Ref. Ares(2023)349705 - 17/01/2023
European Industrial
Competitiveness facing
an existential crisis
October 2022
ERT 2022
Alarming decline in Europe’s competitiveness
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Alarming decline in Europe’s competitiveness
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Soaring energy prices are currently precipitating an alarming decline in the competitiveness of Europe’s
industrial energy consumers. The high energy prices and strained supply chains of raw materials are
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rapidly removing the basis for Europe’s industry’s global competitiveness and its ability to achieve bold
decarbonisation targets.
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The combination of high energy prices, and high CO2 costs (for all industries which are not compensated),
is currently resulting in carbon leakage. A significant spike in curtailments and closures is taking place in
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the EU, in the sectors of fertilisers, steel, zinc and aluminium and other basic materials. At the same time,
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imports from countries such as China, India and Turkey are increasing, and investments in facilities outside
the EU, often with less ambitious decarbonisation agendas, are on the rise.
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To the detriment of the EU’s objective of achieving more “open strategic autonomy”, the case for investing in
these sectors in the EU is nowadays much harder to make than outside of the EU. It is urgent not to increase
our import dependency and to avoid production shifting away.
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Energy-intensive industry in the EU
EU Green Deal needs to foster
is facing an existential crisis
new investments
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Energy-intensive industry in the EU is facing an
The Green Deal as the new growth strategy of
existential crisis. If European political leaders and
Europe will only be successful if industry is part
policy-makers do not take drastic actions in the
of this transformation, and if its international
coming weeks and months to reduce the cost
competitiveness is not undermined. The “RePower
of energy for energy-intensive companies, the
EU” package aims to accelerate decarbonisation,
damage will be irreparable and will result in a
but is not focused enough at preserving the EU’s
significant loss of jobs in Europe. In addition, the
competitiveness. In the short term, the EU needs to
crisis will hit companies in several supply chains
adapt its strategy to support decarbonisation in a
where shortages will arise, including in the food and
way that also strengthens and protects its industrial
agricultural sector.
competitiveness.
The European Round Table for Industry (ERT) is
If industrial competitors outside the EU do not
supportive of an ambitious net-zero agenda for
pursue the same ambitious decarbonisation
Europe, including the EU Green Deal and the
agenda or face the same costs, policy measures
“Fit for 55” and “REPower EU” policy packages.
under the Green Deal need to be designed in
Moreover, companies led by the 60 CEOs & Chairs
such a way that they would foster new green
in ERT have already been making extensive efforts
investments into the EU. Policy measures
in decarbonising their businesses and developing
should also maintain carbon leakage protection
new solutions to save energy, in line with the UN
and provide incentives for other countries to
sustainability goals.
decarbonise their production.
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ERT 2022
Recommendations on preserving industrial competitiveness
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Recommendations on preserving industrial competitiveness
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A. Short-term emergency
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• The European Commission should rapidly
However, these must be applied at the level
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develop a plan to “REInvest in Industry” to
of installations and not at a company level, to
preserve the EU’s industrial and technological
ensure the support is efficient and targeted.
fabric.
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• Furthermore, the requirement for an
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• The current industrial emergency requires
undertaking to show operating losses (i.e., a
urgent measures. Emergency measures in
negative EBITDA) unjustifiably restricts the
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the form of adequate state aid will partially
number of facilities eligible for state aid. This
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offset the losses of energy-intensive industries.
should be changed.
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B. Mid- to long-term recommendations
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1. ACCESS TO AFFORDABLE ENERGY
pricing of carbon removals, including how
carbon removals will be accounted for
• Renewable energy & Power Purchase
inside the EU ETS.
Agreements (PPAs): For power-intensive
sectors, a key decarbonisation potential relies
• To enable the development of CCUS hubs
on a clean power mix. Industry needs a fully
in Europe to decarbonise hard-to-abate
functioning liquid energy market with a larger
industries, cross-border cooperation on
scale and faster deployment of renewable
CCS infrastructure and transport needs
energy and the removal of administrative and
to be strengthened to ensure accounting
system barriers to PPAs.
coherence across value chains. CCUS hubs
also offer the opportunity to integrate
• Actively and decisively support the use of
technical carbon removal solutions.
non-recyclable residual waste in industrial
sectors (e.g., chemicals, cement) that allows
• The EU ETS should be revised to suit
rapid and large-scale fossil fuels substitution
investments in carbon removals, such as
(a process known as co-processing), by
direct air capture with CCS (DACCS) and
recognising it as a measure responding to
Bioenergy with carbon capture and storage
REPowerEU and the wider EU Green Deal
(BECCS).
objectives.
• Biofuels, low-carbon and (renewable)
2. FOSTERING INVESTMENTS
Hydrogen will be needed in hard-to-abate
sectors. Feedstock flexibility and long-term
• Carbon Contracts for Difference (CCfD)
clarity are essential.
for hard-to-abate industries should play an
important role to accelerate investments into
• Investment in digital infrastructure is a useful
low-carbon production processes.
enabler of the Green Deal. The “Fit for 55”
package should foster private investment and
• Carbon Capture & Storage (CCS) and Direct
accelerate the deployment of high-capacity
Air Capture & Storage (DACCS):
networks. Beyond the immediate crisis,
digitalisation is an essential lever for more
• Appropriate funding and a regulatory
efficient energy networks across Europe.
framework which incentivises both the
development and industrialisation of
3. CARBON MARKETS
carbon capture and storage as well as
direct air capture and storage (CCS and
• EU ETS: ERT supports the reinforcement
DACCS) are essential. Market-based
of the EU-ETS market, as an efficient way
solutions need to be designed for the
of pricing CO2 and as a key instrument for
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ERT 2022
Recommendations on preserving industrial competitiveness
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investment in decarbonised energy capacity.
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ERT believes that the EU-ETS with effective
carbon leakage measures – including indirect
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CO2 cost compensation measures for the
electro-intensive industry – should remain a
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central pillar of a successful transformation
towards climate neutrality, while at the same
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time maintaining the competitiveness of
European industry.
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• Carbon Border Adjustment Mechanism
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(CBAM):
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• For certain sectors or value chains, a well-
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designed CBAM could be an effective
instrument against carbon leakage and for
incentivising other countries exporting to
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the EU to adopt ambitious climate policies.
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• While it is welcome that current CBAM
proposals put carbon leakage protection
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of industry at the top of the EU climate
agenda, it is very problematic that the
ETS free allowance allocation is due to be
gradually withdrawn while CBAM would
still be an unproven tool, not incorporating
downstream value chains and not offering
a solution to maintain competitiveness for
exporting products outside of Europe.
• Likewise, in addition to its focus on basic
materials, CBAM must incorporate a value-
chain approach to avoid distortions of
markets for downstream products
• A 'one size fits all' approach for CBAM
runs counter to the main objective of
protecting industry from carbon leakage.
The European Commission should take
the necessary steps to assess its impact on
competitiveness in the different sectors and
sub-sectors before CBAM comes into effect.
• Climate clubs: Creating a global climate
club for alignment of Global Carbon Pricing
with the rest of the world could be a useful
complement to CBAM. The G7 can be a
starting point, but all countries – including
developing countries – must be included in
due course in setting the regulations. Bringing
the USA on board would be a crucial success
factor.
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ERT 2022
Annex I : Facts & figures on challenges regarding competitiveness
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Annex I : Facts & figures on challenges
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regarding competitiveness
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The ongoing crisis is only partly reflected
c. Ammonia: The production of ammonia for the
in statistics, as companies are applying
fertiliser sector is rapidly declining. Already in the
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survival strategies, and foregoing long-term
spring, Yara started curtailing its production in
competitiveness. The real extent of the damage will
France and Italy.
4 In addition, around 20% of EU-
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be visible over the coming years. Yet, the situation is
based ammonia production is used to produce
nowadays already very critical for:
intermediate chemicals, many of which are
exported. If ammonia is covered under a CBAM,
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a. Aluminium: Production of 1 out of 4 Megaton
these products would be losing their carbon
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in the EU/EEA has closed in less than a year
leakage protection, which was given by the free
(including 50% of capacity in the EU itself!), and
allocation of certificates to ammonia in the past.
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the same capacity has started up outside of
Carbon leakage is shifted into the value chain,
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Europe, resulting in much higher emissions.
putting additional costs on downstream products.
For example, Chinese aluminium has a carbon
Unless a new compensation mechanism is
footprint 3 times higher than the average
introduced, this will result in real carbon leakage.
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European aluminium.
1 Europe has now an import
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dependency of close to 50%. Recently, another
d. Cement: Current electricity prices have tripled
European aluminium production capacity,
the costs of producing cement in the EU.
5
namely the Slovalco aluminium plant in Slovakia,
Combined with significantly increased prices for
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had to close.
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other energy carriers, this poses a direct threat
to cement operations in Europe. Unless urgent
b. Steel: Many electro-based steel productions are
actions are taken at both the EU and national
under severe pressure from the high electricity
levels, plant closures across the EU are inevitable,
prices. Aside from the shutdown of the Aperam
exacerbating an ongoing erosion of European
facility in Genk, Belgium, ArcelorMittal has
production: indeed, EU cement imports have
announced the temporary closure of 5 blast
increased by 300% in five years, a trend that has
furnaces.
3 Moreover, the only existing direct
accelerated in the first three months of 2022
reduced iron (DRI) production plant in the EU, in
(+47% y-o-y).
Hamburg D, is closed as well. This is symbolic as all
future decarbonised steel will have to transform
e. Glass: The production of glass is intensive in gas
to this type, from carbon- to energy intensive.
consumption and the only possible substitute
Lately, many electric arc furnaces (EAFs) are on
is heavy fuel which has more environmental
a stop-and-go modus. In addition, the prospect
consequences. An industrial effort to lower
of the combined effects of the decreasing free
emissions has been made in the past years by
allocation and CBAM would entail that the EU-
switching from fuel to gas. Since March,
6 the
based production and jobs linked with exports
glass industry has been warning about the high
will largely have to close. The steel market will
gas prices, and the cost of glass production
shrink as not all downstream activities would be
in Europe is now 3 to 5 times more expensive
covered by CBAM. This could result in significant
than in neighbouring countries (Algeria, Egypt,
additional inflation due to increased steel prices.
Belarus). The first company, Duralex, announced
Furthermore, new market entrants from outside
that it will stop its production next winter due to
of the EU will sell their (carbon-intensive) steel on
the cost of energy. It takes a long time to re-open
the EU market as CBAM could be circumvented or
a production once it had to close. There is a high
absorbed by many importers.
risk of definitive plant closures in the EU.
1 More inf
o in this paper by European Aluminium. Aluminium is needed for the green transition, and the biggest medium- to long-term challenge for the
aluminium industry in Europe is the extra CO2 cost that comes from the electricity bill. This extra cost cannot be passed on because aluminium is globally priced.
Addressing the issue at EU-level poses a particular challenge due to the institutional complexity as various DGs have responsibilities: DG Ener on electricity market,
DG Competition on state aid for compensating industries at risk of carbon leakage, DG Taxud on CBAM (which is aiming at phasing out essential and functional
compensation schemes) whilst DG Clima has tools to reduce emissions in Europe (but not globally).
2 More inf
o in Bloomberg: “Metal Plants Feeding Europe’s Factories Face an Existential Crisis” (04/09/2022). The long-term power contracts are ending, and, due
to lacking competitive compensation of the indirect CO2 cost, the renewal of power contracts has not been possible. With the extreme power prices in Europe,
the cost of power would be so high that continuing production would result in very significant losses. CBAM represents a threat to the aluminium industry if
compensation is removed and free allocations are phased out before alternatives have proven to be sufficient.
3 More inf
o: https:/ steelnews.biz/european-stainless-steel-mills-shut-down/
4 More info in
this corporate press release.
5 More inf
o in this statement by Cembureau, the European Cement Association.
6 More info in this
article of the Wall Street Journal “Europe’s Energy Crisis Threatens Glass Production” (1 September 2022)
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ERT 2022
Annex II : Key principles to address the high costs of energy
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Annex II : Key principles to address the high costs of energy
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• Political leaders should look beyond the national
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context and short-term emergency measures as
it could take several winters (3 or more) before
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energy markets would re-balance and prices may
decrease.
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• Fundamental solutions for the current energy
challenges and price levels are to increase
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alternative energy supplies and reduce energy
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demand.
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• Political leaders can in the short-term induce
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calmness in the markets and help to reduce the
price of energy by advocating for energy-saving
measures and announcing new investments
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into infrastructure and energy production. Such
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actions will increase liquidity, avoid shortages in
energy and improve energy connectivity in the
EU (of gas and electricity grids).
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• The Energy Union should be considered as one
integrated market, not 27 national markets.
• It is essential to invest more into improving
energy infrastructure across Europe. This
means investing more into the electricity grid,
interconnections between countries and grid
flexibility. A new EU-wide plan for investments
until 2030 should be developed. This is
fundamental for the Green Deal. Investing in the
electricity grid would also boost the development
of the hydrogen economy.
• Energy demand should be reduced across the
EU. This should be achieved by lowering the
consumption of energy and improving energy
efficiency, not by curtailments and closures of
European industrial production.
• Governments should play a much more
proactive role in encouraging changing
behaviour that lowers the use of energy (and
possibly penalise the non-proper use). Energy
efficiency at a large scale should be increased
and savings in the consumption of electricity and
gas should be incentivised (e.g., urban renovation
and refitting buildings).
• It is important to protect vulnerable households
with targeted measures. The EU should also
make sure to support its energy-intensive
companies and the SMEs which play a crucial
role in the European industrial ecosystems.
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The European Round Table for Industry (ERT) is a forum that brings together around 60 Chief Executives and
Chairmen of major multinational companies of European parentage, covering a wide range of industrial and
technological sectors. ERT strives for a strong, open and competitive Europe as a driver for inclusive growth and
sustainable prosperity. Companies of ERT Members are situated throughout Europe, with combined revenues
exceeding €2 trillion, providing around 5 million direct jobs worldwide - of which half are in Europe - and sustaining
millions of indirect jobs. They invest more than €60 billion annually in R&D, largely in Europe.
+32 2 534 31 00
@ert_eu
Boulevard Brand Whitlocklaan 165
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www.ert.eu
1200 Brussels, Belgium
© ERT 2022