Informal Competitiveness Council

ATHENS
12 May 2014
CHALLENES !"# ENE#$ INTENSI%E IN&'ST#IES
T(e European C(emical In)ustry
Deputy Minister Mr Skordas, distinguished colleagues,
First let me thank our hosts, the Greek Presidency, for inviting me to speak today; and for the
inspiring tour to the Acropolis Museum, and the splendid dinner, yesterday. t!s an honour and a
privilege to "e a"le to talk to you, the #ompetitiveness #ouncil, on "ehalf of the chemicals
industry and from the perspective of an energy intensive industry.
At #efic $e take a close interest in your #ouncil!s deli"erations so kno$ you!re $ell a$are of
the challenges facing %uropean industry. !m so glad to see industrial competitiveness has
"een put firmly "ack on the political agenda in recent months.
&ell no$, the Presidency!s discussion paper for this session has an e'cellent analysis of the
situation. (hen it asks, Which is, among all the issues discussed above, the most
pressing priority for the energy intensive industries?
)et me tell you the ans$er* Its the cost of energy.
%conomies are "uilt $ith and "y energy. First horsepo$er, then coal, oil and gas and hopefully
tomorro$ rene$a"les* economic development has al$ays depended on, and "een limited "y,
the availa"ility of competitive energy. (hat is especially true today. +ut perhaps for the first
time in recorded history, $e are "eing asked to s$itch to an energy supply that is less
competitive, $hilst "eing told this $ill make us more efficient , and so more competitive-
t!s a classic e'ample of the .Doublethink descri"ed "y George /r$ell in his novel 1*+4, 0)et
me 1ust remind you. Doublethink $as .The power of holding two contradictory beliefs in ones
mind simultaneously, and accepting both of them2
So, in case anyone is in dou"t, let me say that you cant make us more competitie by making
us less competitie.
f rene$a"le energy $ere as cheap as fossil energy, $e $ouldn!t "e having this de"ate. t!s not.
(o "e very clear, $e in the %uropean chemical industry appreciate the vision of a sustaina"le,
glo"ally competitive, lo$,car"on economy. +ut the goal $as al$ays meant to "e a competitie
low!carbon economy. (he $ord competitie appears to have got lost some$here along the
$ay. t!s time to put it "ack.
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)et me "riefly sho$ you $hy our industry is essential for %urope!s 1ourney to$ards sustaina"ility
and e'plain $hat policies, especially on energy and innovation, $e think $ould help us get to
$here $e all $ant to "e.
T(e European C(emicals In)ustry - state of play an) c(allen.es
First, let!s look at $hy our industry matters.
&orld$ide, the chemical sector has revenues of 45.3 trillion. (hat is "igger than the GDP of
Germany and a good deal "igger than the automotive sector!s 43.6 trillion.
And $e in %urope invented it. &hich helps e'plain $hy the chemical industry is a pillar of the
%uropean economy. t generates 4778 "n of revenues, and a trade surplus of almost 479 "n.
:6,999 companies ; 6<= of them SM%s , provide 3.37 million direct 1o"s and :.> million indirect
1o"s in %urope. t is our leading manufacturing sector in terms of value added per employee.
And $e are highly innovative* in :93:, %urope still had the largest chemical ?@D spend of any
economy.
/urs is a high,tech industry supplying virtually all manufacturing sectors. Aealth, hygiene,
construction, mo"ility, computers and electronics ; they all rely on the chemical industry and its
innovations. /ur sector is also critical to meeting future needs, including managing scarce
resources and developing rene$a"le energy sources. Strategically and economically, no ma1or
economy can afford to a"andon its chemical industry.
+ut $e are a very glo"alised industry, closely inter$oven $ith the value chains of our ;
glo"alised , customers. So competition is glo"al. And today %urope!s chemical industry is losing
market share in a fast,gro$ing $orld market. n :93:, our share of $orld chemical production
$as 38= , do$n from over 59= ten years earlier. n the same period, #hina more than tripled
its share.
Bo$, $orld$ide, the sector is going to gro$ further to meet the needs of 6 "n people "y :979.
&e kno$ $ell that if $e $ant a $orld $here 6 "n people can have a healthy life $ithin the limits
of planet earth $e $ill have to change the $ay $e produce and the $ay $e consume. (o
achieve gro$th, $hilst using fe$er resources, $e!ll need Cuantum leaps in innovation in the
chemicals and related sectors. (he Cuestion for %urope is this* "ow can we secure a share in
this growth#
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(he gro$th in Asia is driven "y demand. +ut the gro$th in the Middle %ast and the DS is driven
"y cheap energy and cheap feedstock. (he production of petrochemicals, polymers and "asic
chemicals ; more than half of %urope!s portfolio , depends on access to cost,competitive
energy and feedstock.

+ut today, gas is three times more e'pensive in %urope than it is in the DS; electricity is 79,
399= more e'pensive. Feedstock costs in the DS and the Middle %ast are in another league.
So $hilst chemical industry investment has dou"led in most regions of the $orld and gro$n five,
fold in #hina 0in 1ust < years2 it is stagnant in $urope. (he hot money is going to the DS, $here
over E399 "illion of investments are planned to take advantage of the shale gas "oom.
Fou can see $hy ; in these circumstances ; it is difficult to invest in %urope and difficult to
maintain profita"ility in energy intensive segments of our industry.
%urope can!t ignore these developments. Beither industry, nor politics can ignore them. &e
have to adapt to this ne$ competitive environment. So companies "ased in %urope $ill cut
costs and invest in developing higher value,added products and services. +ut it $on!t $ork if all
these efforts "y companies ; and their employees ; are s$allo$ed,up "y an ever,increasing
"urden of policy costs. For our companies to succeed $e need politicians and regulators to
adopt a more supportive approach.
/ur companies need no encouragement to do everything they can to keep costs to a minimum.
(hey have done a lot already ; cutting their energy intensity "y 79= in :9 years and decoupling
GAG emissions from chemicals production. t!s this constant Cuest for greater efficiency that
has kept us competitive for so long. +ut the fact that $e have already done so much means,
inevita"ly, that there is less that can still "e done ; and the remaining options are harder to
achieve.
/olicy as0s
So let me no$ turn to the second Cuestion posed "y our hosts* How can we ensure that
energy prices do not hamper the competitiveness of European energy intensive
industries?
!ll tell you the first step right a$ay. %top the doublethink&.
+ut if %uropean politicians really $ant to help our sector, can suggest five $ays to go a"out it.
First, take a glo"al perspective $hen crafting policies that affect competitiveness, and ensure a level
playing field for domestic industries e'posed to glo"al competition. (hat means %D climate
o"1ectives must no longer push energy policy imperatives into second place. +y :959 the %D
$ill account for less than 7 percent of glo"al GAG emissions. &e need to make %D climate
am"itions conditional on glo"al developments and aligned $ith %urope!s drive for industrial
gro$th. /ther$ise ; and this is a really serious threat , they could kill the industries %urope
needs to "ecome a lo$,car"on, energy,efficient society.

)ast year, the %uropean #hemical ndustry #ouncil pu"lished a study, .%nergy Policy at the
#rossroadsG. &e concluded that glo"al action on the climate and a level playing field $ould
deliver further gro$th and continuing trade surpluses. +ut if the %D pursues unilateral climate
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action, gro$th $ill "e negligi"le and "y :959 $e $on!t even "e a"le to meet domestic demand.
&hat!s the point of e'porting 1o"s and production $hilst importing goods and emissionsH
Second, rethink the decar"onisation strategy and choose the .lo$ cost pathG instead of the .high cost
pathG.
#urrently, %urope favours a .high cost pathG $here the price of fossil fuel is pushed up until
everything else looks cheap. /n the lo$ cost path, innovation cuts the price of rene$a"les until
they are the "etter choice. (his $ouldn!t 1ust make us more competitive, it $ould "enefit the
climate too, "ecause all economies $ould opt for cheaper clean energy and stop "urning dirty
coal...
)isten. Short,term increases in the cost of energy in %urope risk a vicious circle in $hich
high energy prices make energy intensive industries less competitive and inhi"it the investment
needed to deliver the longer,term "enefits of innovations. nstead, $e need to promote a
.virtuous circleG in $hich innovation and market,driven competition lead to increased investment
and competitiveness...and to lo$er rene$a"le energy costs.
Be't, set realistic targets for climate change mitigation.
(he target of cutting %urope!s greenhouse gas emissions "y >9 percent "y :959 is am"itious.
(he %D thought to reduce emissions "y :9 percent in the thirty years "et$een 3669 and :9:9.
Bo$ $e are looking to get the ne't :9 percent ; $hich $ill "e much harder to achieve ; in only
39 years-
(he %uropean chemical industry has an impressive record. /ur direct emissions of greenhouse
gases fell "y over 79 percent "et$een 3669 and :939.
+ut, "efore you conclude that $e should not "e $orried "y the #ommission!s >9= target,
$ould ask you to look more closely at the #ommission proposals. (hey are no$ seeking a >5
percent reduction in our direct emissions from :997 levels. (hat $ould eCuate to a reduction of
I9 percent from 3669 levels for the chemical industry. Fet the #ommission seeks a cut of only
35 percent, from 3669 levels, in consumer transport emissions.
Am"itiously, $e could aim at a <9 percent reduction from 3669 levels "y :959 , $hich $ould
already "e much more than is "eing asked of other sectors. +ut going for a I9 percent reduction
$ould mean cutting energy intensive production, e'porting 1o"s and importing goods and their
emissions. Bot to mention the loss of skilled human resources and technical capa"ilities-
Fourth, use all possi"le policy instruments to ensure afforda"le and competitive energy prices.
&hat do meanH &e need to create a true pan,%uropean energy market, $ith increased
competition and investments in more energy infrastructure and inter,connected transmission
grids.
&e need to improve access to diversified, competitive and relia"le energy and feedstock for %D
industry, including indigenous sources of unconventional energy such as shale gas. (hat includes
a trade deal $ith the DS that allo$s us to import its cheap gas. +y the $ay, $e are also follo$ing
the recent promising developments $ith regard to oil and gas e'ploration, here in the Southeast
Mediterranean, $ith great interest.
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And $e need concerted funding to colla"orate in developing the ne$ technologies needed to
decar"onise %urope, underpinned "y revised guidelines on state aid for research, development
and innovation.
And $hat a"out the %missions (rading SchemeH (he %(S must remain a tool to achieve agreed
emission reductions at the lo$est cost. +ut proposed reforms of the %(S , the Jmarket sta"ility
reserveG and the .increased linear reduction factorG , have only one purpose* to push up the
car"on price, "enefiting uncompetitive alternatives.
(he %(S can "e reformed to achieve agreed emissions reductions, $ithout strangling efficient
manufacturing companies. +ut don!t ask %urope!s manufacturing industry ; already e'posed to
fierce competition ; to pay for decar"onising %urope!s po$er suppliers. &e look to policymakers
to ensure that %D manufacturers that invest in car"on,efficiency and meet %(S "enchmarks do
not have to "ear further %(S costs. (hese costs could not "e offset "y further investment and $ill
merely drive energy,efficient $orld class production a$ay from %urope. &e $ill "e happy to share
$ith you, our ideas as to ho$ the %(S can "e reformed so that agreed emissions reductions are
achieved $hilst allo$ing efficient manufacturing companies to gro$.
Finally,let!s promote innovation to truly deliver a lo$,car"on economy.
n the final analysis, the only $ay $e can reconcile competitiveness $ith climate change
o"1ectives is "y promoting innovation. 0(he .nnovation Dnion Score"oard :93>G sho$s that the
%D has closed only half of the innovation gap vis,K,vis the Dnited States, and there are still
su"stantial differences in innovation performance $ithin the %D.2 ?enunciation is not a realistic
policy option. Shifting energy,intensive production outside %urope is a naLve fallacy $ith grave
conseCuences "oth for the $orld!s climate and for %uropean 1o",seekers.
%urope needs a JGrand %uropean Pro1ect! targeted at providing cheap, rene$a"le energy.
(his $ill take time, concerted effort, and money. (here are many potential solutions* and they
should compete $ith each other for their future share in the market. Support actions for the
market deployment of uncompetitive technologies should "e gradually phased out to maintain the
incentive for technological improvements.
/ur industry is essential to make any rene$a"le energy option a success , from today!s $ind
tur"ines and solar panels to fuel cells and Jsolar fuels! that store the sun!s energy in organic
material to fuel tomorro$!s com"ustion engines. And that!s not to mention our contri"ution to
energy efficiency in housing, insulation, mo"ility, et cetera.
(here are many routes to cheap, rene$a"le energy and to a sustaina"le decar"onised society.
/ur challenge ; shared "y you, our industry, and all $ho shape the destiny of %urope ,,,, is to
manage the transition to the .decar"onised societyG $ithout e'pelling the industries $hich %urope
needs to make that transition.
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