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The European Industry needs affordable energy. CEPI calls upon on the European Commission and Member States to urgently address the increasing costs differences in energy costs compared to North America resulting from the shale gas boom.

While gas prices in Europe have doubled since 2003, and expected to keep growing, shale gas in North America has brought gas prices to extraordinary low levels.

European Commissioner Oettinger recently answered the European Parliament that “According to the International Energy Agency, natural gas prices for industry in the first quarter of 2012 were on average 241 per cent higher in EU OECD than in the US “.

This situation is unsustainable. The competitiveness of industry is seriously at risk. Even for single companies, the costs differences are tens of millions of euros a year, compared to competitors buying gas in the USA.

If nothing is done, the growing price gap will soon make most of the investments in Europe – including low-carbon technologies – simply economically unattractive. With some sectors of the European industrial base already moving to North America, the European Pulp and Paper Industry has the strong will to stay in Europe and keep jobs and value creation here. Energy costs in Europe are however becoming unsustainably uncompetitive.

Fourty percent of our energy needs are natural gas, next to the over 50% bioenergy in our fuel mix. Many of the most efficient power plants run on natural gas. We do not call for low prices per se. We need affordable energy, comparable to competitors.

A European Gas Strategy is needed. We call on Heads of Governments and Ministers for Energy & Environment, the European Commission and Members of the European Parliament to urgently discuss this issue and come up with concrete measures and defined timelines as soon as possible.

The European Gas Strategy should take, as a starting point, the following key aspects:

1. A truly pan-European gas market
Recent ACER and European Commission reports confirm that we’re still far from achieving the goal of one single gas market. More competition and removal of trans-boundary charges for intra-EU gas transport are necessary sine qua non conditions. We urge the Commission to start a renewed sectorial investigation into the gas sector to find all obstacles to lower gas prices in Europe.

2. Decoupling of natural gas prices from oil prices.
There might have been historic reasons for linking gas to oil prices, but these reasons are no longer there. Natural gas is nowadays a commodity traded in a liquid market, and should be treated as such. We ask the European Commission and member state to provide the right policy conditions and remove barriers to allow for a real gas to gas market to materialise.

3. Removal of bottlenecks in gas supply
LNG terminals and gas pipelines are crucial to diversify the sources of gas supply. Investments should be promoted and facilitated. We urge the European Commission to put free trade in US natural gas as a prerequisite for the cross Atlantic free trade agreement.

4. Promote increased access to domestic gas resources
Governments need to take concrete actions to ensure that the potential for domestic gas production is maximised, to strengthen Europe’s position when negotiating gas prices with third countries. Europe needs to tap into its domestic gas production, including EU shale gas when and where possible, in a sustainable way. Policymakers need to set an enabling framework to do so.

5. Lower prices from the world markets.
Europe needs to put in all its power to allow not only US gas to come to Europe, but also to allow for gas from other producing countries to come in at lower prices.

6. Lower taxation on natural gas use or full exclusions for industry from energy taxation and costs from energy-related policies, to be allowed in the EU Energy Tax directive and state aid guidelines as long as the price differences with North America remain.
 
We need to mitigate the gas price gap between Europe and the rest of the world.

We need Europe to step up and urgently find answers to these challenges.

The EU and its Member States should consider impacts on energy prices and the affordability of energy when preparing, adopting and implementing related policies. Completing the EU internal energy market to enhance competition and cross-border trade in energy, developing new sources of energy, and further diversifying energy supplies to the EU will have beneficial effects on prices.

CEPI therefore calls on Member States in particular, to urgently address this issue already at the upcoming Competitiveness Council (29-30 May), and European Council (30 May).

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For more information, please contact Daniela Haiduc at d.haiduc@cepi.org mobile: +32 473562936

Note to the Editor

CEPI aisbl - The Confederation of European Paper Industries
The Confederation of European Paper Industries (CEPI) is a Brussels-based non-profit organisation regrouping the European pulp and paper industry and championing industry’s achievements and the benefits of its products. Through its 18 member countries (17 European Union members plus Norway) CEPI represents some 520 pulp, paper and board producing companies across Europe, ranging from small and medium sized companies to multi-nationals, and 1000 paper mills. Together they represent 25% of world production.

A new directive(1) bringing the European Union's regulation on marine fuel sulphur content in line with international requirements set out under the international maritime convention on pollution prevention known as MARPOL entered into force on 17 December 2012. The objective of this directive is to address the problem of air pollution from maritime transport by lowering sulphur emissions.

The European paper industry is extremely concerned by the impact of these measures on competitiveness and jobs in the 13 EU Member States bordering the SECA(2), while no substantial environmental and health benefit is to be expected because of the resulting “modal back shift” – from maritime transport to road transport. To the contrary, subsequent higher GHG emissions are expected(3) in contradiction with the EU White Paper on Transport.

In a previous position paper(4), the European paper industry expressed its support to the International Maritime Organisation (IMO) efforts to address the problem of air pollution from maritime transport at global level by lowering sulphur emissions. Some European paper companies have even been in the forefront to reduce voluntarily sulphur emissions since the 1990s.

Because of the lack of low sulphur fuel and technical devices that could lead to actual reduction of sulphur emissions more cost-efficiently by 2015, the implementation of these measures is expected to have a cost of around 300 million euros for the pulp & paper industry located in the North of Europe related to an estimated increase in shipping costs of 20-45% further to a 50-80% price increase in marine fuels. The threat on RoRo and RoPax vessels is very serious as they represent between 30% and 60% of the volumes transported from/to Finland and Sweden. The cost is expected to reach 4 billion euros for the whole economy of these countries per year from 2015, mainly due to the substantial increase of the onshore diesel price(5). Thousands of direct jobs will be put at risk, as well as numerous indirect jobs. These rules will, as trade barriers do, disturb substantially supply chain management and trade flows and further distort competition within the EU and with foreign countries.

The problem is the too tight time schedule and the lack of alternative solutions. Exhaust-gas cleaning system – the scrubbers - technology has improved, but so far there is only a limited number of test installations in operation and no manufacturing company can guarantee its functioning with the harsh conditions at sea. Because of technical and cost reasons, only a limited number of vessels could consider this technology as a possible solution. In the long term, LNG is among the most promising solutions from an environmental and economic aspect. That’s the reason why CEPI supports the launching by the EU Commission of a Clean Fuel Strategy(6) but as technology implementation and infrastructure are proceeding relatively slowly, it won’t be an option before 2020 at the earliest and only new vessels will be in a position to benefit from it by that time.

Several European countries expressed their concerns regarding the potential impact on their economy and were of the opinion that ways to mitigate the impact of these measures should be explored, including temporary exemptions in IMO as it is the only realistic option at present.

The EU Commission, which is conducting an impact assessment study - to be available end 2013, should help identify pragmatic solutions to mitigate the impact on the European industry’s competitiveness. To this aim, the EU Commission’s ‘Toolbox’ should be further developed to allow cost-efficient solutions, while a boost should be given to low sulphur fuel supply and abatement technologies. Member States and EU Commission should indeed support investments in these areas but also in LNG infrastructure on the long term. In the meantime, no fine should be imposed on companies by Member States.

The set-up of a platform(7), aiming at getting expertise and recommendations of stakeholders – including industry representatives and shippers, on the implementation of the Sulphur directive is crucial and the European paper industry can give a valuable contribution.

The EU Commission has adopted in October 2012 an ambitious Communication on Industrial Policy aimed at boosting the competitiveness and output of its manufacturing sector and have its share increased to 20 percent of GDP by 2020, up from 16 percent today.

In a context of severe economic recession, CEPI urges Member States and EU Commission to help identify pragmatic solutions and not penalise industrial sectors that depend heavily on maritime transport.

For more information, please contact Bernard Lombard, CEPI Competitiveness & Trade Director, at b.lombard@cepi.org, Tel: +32 2 627 49 00

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1 Directive 2012/33/EU of the European Parliament and of the Council of 21 November 2012 amending Council Directive 1999/32/EC as regards the sulphur content of marine fuels.
2 The Sulphur Emission Control Area includes the Baltic Sea, North Sea and English Channel, i.e. Finland, Sweden, Norway, the Baltic States, Poland, Germany, Denmark, the Netherlands, Belgium, and to some extent United Kingdom and France.
3 Institute of Shipping Economics and Logistics’ study “Die weitere Reduzierung des Schwefelgehalts in Schiffsbrennstoffen auf 0,1% in Nord- und Ostsee im Jahr 2015: Folgen für die Schifffahrt in diesem Fahrtgebiet“, September 2010.
4 “Marine fuel: Lowering sea transport emissions requires pragmatism and flexibility”, CEPI Nov. 2010.
5 Consequences of the EU Sulphur Directive, SWECO, October 2012.
6 Proposal for a Directive on the deployment of alternative fuels infrastructure, COM(2013) 18/2.
7 The European Commission proposed the set-up of the European Sustainable Shipping Forum.

In July, the European Commission issued a proposal to postpone the auctioning of an as yet undefined number of CO2 Allowances until towards the end of the third trading period. The purpose is to ensure the ‘orderly’ functioning of the EU ETS. This is likely to be the first step in further regulatory proposals to intervene in Phase 3 with the overt intention of reducing the existing cap on emissions. This cap is already set to meet the EU’s requirement to reduce EU ETS emissions by 21% by 2020 from a 2005 baseline.
While supporting the EU ETS as a policy instrument to meet the EU’s climate objectives, the Alliance of Energy Intensive Industries is opposed to any modification of the EU ETS rules which would damage further industry’s competitiveness. The EU must stick to the 2020 target formula agreed upon under the third Climate and Energy package and must not revise it unilaterally unless the carbon leakage issue is solved by a binding international climate agreement.
The proposed interference within the agreed policy framework will simply increase the costs for industry. By hampering predictability and by increasing regulatory risk of further intervention, it will also deter investments at a time when the EU economy is struggling to find a way out of the crisis.
Instead, policy makers should focus on the post-2020 policy framework and endeavour to work out a scheme that makes the EU more competitive.
In this context, the ‘back-loading’ initiative is inappropriate, and the Alliance of Energy Intensive Industries therefore calls for the rejection of the back-loading proposal for the following reasons:

1. No artificial cost increase: the back-loading proposal will inevitably lead to direct and indirect EU-only CO2 cost increases, affecting the energy-intensive businesses and private consumers, at a time when growth and value creation are needed to combat the economic crisis. Rising energy and CO2 prices do not create overall value or jobs. They will hamper Europe’s economic recovery and diminish the global competitiveness of European industry.

2. The carbon market is functioning. The carbon price today reflects the economic downturn exactly as it should do.

3. The proposal puts an end to the notion of the ETS as a market-based instrument. Trying to manipulate carbon prices through political intervention will now require a risk calculation based on the likelihood of further political intervention.

4. In the absence of an international climate agreement providing level playing field, higher carbon prices do not bring forward breakthrough technologies but do increase carbon costs and potentially carbon leakage instead. It's worth recalling that the ETS is technology-neutral - neither intended to promote one technology over another, nor to lead to the emergence of new technologies. So only the mitigation objective matters, not the carbon price.

5. Business needs predictability and transparency: political intervention to change rules, often through Comitology, creates instability. Piecemeal interventions in the market hamper predictability and deter investments.

6. Consult Industry in order to look forward: the EU should look forward and link its post-2020 climate and energy policy to industrial competitiveness, working with industry on solutions based on technical feasibility and economic viability. Amendment of the present EU ETS must also remove barriers and risks for EU growth, taking into consideration binding mitigation commitments by third countries and their impact on sectors and sub-sectors, so as to secure an international level playing field for EU industries.

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Plenary debate on backloading necessary                                                                                                                                               

20 February 2013

Dear Member of the European Parliament,

On January 24th the EP Industry Committee strongly rejected the Commission proposal amending the EU ETS Directive, clarifying provisions on the timing of auctions of greenhouse gas allowances (backloading). Conversely, on February 19th the Environment Committee voted in favour of the rapporteur’s compromise amendments in support of the Commission proposal. The Committee rejected the position of the Industry Committee and decided to vote at its 26 February meeting on whether or not to give the rapporteur a mandate for negotiating a first reading agreement with the Council Presidency and the Commission.

There are significant differences between the view of the Industry and the Environment Committee but in fact in the two Committees combined there were more votes opposing backloading than in favour. This highlights the wide differences in views and the importance of having a full, democratic and transparent plenary debate on this crucial issue for the EU. The plenary debate, followed by a vote, would allow all MEPs to express their views and provide required political support for the final decision before negotiations with the Council Presidency and the Commission, which might commit Parliament, are opened.

This is an important debate for EU competitiveness and deserves full consideration by all the institutions. So the Alliance of Energy Intensive Industries, representing the interests of over 30.000 European companies, asks you and your political group to support this view. We are opposed to backloading because it pushes up energy costs in the EU for industrial and individual energy users alike, without any environmental benefit. In the current economic climate the measure is unnecessary and ineffective. The ETS continues to function as designed and is on target to achieve its emission reduction targets ahead of schedule at the lowest possible cost.

We thank you in advance for taking the above into consideration.

Yours sincerely,

Dr. Annette Loske, IFIEC                                              

Gordon Moffat, EUROFER                                                      

Hubert Mandery, Cefic

For the Alliance of Energy Intensive Industries

CEPI is of the opinion that sustainability criteria for the sustainable sourcing and conversion of solid biomass should address primarily potentially adverse effects of a strong increase of the use of solid biomass for energy including from imports. Since the 2020 renewable energy target ultimately aims at reducing greenhouse gas emissions, solid biomass criteria should primarily be carbon related and include efficiency principles.

Regarding forest management, the criteria should apply irrespective of the final use of the wood. They should be limited to the criteria set out below, since further detailed forest management criteria would conflict with national forest policies, go beyond the intention to ensure carbon neutrality and ignore the specificities of Sustainable Forest Management in the different parts of Europe.

In addition to the carbon and forest management related sustainability criteria applying to the sourcing of biomass, energy conversion of biomass eligible for support should be subject to efficiency principles to ensure the positive substitution effect of carbon neutral biomass.
Solid biomass shall be taken into account for the purposes of the Renewable Energy Directive/eligible for support only if it fulfils the following:

1. Biomass sourcing
1.1 Carbon sustainability:

Forest biomass shall come from countries with mandatory LULUCF accounting. If biomass is procured from non-LULUCF accounting countries, credible proof has to be given that the harvesting rate in this country does not exceed 100% and the biomass does not come from land conversion. Where there is overharvesting at the country level, the operator has to give sufficient proof that there is no overharvesting at the relevant regional level of the biomass origin

1.2 Forest management

Forest biomass shall come from legal sources. Verification: Compliance with the provisions of the EU Timber Regulation EC/995/2010.
Forest biomass shall come from forests that are managed in accordance with the principles and criteria of sustainable forest management as defined by the Helsinki Resolution H1: General Guidelines for the Sustainable Management of Forests in Europe.
Outside of Europe they shall at least correspond to the criteria or guidelines for sustainable forest management as adopted under the respective international and regional initiatives (ITTO, Montreal Process, Tarapoto Process, UNEP/FAO Dry-Zone Africa Initiative).

2. Biomass conversion
2.1 Greenhouse Gas Savings criterion:

The GHG saving should be at least 50% (60% from 2018) compared to the national fossil fuel based generation of electricity and heating and cooling.
In addition to the sustainability criteria on carbon and forest management, installations eligible for support for the use of solid biomass for energy generation should be subject to efficiency principles to ensure the positive substitution effect of carbon neutral biomass.

Resource efficiency principles:
Heat and electricity based on solid and gaseous biomass should be produced at an overall efficiency of at least 70% (lower for small installations (e.g. < 1 MW) or where CHP cannot be applied). Member states should not support but further even avoid the use of biomass in coal plants with the current low efficiencies. Supporting co-firing of biomass in coal plants at low efficiencies is an environmentally harmful subsidy.

Cascading approach to forest raw material principles:
The development of the energy use of biomass can only be considered in the light of an application of a "cascading approach", a principle that aims at promoting, whenever it applies, the most efficient use of natural resources with a view to optimize the creation of value, ideally firstly for food, then products and finally for energy. A supply policy for forest biomass – which ideally should also be allocated some support funding - must include this cascading use principle and allow all needs to be met.

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