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Emma Marcegaglia, President of BUSINESSEUROPE

Guest editorials

The American energy price advantage

Rising energy costs are alarming European and German companies. Guest editorials by Emma Marcegaglia, President of the Federation of European Employers BUSINESSEUROPE, and Mario Ohoven, President of the Federal Association of Small and Medium-Sized Businesses (BMVW), describe just how concerned they are. Both complain about the threat to their ability to compete with American companies arising out of the low cost of energy in the US. They demand that both the European Union and the German federal government reverse their current course on energy policy as soon as possible.

Emma Marcegaglia, President of BUSINESSEUROPE

“The US shale energy revolution is increasing competitive pressure on EU industry. Between 2003 and 2011, European energy prices increased by 28%, while they remained flat or decreased in the US.

Average industrial electricity prices in the EU are double those of the US, while gas prices are four times higher. The American price advantage is driven by vast exploitable reserves of shale gas and oil.

However, add-on costs such as carbon pricing, energy taxation and renewable policies also play a significant role in driving EU prices higher. This price gap is generating a resurgence of billion-dollar investment projects in energy-intensive industries in the US while plants are closing in the EU.

The contrast between European and American energy policy is stark. The US has supported shale energy to reduce prices. This has also reduced CO2 emissions as power companies switched from coal to cheap gas and improved energy security.

In contrast, EU energy policy focused on the triple climate targets (20% reduction in CO2 emissions; 20% improvement in energy efficiency; 20% renewable energy by 2020), only reluctantly supporting inexpensive energies like shale gas.

Overlapping climate policies have added cost and distorted the carbon price signal. The annual net support for renewables is expected to reach a staggering 50 billion EUR by 2020. In addition, EU member states have adopted increasingly divergent national energy plans that have stifled the single market for energy and increased energy taxes.

These policy choices are being transferred to electricity consumers in the form of much higher energy bills. The EU cannot afford a ‘business as usual’ energy policy if it wants to foster industrial growth. It should adopt energy competitiveness and security of supply targets to reduce the gap with the US. Climate policy should be streamlined into a single, cost-effective CO2 reduction target for 2030 as part of a global climate agreement.

Renewables subsidies should be phased out, and instead, the EU should invest in research to lower the cost of new technologies. EU member states need to coordinate energy plans to improve synergies in major projects and to address security of supply concerns.”

VITA

Emma Marcegaglia - On 1 July 2013, Ms. Marcegaglia took over the presidency of BUSINESSEUROPE, the main horizontal organization at EU level, representing 41 leading business organizations from 35 European countries. Ms. Marcegaglia is also managing director of Marcegaglia S.p.A., which is a leading group in steel processing, and its controlled companies.

Mario Ohoven, President of the Federal Association of Small and Medium-Sized Businesses (BVMW)

“An explosion in the cost of energy is threatening the ability of small German businesses to compete. A third of small and medium-sized businesses say that they will cut back on investment and recruitment if prices for consumers rise still further. German companies are currently paying on average 20% more for electricity than their European competitors and 60% more than their competitors in the US.

Reductions in the cost of energy in the US due to the extraction of shale gas only serve to intensify the problem. A number of German companies in energy-intensive sectors have already started to move their production sites abroad.

That is why we demand that the federal government move to lower the rate of tax applied to electricity. Through taxes and levies, the state is responsible for more than 50% of the total price of electricity.

The suspected existence of shale gas reserves in Germany is raising hopes of an energy revolution. However, fracking is not the cure. The geological conditions and far stricter environmental regulations mean that the costs of production are several times higher than in the USA.

The extraction of shale gas in heavily populated regions also carries unforeseeable risks. The German Mittelstand has its own answer to the shale gas bonanza: decentralized energy production located where the electricity is needed will save at least 20 billion EUR in network costs and guarantee a sustainable and affordable electricity supply in the long term. This potential should be acknowledged and supported by politicians.”

VITA

Mario Ohoven is president of the Federal Association of Small and Medium-Sized Businesses (BVMW), Berlin. At the same time, he is also head of the European Confederation of SMEs (CEA-PME) in Brussels.

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