Energy transformation at times of austerity ETUI workshop Brussels 25 November 2013 Béla Galgóczi

2 Background: Revision of growth model Long term challenge: a fundamental revision of previous resource depleting growth model, above all face the challenge of climate change: we have one planet, not five! The Great Transformation of the next decades will be the transition to low (zero) carbon economy Green growth – a strategy to promote ‚eco-industry‘, clean energy and also give push to green restructuring of traditional sectors Energy transformation (the way we produce, transmit and consume energy) is key for the green transformation At the same time it offers a huge investment opportunity and it is also a job creation machine

3 Project objectives In we see the danger of a reversal of green policies in Europe: what we see is ‚black austerity‘ where not just public investments, but incentives and subsidies for the green economy are cut back for sake of fiscal consolidation and ‚affordable energy‘ gets ‚fake‘ priority This is in sharp contrast with 2009 ‚green stimulus‘ packages We also see a revival of fossil fuel (shale) gas and coal and an intensifying race for mineral resources – an excuse to abandon ambitious objectives and a way of „environmental dumping“ The main objective of the project is to demonstrate that „black austerity“ is the worst possible combination: it brings the economy down, lives up the future (lost generation, irreversible climate consequences), creates „social meltdown“ and puts democracy at stake

4 Project objectives Mapping experiences of key countries is one aspect Getting an overview of energy efficiency measures their implementation and progress Pointing to the untapped job-creation potential The gap between investment need and progress in reality But we need to address also: What are the right incentives to promotee investment into clean energy What elements of the regulatory/subsidy system do not function and need revision What about the role of the energy price: it should provide an incentive for energy efficiency, but there is a social component (affordable energy) and a „fake“ business component (energy price as a factor of competitiveness)

Global total new investment in clean energy ( ) Source: BNEF, 2013

New investment in clean energy 2012 (USD bn), 2012/2011 change (%) Source: BNEF, 2013 countryNew investment in clean energy (bn bn USD) Yearly change %, compared to previous year world268,7-11 China67+20 USA44,2-32 Germany23n.a. Japan16,3+75 Italy14,7-51 South Africa5,5Cca Spain3-68

7 Resource extraction boom The priority of a greening economy is to produce (more) value out of less material and resource input through higher resource productivity and efficiency, through changing behaviour, consumption and mobility patterns… AND NOT CHASING FOR MORE RESOURCES..TO COVER THIS What we see nowadays is a new race for resources, a mining and gas boom… - US and Canada gas fracking boom, new oil pipeline to boost consumption - Extraction in Africa by Chinese firms is expanding rapidly - Brazil sees ist future in the new oil and gas field explorations Create jobs and growth at any price (coal, fracking, controversial mining projects) - trade unions also face this challenge!

Prope Lack of progress in EU2020 headline targets020 headline targets (I) EMPLOYMENT 75% of the population aged should be employed INNOVATION 3% of the EU's GDP should be invested in R&D CLIMATE / ENERGYA reduction of CO2 emissions by 20% Share of renewable energies up to 20% An increase in energy efficiency by 20% EDUCATIONThe share of early school leavers should be under 10% At least 40% of the younger generation should have a tertiary degree or diploma POVERTY20 million fewer people at risk of poverty

Performance in decoupling economic growth from resource and material use in Europe No major progress in decoupling, as the next graph for Europe shows Only Germany, Italy, the Netherlands, Hungary and Luxembourg achieved absolute decoupling (economy grew with less resource use) In decoupling, Nordic countries were not performing well: DK, SE and FI all performed worse than the EU27 average and with economic growth they also used higher resources It is a general problem that no (hard-core) incentives for higher resource productivity exist; companies are good in increasing labour productivity, but not resource productivity!

Yearly average change of domestic material consumption and GDP between 2000 and 2007 by member state Source: Eurostat (2011) no decoupling relative decoupling absolute decoupling

Looking beyond 2020: the 2050 Low-Carbon Roadmap (ghg emissions in % of 1990 level) LONG WAY TO GO Efficient pathway and milestones: -25% in % in % in % domestic reduction in 2050 is feasible: With currently available technologies, With behavioural change only induced through prices If all economic sectors contribute to a varying degree & pace.

Four requirements regarding EU energy policy SustainabilityAffordability Security of supplyIndustry viability Progressive Energy Policy

Energy landscape ● World energy demand is expected to increase by one third by 2035 (WEO 2012) ● EU imports +/- 55 % of its needs (Eurostat) ● EU is highly dependent on external suppliers: ● 83 % of oil imported ● 64 % of gas imported ● Low-carbon roadmap for 2050: ● Switch to domestically produced low carbon energy sources will reduce the EU's average fuel costs by between € 175 billion and € 320 billion per year ● Without action the oil and gas import bill could instead double compared to today, a difference of €400 billion or more per annum by 2050, the equivalent of 3% of today's GDP

Policy priorities ● Diversification of energy sources (Reinforce the RE Directive with enhanced national targets) ● European support for the development of appropriate technology solutions (inter alia storage, smart grids) ● Promotion of energy savings and energy efficiency (Introduction of objectives for 2030) ● GHG emissions reductions via appropriate price signals (ETS reform using set-aside /backloading of emission certificates/ mechanism) ● Fight against energy poverty - heating and mobility (social criteria)

Job potential ● 1,2 Mio people work directly or indirectly in renewables sector in EU (EREC 2012) ● Potential : 2020 = 2,7 Mio; 2030 = 4,4 Mio ● Export potential and technology leadership But: ● Unfair trade practices should be tackeled (e.g. chinese solar panels) ● Green skills for the workforce (update of curriculae, training and re-qualifying programmes) ● Decent jobs: salary, working conditions, health and safety standards

Austerity and investment crisis undermine the transition ● Low-carbon roadmap 2050: “represents an additional investment of around 1.5% of EU GDP per annum on top of the overall current investment representing 19% of GDP in 2009” ● ETUI Benchmarking 2013: « The main reason for the large drop last year was that many governments in industrial nations slashed subsidies for technologies ranging from wind turbines to solar power and biomass »

Price issue ● Energy poverty and desindustrialisation are major sources of concern for TU ● Status quo is not the answer ● Shale gas and over-extension of ancient nuclear power plants are at odds with precautionary principle ● In the short term, following instruments should be used to mitigate the cost of the energy transition: ● Provisions of the ETS Directive (art 10 ) ● Social tarifs and support devices for vulnerable households ● Border adjustement mechanism (as a last resort) for energy- intensive industries exposed to a significant risk of carbon leakeage from companies that do not have to comply with the same environmental standards ● Questions about Transantlantic Free Trade Agreement ● In the longer term, innovation, timely investments will reduce the cost of decarbonisation

Key issues for long-term energy policy ● Increasing long-term investment need within the EU ● If the business case is there the capital will come ● But, low-carbon investments feature particularly high risks ● Crisis challenges the private long-term finance (as risk aversion grows) => important and challenging role of public banks 19

If the business case is there, the capital comes ● Deregulation, market demand: US shale gas ● Technology pull policies: German renewables 20 US gas production in bcm Installed Wind Capacity in Germany in MW Source: BP Statistical Review of World Energy June 2012

Increasing long-term investment need within the EU/OECD ● US & EU oil and gas imports expected to decline due to: ● Domestic production (US shale) ● Energy efficiency ● Shift to domestic sources (renewables) => Shift from investment in foreign fossil fuels to investments in domestic fuels, efficiency and renewables 21 Change in EU energy balance Net Imports-48% Renewable Energy Sources+225% Source: EU Energy Roadmap, Note: Diversified technologies decarbonisation scenario 2050 vs. Reference scenario 2010

Additional average annual EU investment needs in (€ bn, 2008 prices) 22 Total more than €1tn p.a. Addition~ % GDP => In transition, energy efficient appliances and low-carbon generation more expensive – how can this be financed? EIB/Bruegel 2012 based on European Commission (2011)

23 Challenge for trade unions in the broader context of the green transformation EU energy policy: Binding emission targets (2030) necessary to match long term targets Comprehensive policiy mix: ETS (upgrade), emission targets, standards and carbon tax Balanced approach with view to affrodability, social aspects and competitiveness Competitiveness should not be based on cheap energy and cheap labour All this should not compromise targets towards a low carbon economy Short term challenge: austerity and „environmental dumping by US and China“ Policy framework should deal with this, implement social tariffs and border compensation Controversy abour car emission targets/ supercredits 300 bn yearly investment need – clarification of economic fundaments