Deal or die for EU industry

Maroš Sefčovič | EMMANUEL DUNAND/AFP/Getty

Deal or die for EU industry

Brussels pushes foreigners to join climate goals while preserving EU unity.


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Striking an ambitious deal at this December’s global climate talks is about more than saving the planet — it could also prevent Europe’s heavy industries from being left behind by competitors in regions less saddled with costly emissions restrictions, Maroš Sefčovič, who is in charge of implementing an EU energy union, told POLITICO.

Energy-intensive industries in the EU have long argued that if Brussels continues to ratchet up its targets for emissions reductions, renewables and energy efficiency, it will force them to shift investments to friendlier — and less environmentally concerned — destinations in North America, the Middle East and Asia.

That’s why the EU needs the COP21 climate summit in Paris to end with a commitment that ensures the rest of the world catches up to its ambitions.

“We need success in Paris, of course for the planet and for mankind, but also in order to re-establish a level playing field on the global industrial market,” the EU’s energy union vice president said in an interview this week.

Europe’s climate diplomacy push has moved to the top of its energy union agenda in the final months before the United Nations summit. Sefčovič and his fellow EU energy and climate chief, Commissioner Miguel Arias Cañete, have framed climate action as a crucial part of their effort to bolster the bloc’s energy security and independence.

To be successful, the Paris deal needs to be ambitious, legally binding, verifiable and dynamic, Sefčovič said. It needs to set a plan for monitoring and measuring progress every few years, and to re-adjust targets and policies if need be. The EU wants this review to take place every five years.

This, Sefčovič believes, would be welcomed by European industries. “They are very much willing to be in the lead, but they would like to see other parts of the globe make a comparable effort,” he said.

Sefčovič argued that the Commission’s existing protections against so-called carbon leakage — when climate policies push investment away — have so far worked to keep industries and companies from relocating.

Carbon leakage is a divisive issue in Brussels. NGOs say prices charged for carbon pollution set by the EU’s oversupplied Emissions Trading System (ETS) have so far been too low, and free allowances too readily available, to encourage industries to invest in reducing emissions.

On the other hand, industries ranging from aluminum to fertilizers to cement say it’s not existing operations that are moving, but new investment that isn’t happening — and that’s harder to quantify. The Commission’s ETS reform proposals, to tighten the number of free allowances and push the carbon price up, will only make things worse, they say.

“Carbon leakage means the investment decisions are influenced by the access to energy, meaning no money leaves, but no money is invested,” said Christina von Westernhagen, director of EU advocacy at Dow Chemical.

But the thrust of the Commission’s broader energy union proposal, which Sefčovič and Arias Cañete unveiled in February, is to put Europe’s 28 countries on a track towards decarbonization, while also breaking the bloc’s reliance on Russian gas imports and allowing energy to flow freely across Europe.

Cracking down on free iders

While European leaders ramp up the pressure for climate action overseas, from Canada and Japan at the G7 in June to Australia last week, the battle over how Brussels enforces its own policies at home is about to heat up.

By 2030, the EU aims to cut carbon emissions by 40 percent and boost its renewable share of the energy mix to 27 percent. The problem is that while the EU as a whole has agreed to that target, it’s still not clear how that will be divided among member states.

Members more committed to climate action, such Germany and the Scandinavian countries, want tougher measures that give the EU power to crack down on slackers. Unsurprisingly, those more reliant on fossil fuel-fired generation such as Central and Easter European countries, are resisting.

“Political means,” or naming and shaming, will be one key enforcement tool, according to Sefčovič. The Commission has asked countries to put together national energy and climate plans detailing exactly how they intend to achieve their share of the targets. Then it can compare those plans to its own assessment.

“And if there are free riders, they will be highlighted,” he said. “A country has to behave responsibly and common targets will have to be reached.”

“Ownership” of national plans is one factor, but MEPs will also play a key role in working out exactly how Brussels governs the EU’s progress towards targets, Sefčovič added. “The governance system is only solid if it’s anchored in legislation, and that’s where the European Parliament comes in.”

Room for gas

Even as it shifts away from fossil fuels, the Commission is operating on the assumption that Europe’s gas demand will hold steady in the next 15 years — and that it will need new liquefied natural gas (LNG) import capacity and better pipeline connections to meet those needs.

It expects the bloc’s demand to be between 380 and 450 billion cubic meters per year by 2030. Demand last year amounted to 409 bcm, which was 11 percent lower than in 2013, according to Eurogas. Russian gas imports accounted for 41 percent in the first quarter of 2014, but fell to 29 percent a year later, as a result of the standoff with Ukraine, according to Commission numbers.

But the EU’s goal is for every country to have at least three different sources of gas, and that means it will need more LNG cargoes. The bloc’s import capacity stands at 48 bcm, mostly concentrated around the U.K. and Mediterranean countries, but almost 75 percent of it is unused. That means more effort will have to be made to tie Central and Eastern Europe into the pipeline network.

“We need to make sure our gas market as a whole is more liquid, and therefore we need better interconnections. Then, I believe, we will become quite an important location on the map of LNG importers,” Sefčovič said.

The Commission plans to present a new strategy for bringing more LNG to Europe by December or January, which will look at the infrastructure needs and regulatory, commercial and legal barriers across the EU, according to internal Commission notes seen by POLITICO.

Gas is a big component of the EU’s transition towards renewable energy, Sefčovič said. The Commission has stressed that as the cleanest of the fossil fuels, gas is the best option to balance out more uneven power generated by wind and solar.

“The more renewables we need, the more rebalancing we also need,” he said.

Brothers in arms

Sefčovič and Arias Cañete were named to their positions in October 2014, following a shake up of the Commission’s energy and climate portfolio. The brief had previously been split between Energy Commissioner Günther Oettinger and Climate Action Commissioner Connie Hedegaard, and in many ways Sefčovič’s and Arias Cañete’s jobs overlap.

While both can speak to issues ranging from the COP21 negotiations to the need to diversify away from Russian gas, there have been efforts to ensure they don’t tread on each other’s toes.

Sefčovič, a Slovak who also speaks Russian, represents the EU in talks over Russian gas supplies to Ukraine. But, having served as a diplomat in Zimbabwe, he also took the bloc’s climate discussions on a tour of Africa in July.

Arias Cañete, a Spanish aristocrat who once served as Spain’s agriculture, food and environment minister, is the EU’s chief climate negotiator. But, he’s also traveled around North Africa in search of new gas supplies for the bloc.

“Of course, my relationship with him is the most intense,” Sefčovič said of Arias Cañete.

Sara Stefanini