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Opinion of the European Economic and Social Committee on the
Impact of the ongoindevelopment of energy markets on industrial value chains in Europe
(2009/C 77/22)On 17 January 2008, the European Economic and Social Committee, acting under Article 29(2) of its Rulesof Procedure, decided to draw up an own-initiative opinion on the
Impact of the ongoing development of energy markets on industrial value chains in Europe.
The Consultative Commission on Industrial Change, which was responsible for preparing the Committee'swork on the subject, adopted its opinion on 24 June 2008. The rapporteur was Mr Zboril and theco-rapporteur was Mr Kerkhoff.At its447th plenary session, held on 17 and 18 September (meeting of 17 September), the EuropeanEconomic and Social Committee adopted the following opinion by 62 votes to 5 with 5 abstentions.1.
Conclusions and recommendations
1.1 The Committee takes note of the changed environmentfor energy markets and recognises the need to mitigate anthro-pogenic climate change by cutting GHG emissions. The costs of climate change and cost-efficient approaches of reducing thegreenhouse gas emissions are important issues in the climatepolicy discussion. These questions are even more important, asglobal energy supplies will have to double by 2050 to meet theenergy needs of all the people in the world. Sustainable energy and climate policy must be structured in such a way that itachieves its aims while at the same time retaining the industrialvalue chains as the backbone of the European economy, evenwhen the costs of the damage associated with climate changeare taken into account. This is very much in the interests of theEuropean Union itself.1.2 Because of the high share of energy which is inevitablrequired to produce basic materials by conversion from raw materials, the basic material industries are strongly affected by any change of energy costs or by energy taxes or similar finan-cial measures. However, the energy-related footprint of basicmaterials has to be attributed to the whole industrial valuechain and cannot be sensibly addressed separately.1.3 The Committee's opinion is that economic growth andinnovation in European economy can only be achieved on aviable industrial basis. Competitive and innovative basic materialindustries are a fundamental prerequisite for the industrial valuechains. In fact, the support for environmental technology andrenewable energy is an important target. But even the develop-ment of environmental technologies requires performing indus-trial value chains. They are dependent on the availability andexpertise of the basic material industries. Environment-relatedinnovations, in particular, can be achieved only with coopera-tion throughout the entire value chain. There can be no successwithout a holistic approach spanning the entire length of valuechains.1.4 The Committee recalls that buildings, accounting fo40 % of final energy demand in the European Union, representthe single largest consumer of energy. As much as half thepotential for gains in energy efficiency can be secured in thebuilt environment and at negative economic cost. Such savingscould by themselves achieve the EU's commitments under theKyoto Protocol. Moreover, these energy savings can be achievedusing technologies that already exist today. Furthermore, raisingthe energy performance of buildings has only positive effects,creating useful employment, reducing running costs, increasedcomfort and a cleaner environment. This should be an absolutepriority for the European Union. The Committee equally recog-nises the importance of new and further developed basic mate-rials in domestic and office appliances as well as other sectorssuch as energy or transport.1.5 A possible relocation of energy-intensive industry outsidethe EU would significantly reduce the attractiveness of theindustrial location in Europe and lead to a loss in economicgrowth and employment and jeopardise the European socialmodel. Because of the interdependency within the industrialvalue chains it is not feasible, in the short run, to compensatefor these losses with other sectors, for example environmentaltechnology. Instead, these sectors would lose competitiveness aswell.1.6 The energy-intensive industries must indeed contributetowards energy and climate policy aims. The requirements,however, must be such that competitive disadvantages in aglobal business environment can be largely ruled out. By their nature, the basic material industries are highly sensitive to theimpact of energy costs. Therefore energy and environmentpolicy instruments must be carefully examined and designed interms of the extent to which they impact on the competitivenessof these industries.1.7 The energy-intensive industries require secure energy supplies, drawn from an appropriate European energy mix,which should not exclude any energy source (coal, renewableenergy nuclear energy) and be based upon efficient competitionon the electricity and gas markets ultimately resulting in reason-able prices of energy supplies. The interests of national energy policies should be more strongly embedded in an integrated31.3.2009C 77/88 Official Journal of the European Union
European concept, because so far the energy market has notkept pace with the single market for industrial goods. Althoughsome Member States have decided not to use nuclear energy,maintaining electricity generation based on fission in the EUwould also mean keeping the know-how on this technology inEurope. Of course, continuing the nuclear option would requirea high safety level and well-trained employees (
).1.8 Concluding an ambitious international climate changeagreement is of utmost importance for the fight against climatechange. It has to lead to emission reduction obligations for allmajor emitting countries (according to the principle of common, but differentiated responsibilities), including theenergy-intensive industries in order to ensure fair competitionand a level playing field. In the absence of such an agreement,free allocation of allowances to energy-intensive industries atrisk of 
carbon leakage
should be considered in the frameworkof the EU ETS in order to counter risks to the competitivenessof industrial location and economic growth in Europe. The finalchoice of allocation method should be performance-based (suchas benchmarking), on the basis of best available techniques.1.9 To pave the way for a long-term contribution to the aimsof energy and climate policy, the Committee strongly recom-mends focusing on research and development of new technolo-gies, particularly because the available production processes arelargely mature. Where technical solutions do not yet exist, therequirements of higher energy efficiency and emission reductiontargets cannot be fulfilled. There are workable structures inplace already, such as Technology platforms for example, butefforts need much stronger coordination as is expected in theSET-Plan, for instance (
). However, enough time must beallowed to achieve the intended advance in technology and therequired marketability in terms of global competitiveness.1.10 The European and Economic Social Committee, with itsspecial relationship with economic players, should highlight theproblems of industrial value chains, which are sometimes notgiven due consideration by the political institutions.2.
The impact of energy, as a production factor, onindustrial value chains in Europe
2.1 The production of basic materials such as steel, alumi-nium and other non ferrous metals, chemicals, cement, lime,glass and pulp and paper is the indispensable basis for industrialvalue chains. Industrial products require basic constructionaland functional materials with specifically defined mechanical,physical and chemical properties which are not available in anatural form. As a matter of fact, the performance of industrialproducts is dependent upon the material used having a particu-lar application profile and being optimised in terms of substanceand energy consumption, quality, reliability, economic efficiency,durability, environmental effects, etc. The continuous develop-ment of such materials is therefore a major factor in the level of technological innovation present in all conceivable products. Avalue chain is a string of companies or collaborating playerswho work together to satisfy market demands for specificproducts or services. Downstream industries in the industrialvalue chains consume comparably less energy for their manufac-turing processes; thus, an isolated consideration of the end-product is not helpful. The energy-related footprint must bejudged over the entire value chain. An increase in energy costsdoes not have an impact solely at the level of basic materialproduction, but may simultaneously result in price increases inthe downstream industrial intermediate and end-products as aresult of the increased cost of the basic material if there is roomon the market for such increases.2.2 A competitive and innovative basic material industry isan important factor in deciding on the location of subsequentlinks in the industrial value-creation chain, like car manufac-turing, engine building or construction industry. It guaranteesthe joint development of tailor-made materials, adapted to meetthe user's individual requirements. Customer demands for just-in-time delivery also necessitate the supplier's physical proxi-mity. The industrial value chain loses its innovative power andcompetitiveness if an appropriate material basis is lacking. Thisis especially true for small and medium enterprises. Many of them can be found in the steel processing sector for example.2.3 In the main, production of basic materials requires largeamounts of energy 
particularly when compared with subse-quent production steps. The energy consumption required inenergy-intensive industries per unit of value is at least ten times(and up to fifty times) greater than in subsequent industries,such as mechanical engineering. In Germany, for example, theprimary energy consumption of cement lies at 4.5 kg, of steel at2.83 kg and paper at 2.02 kg SKE per unit of added value,while this figure amounts to only 0.05 kg SKE in the mechan-ical engineering sector (
). This is due to the fact that basic mate-rials must be obtained from natural raw materials by means of physical/chemical conversion. This involves high temperaturesfor burning and melting and reduction processes, as well as elec-tricity for electrolysis. The forming of semi-finished productsalso requires high levels of energy consumption. In many cases,primary energy sources are not applied for heat and electricity production, but used as raw materials or reducing agents, for example in the reduction processes carried out during ironproduction. It is also important to note that quality of raw materials is gradually falling and their processing involvesusually more energy.2.4 The overall energy requirements of an industrial productmust be compared with both the energy savings which may result from any innovations to this product and its applicationin other sectors. Such a comparison can only come about as a31.3.2009 C 77/89Official Journal of the European Union
) World Nuclear Association,
World Nuclear Power Reactors2007-2008 and Uranium requirements
) SET Plan
COM(2007) 723 final. (
) Calculations as per Destatis.
result of cooperation between the basic material suppliers andthe downstream industrial producers, in which newly developedmaterials play a considerable role. For example, power plantswith greater efficiency levels and lower primary energy sourceconsumption rates require high-performance, temperature-resis-tant steels. Alternatively, specific fuel-consumption rates in thetransport sector, for example, can be reduced by using lightmaterials in automobile construction.3.
The situation in various energy markets (coal, oil, gas,electricity) and their impact on energy-intensiveindustries
)3.1 The basic material industries
cement, steel, nonferrous metals, chemical products, glass and pulp and paper 
employ fossil fuels in the form of energy as well as raw materialand they are affected by the costs of the various energy sourcesin a variety of ways. Crude oil, for instance, is used in thechemical industry as a raw material for the production of plas-tics and other petrochemical products. Meanwhile, develop-ments in the oil markets have also affected purchase prices for gas and electricity because gas prices are still linked to the priceof oil. Developments in the coal market also affect the cost of electricity for energy-intensive industries. At the same time, thesteel industry uses coal and coke as reducing agents.3.2 The static range of oil reserves, e.g. of those resourceswhich can today be profitably and technically exploited, is about40 years. It could essentially expand if further resources can beopened up economically in the future, especially non-conven-tional oil resources like oil sand. The evolution of oil prices ischaracterised by growth in consumption, particularly in Chinaand India. The effect of this situation is amplified by the OPECnations' growing power on the market, which is making diversi-fication of supply sources increasingly difficult due to unevenly distributed reserves. The regional concentration of productionin nations characterised by considerable political and economicinstability will increase uncertainty due to the incalculablenature of possible future restrictions on supply, with all their concurrent effects on price.3.3 The static range of natural gas reserves is
at approxi-mately 60 years from today's viewpoint
greater than that of oil. Natural gas is Europe's most rapidly expanding primary energy source. The EU's dependence on imports of natural gasis increasing at an even greater rate than its consumption. Indi-vidual oil and gas deposits in Member States likethe Netherlands, Norway and the United Kingdom are gradually becoming depleted, while the importation of gas
largely from a single source, Russia
increases. Rising gas prices mustbe expected in the long term and, what is more, such relianceon a single source may result in the potential for Russia to exertpolitical influence over the EU. The possibility of such a devel-opment is enhanced by naturally limited strategic reserves of gaswithin the EU.3.4 Coal reserves that may be extracted in an economically viable manner are far greater than reserves of oil and gas. Astatic range of 150 years for coal is the general assumption.Furthermore, these reserves are more widely distributedamongst the continents as well as being, on the whole, locatedin politically stable countries such as the USA or Australia. Likeother energy carriers, due to rising demand, the price of coalhas increased significantly in recent years.3.5 Electricity is a secondary form of energy that is producedmainly from coal, gas, nuclear and renewable primary energy sources and a good deal of power generation is still based uponoil in some Member States. The composition of the electricity generating mix largely determines the electricity generationcosts. Coal and nuclear based power offers a cost-effectivesource for base-load power supplies, while renewable energies inthe EU are to be developed further. Compared to other primary energy sources, the latter have so far been characterised by rather high cost, not least because external effects to a largeextent are not reflected in the price of conventional energies. Inthe case of wind power and photovoltaic power, there is low and fluctuating availability with corresponding problems for thegrids which will need to be adapted to accommodate the futuregrowth of electricity supply from renewables. Certain renewablesources are less costly than others, differing from region toregion. Photovoltaic power, for example, may be economically advantageous in sunny regions like the south of Europe, while itis not economical in Northern Europe.4.
Changing environment for energy markets
4.1 The energy markets exist in a dynamic environment, towhich assorted economic, political and social influences
theinteractions of which are comple
contribute. Industry isconfronted by a change in the conditions and costs of energy supply which results in excessive uncertainty. The growingdependency of Europe on energy imports and anticipatedfurther increases in energy prices reinforce the concerns aboutmeeting energy demand in the future. It is well recognised thatensuring secure and reliable energy supplies at affordable, stableprices is vital to economic and social development and shouldconstitute an integral part of a sound and consistent energy policy.4.2 The recent rapid changes in the economic environmentin Europe and worldwide require the energy sector to developnew concepts and policies to respond better to the security requirements of energy supply. While in the past security of energy supplies has traditionally been considered primarily theresponsibility of the MS governments, the current status of theEuropean energy market requires market forces to play acomplimentary role. In a liberalised market, security and compe-titiveness come at a cost. To achieve long-term security of supply the common European energy policy becomes an issueof key strategic importance (
).31.3.2009C 77/90 Official Journal of the European Union
) For exampleBP StatisticalReview of World Energy June 2007.(
) Opinion TEN/312
Towards a common energy policy 
CESE 236/2008 fin.

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