EDF
Heysham Nuclear Power Station in the UK which is operated by EDF of France. Image courtesy: CleanTechnica.com

In the UK, four (French-operated) EDF reactors built in 1983 have been shut down after one of them was found to have a crack in its centre spine. (EDF stands for Electricity de France which is a French utility responsible for managing many nuclear reactors)

At first only the affected unit was taken offline (in June) but upon further inspection it was determined that the other three were at risk to fail in the coming months. Whether or not these four reactors can be repaired economically — all were scheduled to be decommissioned before 2020.

The shortfall in electrical generation due to these unscheduled nuclear power plant shutdowns has been met by 5 GW of new wind power generation, which has seamlessly stepped in to fill demand.

Additional to that, 5 GW of solar power has been added to the UK grid within the past 5 years. And that’s in cloudy olde England, mates!

In Belgium, 3 out of 5 of their nuclear power plants are offline until December 31, 2014 due to maintenance, sabotage, or terror attacks — depending who you talk to.

Belgium’s Doel 4 reactor experienced a deliberate malfunction last week and workers in the country’s n-plants are henceforth directed to move around inside the plants in pairs.

Also, their Tihange 2 reactor won’t be ready to resume power production until March, 2021. See this continuously-updated list of nuclear power plant shutdowns in Belgium.

Further, the utility has advised citizens that hour-long blackouts will commence in October due to a combination of unexpected n-plant shutdowns and higher demand at that time of year.

Belgian energy company Electrabel said its Doel 4 nuclear reactor would stay offline at least until the end of this year after major damage to its turbine, with the cause confirmed as sabotage.

Doel 4 is the youngest of four reactors at the Doel nuclear plant, 20 km north of Antwerp, Belgium’s second-biggest city.

The country has three more reactors in Tihange, 25 km southwest of the city of Liege.

Doel 1 and 2, which came on line in 1975, are set to close in 2015. Tihange 1, which also started operation in 1975 and was designed to last 30 years, got a 10-year extension till 2015.

The two closed reactors Doel 3 and Tihange 2 were connected to the grid in 1982 and 1983. Doel 4 and Tihange 3, which came on line in 1985, were operating normally until the closure of Doel 4 last week.

The shutdown of Doel 4’s nearly 1 gigawatt (GW) of electricity generating capacity as well as closures of two other reactors (Doel 3 and Tihange 2) for months because of cracks in steel reactor casings adds up to just over 3 GW of Belgian nuclear capacity that is offline, more than half of the total.

In Britain, EDF Energy, owned by France’s EDF, took three of its nuclear reactors offline for inspection on Monday after finding a defect in a reactor of a similar design. – Reuters

In Germany, the nuclear power generation capacity missing since 2011 has been met by a combination of solar, wind, bio, natural gas, and unfortunately some coal. But that sounds worse than it is.

According to the Fraunhofer Institute, renewable energy produced about 81 TWh, or 31% of the nation’s electricity during the first half of 2014. Solar production is up 28%, wind 19% and biomass 7% over last year.

Meanwhile, with the exception of nuclear energy, all conventional sources are producing less. The output from gas powered plants was half of what it had been in 2010 and brown coal powered plants are producing at a similar level to 2010-2012. – CleanTechnica.com

Let’s see what our friends at the Fraunhofer Institute have to say in their comparison of the first half of 2013 vs. the first half of 2014.

German electricity production H1 2013 - H1 2014
Fraunhofer Institute compares energy production between the first half of 2013 and the first half of 2014.

Although unspoken by power company executives operating in Germany, Spain, and some other European countries, the panic felt by traditional power generators is due to the massive changes in ‘their’ market since 2009.

Things move slowly in the utility industry — ten years is seen as a mere eyeblink in time, as the industry changes very little decade over decade. Recent changes must be mind-blowing for European power company executives.

European-union-renewables-chart
European Union renewables by Eurostat — Renewable energy statistics. Licensed under Public domain via Wikimedia Commons This map displays 2012 results with a total of 20-30% renewable energy for 2012, but in 2013 renewable energy in Portugal registered 58.3% overall. By 2014, Portugal expects that 70% of its energy will come from renewable energy.

It occurs to me that the end of the conventional energy stranglehold on Europe parallels the ending of Star Wars VI.

Help me take this mask off

It’s a mask to hide behind when conventional power producers don’t want the facts aired.

Fossil and nuclear don’t want their Subsidies or Externalities advertised. Global fossil fuel and nuclear subsides topped $600 billion dollars in 2014, while the externality cost of fossil and nuclear may be as high as $2 trillion dollars annually. That’s a lot of hiding, right there.

Fossil fuel and nuclear power power producers don’t want the subsidies they’re paid to be publicly advertised — and they don’t want the renewable energy industry to have subsidies at all

Externalities are simply another form of subsidy to the fossil fuel and nuclear power industries which often take the form of massive public healthcare spending or massive environmental spending to mitigate the gigatonnes of toxic airborne emissions, or to monitor or repair environmental catastrophes such as oil spills.

Spain has ended it’s Feed-in-Tariff subsidy scheme for renewable energy, while keeping conventional power producer subsidies in place.

Not only that, suddenly homeowners aren’t allowed to collect power from the Sun or harvest power from the wind unless it is for their own use. Electricity cannot be collected by Spanish residents and then sold to the grid for example, nor to anyone else.

Spain’s government has taken it yet another step in a bid to keep the conventional energy companies from drowning in their tears. After a meteoric rise in wind and solar capacity, Spain has now taxed renewable energy power producers retroactively to 2012 and ruled that renewable energy will be capped to a 7.5% maximum profit. Renewable energy returns over the 7.5% threshold becomes instant tax revenue for the government. (Quite unlike conventional energy producers in the country which can make any amount of profit they want and continue to keep their subsidies)

While all of this has been going on, Spain and Portugal have quietly lowered their combined CO2 output by 21.3% since 2012 (equal to 61.4 million fewer tonnes of CO2) thanks to renewable energy.

But you’ll die

Not only has European renewable energy now stepped up to fill the multiple voids due to nuclear power plant maintenance and sabotage shutdowns, it has scooped incredible market share from conventional power producers.

In January 2014, 91% of the monthly needed Portuguese electricity consumption was generated by renewable sources, although the real figure stands at 78%, as 14% was exported. – Wikipedia

Unwittingly, the German and Spanish power companies have provided the highest possible compliment to the renewable energy industry, which, if publicized would read something like this;

We can’t compete with renewable energy that has equal amounts of subsidy. Therefore, remove the renewable energy subsidy while we keep ‘our’ traditional subsidies, until we can reorient our business model – otherwise, we perish!

Nothing can stop that now

Ending the European renewable energy Feed-in-Tariff schemes will only temporarily slow solar and wind installations as both have reached price-parity in recent months — and that, against still-subsidized conventional power generators!

Even bigger changes are coming to the European electricity grid over the next few years. Nothing can stop that now.

Tell your sister; You were right about me

Conventional power producers in Europe provided secure and reliable power for decades, it was what has powered the European postwar success story — but having the electricity grid all to themselves for decades meant that Europe’s utilities became set in their ways and although powerful, were not able to adapt quickly enough to a new kind of energy with zero toxicity and lower per unit cost.

Renewable energy, at first unguided and inexperienced, quickly found a role for itself and is now able to stand on its own feet without subsidies. Quite unlike conventional power generators.

Considering the sheer scale of the energy changes underway in Europe, conventional energy has been superceded by a superior kind of energy and with surprisingly little drama.

Related Articles

Denmark Sets the Policy Pace on European Climate Goals

by Guest Contributor Jeff Spross.

Renewable Energy Denmark style shutterstock_171261104
Renewable Energy. Copenhagen, Denmark. Kapa1966 / Shutterstock.com

Originally published on ThinkProgress.

Agreement in Denmark’s parliament this week cleared the way for passage of climate targets that would outstrip the recent goals set by the European Union.

The bill would establish a legally binding requirement that Denmark cut its greenhouse gas emissions by 40 percent below 1990′s levels by 2020, and that the government return to the question every five years to set new 10-year targets. The legislation would also establish a Climate Council — modelled on a similar body in Britain — to advise the government on the best ways to continue reducing Denmark’s reliance on fossil fuels.

The bill is backed by the Social Democrats, the Conservative People’s Party, the Socialist People’s Party, and the Red-Green Alliance.

Denmark’s present and former governments have already committed the country to a goal of 100 percent renewable energy generation by 2050, and the new bill is seen as a concrete step to achieving that goal.

“This is a law to make Denmark low carbon society by 2050,” Mattias Soderberg, a senior climate advisor at DanChurchAid, a humanitarian organization in Denmark, told Responding to Climate Change. “With this law Denmark is starting to outline how this process will be done.”

A 40 percent reduction from 1990 levels by 2020 is on par with carbon emission cuts the National Research Council advised America to take on in 2010. It’s also noticeably more ambitious than the target the European Parliament recently passed — to cut emissions 40 percent below 1990 levels by 2030 — for the European Union as a whole.

The broader EU target remains non-binding until it’s approved by the governments of the individual countries that make up the group. And debate remains on exactly how the target should be divvied up amongst the member states. So Denmark moving forward with more ambitious cuts at the individual level would put it ahead of the curve set by most of its peers on the Continent.

Denmark is also part of the Emissions Trading System (ETS), Europe’s cap-and-trade system for cutting carbon emissions, which will likely serve as the main driver of both Denmark’s reductions and the EU’s as a whole. Unfortunately, the unexpected drop in economic activity from to the 2008 recession, along with some inherent design flaws, drove the price of carbon permits under the ETS to remarkable lows. That removed the incentive for firms in Europe to cut their carbon emissions, leaving the entire system stalled in limbo.

The ETS’ problems have served as a learning experience for other, newer cap-and-trade systems like California’s. And reforms are in the works in the EU to get the ETS back on its feet.

Meanwhile, Denmark has already been making substantial progress on the climate front. According to numbers that Responding to Climate Change pulled from the Danish Energy Agency, renewable energy accounted for 43.1 percent of Denmark’s domestic electricity supply in 2012, and for 25.8 percent of all energy consumption in the country that year. The year before that, renewables provided 23.1 percent of Denmark’s electricity consumption.

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This article, Denmark Is About To Outstrip European Climate Goals, is syndicated from Clean Technica and is posted here with permission.

Intense EU Negotiations Result in Binding Renewable Energy Targets

by Joshua S Hill.

Tough EU negotiations have resulted in a 40% reduction in CO2 levels and an increase of 27% for renewable energy.
Tough EU negotiations have resulted in a 40% reduction in CO2 levels (compared to 1990 levels) and for 27% of demand to be met by renewable energy. These targets must be met by 2030 and are binding on EU nations as a whole.

Following intense negotiations the European Union has announced a series of climate-based goals for the whole Union as part of the new EU framework on climate and energy for 2030.

Announced on Wednesday, the new framework includes a reduction in greenhouse gas emissions of 40% below 1990 levels, a Union-wide binding target for renewable energy of at least 27%, renewed ambitions for energy efficiency policies, a new governance system, and a set of new indicators to ensure a competitive and secure energy system.

“Climate action is central for the future of our planet, while a truly European energy policy is key for our competitiveness,” said European Commission President José Manuel Barroso. “Today’s package proves that tackling the two issues simultaneously is not contradictory, but mutually reinforcing.”

“It is in the EU’s interest to build a job-rich economy that is less dependent on imported energy through increased efficiency and greater reliance on domestically produced clean energy,” continued Barroso.

“An ambitious 40% greenhouse reduction target for 2030 is the most cost-effective milestone in our path towards a low-carbon economy. And the renewables target of at least 27% is an important signal: to give stability to investors, boost green jobs and support our security of supply.”

While the 27% is a step in the right direction, some critics are suggesting that it doesn’t go far enough, specifically in regards to the lack of nationally binding targets.

“While it is pleasing to see the EU Commission recognise that renewable energy is a key part of future energy solutions across Europe, the lack of ambition in not ensuring there are national binding targets for renewable energy is a disappointment,” said RenewableUK Chief Executive Maria McCaffery.

”This is a missed opportunity for member states to take collective and serious action on the drive for clean, sustainable, renewable energy, which is the best option for reducing our carbon emissions.”

The United Kingdom was one of the loudest voices during negotiations, calling for at least a 40% cut in greenhouse gas emissions, and RenewableUK hope that the UK will similarly lead the way with binding renewable energy targets.

“The Commission has gone out of its way to point out that member states are still free to set their own nationally binding renewable energy targets, so it is not too late for the UK Government to take leadership on this issue,” said McCaffery. “To meet the binding Greenhouse Gas targets and also the UK Government’s stated aim of tackling climate change, we need to keep investing in the world beating renewable sources we have, which can also bring thousands of jobs and help our energy security.”

The 2030 framework will be supported by a detail analysis on energy prices and costs, which assess the key drivers and compares prices across the European Union with those of its main trading partners.

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This article, EU Sets Binding Renewable Energy Targets After Tough Negotiations, is syndicated from Clean Technica and is posted here with permission.

About the Author

Joshua S. HillJoshua S Hill I’m a Christian, a nerd, a geek, a liberal left-winger, and believe that we’re pretty quickly directing planet-Earth into hell in a handbasket! I work as Associate Editor for the Important Media Network and write for CleanTechnica and Planetsave. I also write for Fantasy Book Review (.co.uk), Amazing Stories, the Stabley Times and Medium.   I love words with a passion, both creating them and reading them.

Progressive EU Climate Policy a definite ‘Maybe’

by Guest Contributor Sonja van Renssen

Moving forward on climate and energy for 2030
Many believe that a ‘40% emissions reduction target by 2030’ will prevail. If there is one at all, it will likely be non-binding and less than 30%. Which, according to the Commission’s own 2013 reference scenario, is nothing more than business as usual.

Originally published on Energy Post

Behind the heated debate in Brussels about climate and renewable energy targets, what is really happening is that concern over high energy prices has taken precedence over climate concerns in Europe. Competitiveness has caught up with climate policy. Indeed, the two issues have become so intertwined that when the European Commission will present its new climate and energy policy on 22 January, it will at the same time launch a new industrial policy. Similarly, EU leaders, who were to meet twice in February and March to discuss energy prices and climate policy separately, have merged these meetings into a single summit to address both issues at the same time. Our correspondent Sonja van Renssen digs behind the climate and energy headlines.

EU climate commissioner Connie Hedegaard and energy commissioner Günther Oettinger still don’t agree on what greenhouse gas emission reduction target the EU should adopt for 2030. Hedegaard wants 40%, Oettinger 35%.

This is the news that emerged from a deadlocked meeting within the Commission on 10 January that was supposed to agree the 2030 proposals internally.

Many believe that 40% will prevail. If it does, it is also the only target the Commission is likely to propose: forget a new renewables target – if there is one at all it will be non-binding and less than 30%, which, according to the Commission’s own  new 2013 reference scenario, published over Christmas, is really nothing more than business as usual.

A new energy efficiency target long ago disappeared from the Commission’s agenda.

Thus, the famous 20-20-20 targets for 2020 will not get a proud sequel for 2030. This despite the European Parliament’s vote on 9 January in favour of three binding targets for greenhouse gas emissions (40%), renewables (30%) and energy efficiency (40%). Despite the fact that on 23 December, Ministers from Germany, France, Italy, Austria, Belgium, Denmark, Ireland and Portugal sent the two Commissioners a letter urging them to retain a renewable energy target in addition to a reduction target. Despite the letter by Germany, the UK, France and Italy last week urging a 40% climate target. Despite also pressure from the renewable energy sector and parts of industry to maintain an ambitious climate and renewable policy.

The truth is that at this moment many member states and industry fear that a strong climate and energy policy will be bad for their economies.

If in an interview with Energy Post last December, Hedegaard still insisted three binding targets were needed, today she is fighting to defend her 40% emission reduction target. The Commission’s 2050 low-carbon roadmap says this equates to the most cost-effective path to an 80-95% emission reduction in 2050. In contrast, 35% is only just above business-as-usual – a 32% decrease in emissions in 2030 – according to the Commission’s new 2013 reference scenario. The debate within the Commission is over an un-ambitious vs. very un-ambitious climate and package that ignores the findings of its own impact assessment, critics say.

D-Day for climate policy

The critics have a point. The truth is that at this moment many member states and industry fear that a strong climate and energy policy will be bad for their economies. Relatively high energy prices in Europe compared to the US which benefits from its shale gas boom plus the economic recession have forced their way into the heart of the 2030 climate and energy debate. Consider that EU leaders were due to meet twice early this year: in February, to discuss energy prices and competitiveness, and in March, to discuss climate policy. The two have now been merged into a single summit on 20-21 March in line with EU policymakers’ wish “to be coherent”, according to a Commission source. In addition, it now appears that on 22 January – long pencilled into energy journalists’ diaries as D-Day for the 2030 climate and energy package – the European Commission will also launch a new industrial policy for Europe. Indeed, it may launch the two with a single press conference!

Although policymakers recognise that competitiveness is not determined by climate policy alone, the fear is that EU climate and energy policy may be the straw that breaks the camel’s back. European industries have been claiming this for some time. Several of them were prioritised by the Commission for a “fitness check” or “cumulative cost assessment” to work out how much EU climate policy is actually costing them. The results are gloomy: EU climate and energy policies have raised the cost of producing a tonne of aluminum by as much as 11% (€228), reported the Centre for European Policy Studies (CEPS) last autumn. Just before Christmas, it announced that European steel companies pay twice as much for electricity and four times as much for gas as their US counterparts.

Energy prices report

These sector-specific conclusions appear to be borne out by a leaked draft of a report on energy prices seen by Energy Post. This paper is also due from the Commission on 22 January. Bearing in mind that the draft appears an early version, it nonetheless suggests that the findings for steel are on average true for all industrial and retail consumers in Europe. From 2005-12, European industrial consumers faced real price rises of 40% for electricity and 30-35% for gas, even as prices went down in the US and grew more slowly in other parts of the world.

EU climate policy has been an easy scapegoat.

But the report also points out that these are average figures that hide an extremely diverse picture across Europe. According to the report, prices in different European countries can vary by a factor of 3-4. In 2012, industrial electricity prices were below the weighted EU average in 18 member states, comparable to prices in Turkey, Mexico, Brazil and China. In Romania, electricity prices have actually decreased since 2007. In Germany, energy-intensive industries are exempted from carbon and renewable levies plus grid access fees; similar exemptions exist for industries in other countries.

Felix Matthes the Öko-Institut recently argued that German industry pays about the same for electricity as in the US. In the aluminum sector, about a third of all plants still buy electricity through long-term contracts, which mean they have seen just one-tenth of the cost increase of plants exposed to market prices. (Though many of these are due to terminate soon and may not be renewable under EU competition law.) Finally, despite the clear price difference with the US, there is no sign of EU industry doing less well on EU and US markets, concludes the prices report.

Price differences

Yet energy is getting more expensive in Europe compared to the rest of the world and this threatens at least some industries. The question is what to do about it? EU climate policy has been an easy scapegoat, with much mudslinging at the EU Emission Trading Scheme (ETS), which makes industry pay for its carbon emissions. But the Commission has so far found no evidence of “carbon leakage”, i.e. industry leaving Europe for regions with looser carbon constraints. Yes, some industries are looking elsewhere, but this is “driven mainly by global demand developments, and input price differences”, according to yet another report from the Commission. And yes, says this report, energy prices are going up, but carbon costs are not a major factor. (This may also be because of the leakage protection measure – extra free allowances – in place so far).

The Institutional Investors Group on Climate Change (IIGCC), which manages €7.5 trillion in assets, wrote to European Commission president Jose Manuel Barroso on 9 January: “As shareowners in energy intensive companies, we have discussed with them the competitiveness risks of the EU ETS for their European operations and they have reported that this is not an issue.”

Instead, the biggest problem is the commodity price of fuel. The draft energy prices report shows that this typically makes up the bulk of energy prices, followed by taxes and network charges. The gas price is something policymakers can partly do something about, for example by working to complete the single European energy market. What they can do much more about however, is taxes. The share of tax in the total energy price for industrial consumers can be high in Europe, while in the US, China, and India there is no taxation on natural gas and electricity for industry. Moreover, the tax component increased by more than any other in recent years, says the Commission in its prices report. But taxes are primarily a national, not European, competence.

Leaving Europe

Untangling the causes of high energy prices does not answer the question of how to deal with them, however. Interestingly, in its draft prices report, the Commission suggests that European energy-intensive industry has been able to hold its own so far in part because it has decreased its energy intensity (defined by the Commission as the amount of energy consumed to produce a unit of value-added of one million Euros). In contrast, US industry has started consuming more with the arrival of cheap shale gas. It also says Europe has been helped by restructuring away from energy-intensive sectors, although it maintains an overall share of manufacturing in value added above that of the US.

It is alarming that industries that depend on energy efficiency legislation are apparently leaving Europe.

“In many cases decreasing energy intensity could mitigate the impact of increasing energy prices,” the Commission suggests. This suggests that a strong policy push for efficiency makes competitive sense. Greater efficiency and technological innovation are essential to a healthy European industry. The European paper industry, represented by CEPI, has become one of the first to embrace this with an innovation competition last year.

Viewed in this light, it is alarming that industries that depend on energy efficiency legislation are apparently leaving Europe. “If words were action in the field of energy efficiency, then I would be opening new factories in Europe but as they are not we have just closed a factory in Italy and are planning to open three new plants in the US, Asia and Turkey,” wrote the CEO of Knauf Insulation, Tony Robson, to Barroso on 9 January.

Competitiveness is also about preventing low-carbon leakage. It is also about maintaining an expanding cleantech industry. Policymakers cannot ignore high energy prices and the risk of carbon leakage of course, but a failure to maintain a strong climate, renewable energy and energy efficiency policy may not be the right remedy. It may hurt Europe’s growing green sector while doing little to reduce energy prices for industry.

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This article, Competitiveness Has Caught Up With Climate Policy, is syndicated from Clean Technica and is posted here with permission.