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Fatih Birol: Europe’s energy transition: between sustainability and affordability ETUI conference cycle: The social-ecological transition —
Date: 29 April 2014 Venue: Silken Hotel, Brussels ............................................................................................................................................
Conference report european trade union institute
European Trade Union Institute Bd du Roi Albert II, 5 1210 Brussels Tel.: + 32 (0)2 224 04 70
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Editor: Willy De Backer Rapporteur: Philippa Jones Photographer: Gleamlight sprl © ETUI aisbl, Brussels 2014 The views expressed in this report are the private views of individual speakers and contributors and do not reflect the opinions of the organisers. Reproduction of the contents of this report in whole or in part is allowed, provided full credit is given to the ETUI. Contents of this report, in whole or in part, cannot be sold for commercial ends. The ETUI is financially supported by the European Union. The European Union is not responsible for any use made of the information contained in this publication.
Europe’s energy transition: between sustainability and affordability
Introduction EU policymakers have formulated a strategy to decarbonise the economy to tackle climate change and the end of cheap oil, but these efforts have been undermined by the ongoing financial and economic crisis. The ETUI is therefore hosting a new cycle of conferences on ‘the social-ecological transition’ to examine these issues. The cycle kicked off with an analysis of the environmental and economic dimension of Europe’s much-needed energy revolution by Fatih Birol, chief economist at the Paris-based International Energy Agency (IEA). Willy De Backer, head of communication and publications at the ETUI, introduced the new cycle of conferences, highlighting how in addition to the financial and economic crises, the EU trade union movement also needs to tackle the sustainability crises that include climate change, water shortages and other environment challenges. Mr De Backer also underlined the need for an energy revolution. Since, the industrial revolution, cheap energy has been “the life blood of industry”, he said. The question for Dr Birol, the distinguished keynote speaker, therefore was whether the EU and the world was facing the end of cheap energy and the implications of this. Any new system has to be “safe, cost effective, socially just, equitable and affordable,” said Mr De Backer.
Keynote speech by Fatih Birol, IEA chief economist It is a “great pleasure” to be here, said Fatih Birol, taking his place on the stage. “I work largely with the energy industry with oil producers and gas utilities, and now it is time to improve contacts and concerns and preoccupations from the trade union side.” He began by talking about competitiveness and climate change. “Which one of these we go for is a major debate that we will witness in 2014,” said Dr Birol. “My main thesis is that it is not an ‘either/or’, we can address competitiveness and climate change if we employ the right policies.”
“My main thesis is that it is not an ‘either/or’, we can address competitiveness and climate change if we employ the right policies.” Fatih Birol
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Global energy context today The right policies should include the EU thinking in terms of a “global energy context” and not considering itself as an “energy island,” said Dr Birol, adding that energy policies in the US and China will affect the EU. Further, the shale gas revolution in the US plus the change in the nuclear policies of some governments after the Fukushima disaster, have given a new slant to the global energy context and brought many new developments in the energy picture, he explained. Dr Birol said the current global energy scene should be compared to a movie, where “the actors’ roles are being re-written”. He highlighted how many countries, such as the US and Brazil, which “had the role of being major energy importers…are becoming major energy exporters”. Meanwhile, the domestic energy consumption of the Middle Eastern “rich oil countries” is now so significant that it is affecting global energy markers, “making these countries exporters and major consumers”. Global energy trade routes are also changing, said Dr Birol, giving the example of Canada. “Until recently life for Canadians was very simple: they produced oil and gas, sent it south and enjoyed life,” he said. But the US, thanks to its shale gas winnings, no longer needs this energy and so new trade axes are popping up, namely between Canada and China, and Canada and Japan. He also highlighted how the United Arab Emirates, a major OPEC country, had at the end of April applied to import natural gas from the US. These changes are happening “very rapidly,” said Dr Birol, calling for “companies, governments, human beings… to see and read these changes…in a timely manner”. The one constant in all this is that “CO2 emissions are still increasing significantly,” he said, with the energy sector largely responsible. “If we do not find a solution [to this], there will be no chance to solve climate change.” Dr Birol listed many reasons why CO2 emissions continued to rise, not least the fact that fossil fuels, including oil, coal and gas, are heavily subsidised in many emerging countries and so prices are extremely low. “If something is very cheap, much cheaper than its real value, human beings use it in a wasteful manner,” he commented. Indeed, fossil fuel subsidies reached $544 billion in 2012. Further, in this context, “renewables have a big challenge regarding cost competitiveness,” he added. Despite the wasteful use of energy in some countries, 1.3 billion people - 20% of the global population - mainly in sub-Saharan Africa, India and Bangladesh, have no access to electricity, Dr Birol reminded the audience. “This is a real life story,” he said, which means that “parents cannot keep medication for their kids in the refrigerator, people have no access to the external world, and they cannot study after the sun sets.” For Dr Birol “the era of cheap oil is over”. He explained how it now averages $100 dollar per barrel, the first time prices have been this high over a considerable length of time. He did “not see a major reason why oil prices will go down to $50-60 dollars per barrel over a sustained period in the years to
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come”. Parallel to the end to cheap oil has been the shale gas revolution in the US in the last six to seven years. The US now produces as much as Qatar, Iraq, Kuwait and the United Arab Emirates combined. Shale oil, meanwhile, is the “younger sister”, but nonetheless the US shale oil output is equal to that of Iraq. This is a “big success with many implications,” commented Dr Birol. He said that some implications were accurate, but suggested others were newspaper fodder and not founded on real life. For example, the idea that coal prices have crashed and that US coal dominates was an “urban myth,” said Dr Birol. It was “true that three to four years ago, a big decline in coal prices made coal attractive,” but US coal had played a “very marginal role”, he claimed. Instead, the bulk of new coal brought to the global market was from Indonesia and it was this that brought coal prices down, he suggested. Today, the biggest coal country is China, but even “China in the last two to three years has put a break on coal consumption, mainly because of local pollution concerns,” noted Dr Birol.
If we do not change energy policies in the future which fuels will win or lose? The idea of sustainable development was introduced for the first time in 1987 in Our Common Future, or the Brundtland Report as it is more commonly referred to after its author former Norwegian prime minister Gro Harlem Brundtland. After this “for 25 years, we tried to bring fossil fuels down,” said Dr Birol, but to little or no avail. “Fossil fuels made up 82% of the energy mix 25 years ago, and we all tried to push renewables, but after 25 years this figure is the same.” This was “very frustrating,” said Dr Birol, but “economic facts are very stubborn and if governments do not back up their goals with efficient economic instruments, these statements will not change anything”. Therefore “in the future, we see that fossil fuels will still dominate even if renewables become stronger, mainly because of government subsidies”. Meanwhile, many governments in the EU, North America and Asia are looking at their current renewable subsidies and planning to cut them, said Dr Birol “and this will have an impact for the renewables industry and the energy mix”. Emissions have not been rising everywhere. The recent decline in CO2 emissions in the US was a “major success”. Until 2007, CO2 emissions were increasing significantly in the US, but they have reduced back to 1990 levels because shale gas has replaced coal significantly in the US. This is “good news,” said Dr Birol. But he questioned whether this trend is sustainable. “The one single reason why gas has penetrated the markets and not coal is price,” said Dr Birol. He outlined how gas prices in the US had dropped massively to levels that were “not sustainable”, and insisted that with the continued growth of shale, prices will stabilise and then coal will start to become cheaper than natural gas. Indeed, coal is already “making a comeback and emissions are going up”, he said, calling for the US government to regulate coal-fired plants rather than leave the situation to the markets. As to whether action on climate change at a global level is possible, Dr Birol said he was “not pessimistic that we may have some kind of step forward” at
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the UN climate summit in Paris next year. He cited three reasons why he was hopeful for an international climate agreement. First, he said that US emissions were at 1990s levels and so when the US sits at the negotiating table, “its numbers will be in much better shape than in Copenhagen” – the UN meeting in 2009 where all attempts to gain consensus on a global climate deal were thwarted, not least because of differences between the US and China. Also, the current US administration would “definitely like to leave a legacy that fixes the climate change agenda,” said Dr Birol. Secondly, he cited the changing situation in China. He reiterated his point that coal consumption there has slowed in the last two to three years and will continue to do since the government has put a ceiling on coal consumption because of air pollution concerns and because measures are being taken to help reduce CO2 emissions. “Chinese numbers and its emissions trajectory is therefore better than before and China’s role in global policy affairs is much different than it was six years ago,” commented Dr Birol. “It has more responsibilities worldwide in terms of peace and security and China’s government is aware of that, and there is strong cooperation between the US and China on climate change.” The third factor that gave him room for hope was “the EU and its strong push and commitment to tackling climate change”. These reasons, in conjunction with “able French diplomats”, means “we may see a good outcome,” concluded Dr Birol. He highlighted the importance of a deal given that with the current energy trajectory “we are perfectly on track for a temperature increase of 3.6 degrees C on average and…if we want to have a life in the future like the one we enjoy today, the maximum temperature increase is 2 degrees C”. Dr Birol warned that with a temperature rise of between 2 and 3.6 degrees C we will not just be able to “take our jackets off and enjoy life,” but will have to deal with “major implications”. Rounding up his thoughts on the international climate negotiations, he suggested that long-standing disagreements between developed and developing countries are losing their weight. For example, some nations led by China have argued over historical emissions, accusing rich countries that used a lot of coal and oil during the industrial revolution of now telling others to try to develop without using similar amounts of energy. “I believe they have a point,” said Dr Birol, but he immediately countered the weight of this argument, noting that there is now virtually a 50/50 division between OECD and non-OECD countries in terms of the amount of CO2 that they have pumped into the atmosphere in the last 100 years. “That argument from China and others will not hold any more.” He drew a similar conclusion regarding the call from China and others for population size to be taken into account, and not simply emissions, when calculating the burden to be shouldered in any climate deal. “They have a point,” he repeated, but added that “by next year, Chinese per capita emissions will be higher than EU per capita emissions and then higher than the OECD average. These arguments will not hold, and therefore we may see a good outcome [in Paris]”.
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Figure 1 Cumulative energy-related CO2 emissions
CO2 emissions fell sharply since the shale gas revolution, but rebounded last year on the back of a partial gas-coal switch and increased industrial activity Source: Fatih Birol, presentation, Brussels, 29 April 2014 – © OECD/IEA 2014
Competitiveness and the EU Dr Birol’s last point concerned competitiveness and the EU. Before the shale gas revolution, natural gas prices in different parts of world were very similar, but after the shale gas revolution there is this “unbelievable picture” in which EU gas prices are three times higher than in the US and Asian prices are about five times higher than in the US, he explained. This is the “first time we see this and this is bad news for the EU and the worst news is that even though this may go down a bit, the EU will continue to use gas two times more expensive than in the US. The cost of that strategic input for the economy means the EU has a problem.” Higher gas prices in Europe were “a structural issue that the EU has to deal with for the next two decades” and for which it needs policies to respond, he said. There is no doubt that high gas prices will have implications, in particular for industries such as petrochemicals, iron and steel, cement, pulp and paper, and glass, which use lots of energy and for whom the cost of energy is a significant portion of total costs. These are very important industries for the EU and are the “backbone” of many countries with 30 million people employed in them, and higher energy costs mean these industries will have major difficulties to compete, said Dr Birol. “We are already seeing the first indications of that with petrochemicals, iron and steel companies opening their next facilities in the US or elsewhere.” This is a “serious issue for the EU, and energy, economy, competitiveness and labour interest groups need to come together and decide what to do,” he stated. This may involve difficult decisions over energy-intensive industries, but the “worst thing is to leave [the situation] as it is,” insisted Dr Birol. He said that 36% of EU exports were from energy-intensive indus-
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tries, and that in this new world, the EU and Japan were the losers, with the US and China the winners, because of energy costs. One school of thought is that this could be solved by the US exporting its cheap gas to the EU, but Dr Birol said this was “completely wrong,” explaining that after shipping costs, exported natural gas would be around the same price as natural gas from the EU. “To say US shale gas will save the EU economy is something we have to approach very carefully,” he warned. “US gas will be helpful for the EU because it will bring more diversification,” but it will not solve the EU’s problems. Rather, the EU should act to improve its energy efficiency and to boost renewables, “especially projects that will make economic sense,” recommended Mr Birol, adding that nuclear and shale have a role to play “where they are accepted” by local people. He also highlighted that twothirds of EU gas contracts will expire in eight years, offering “a good opportunity to leave gas and look at something else, or to renegotiate contracts”.
“To say US shale gas will save the EU economy is something we have to approach very carefully. US gas will be helpful for the EU because it will bring more diversification, but it will not solve the EU’s problems.” Fatih Birol
Panel discussion The first speaker on the panel was Jason Anderson, head of climate & energy policy at WWF-Europe. The “evolution of the IEA had been very interesting to watch under Dr Birol’s leadership with its focus on CO2 emissions and support for energy efficiency,” he said. But he warned that Dr Birol’s predictions were forecasts made on specific scenarios and not necessarily accurate predictions of the future. “We can still change the world,” he said, urging listeners “not to go home and drown your sorrows and fail to turn up to work in morning.” In particular, he questioned Dr Birol’s “narrow criteria” for competitiveness based on energy. He noted, for instance, that although the EU’s 36% share of the global export market was shown declining, the total volume was in fact ris-
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ing. He also commented that while China had higher energy costs than the US, its share of exports was increasing more than that of the US. He called on the EU’s lower carbon industry to focus on ways of harnessing these technologies for domestic use rather than focusing on exports. Mr Anderson highlighted how “international competition and trade can be fickle” and how the EU needs products from the energy-intensive sector, glass and cement for energy-efficient buildings for instance, to help with the low carbon transition. “We have to invest in EU industries; the shift to clean energy is not a luxury, but a necessity,” he insisted, calling for the EU to remove the “disconnect between low carbon and industrial policies”. He cited how the EU Emissions Trading Scheme (ETS) “has provided €14 billion in windfall profits to heavy industry because of over-allocation.” Instead of giving these industries “free credits”, it would be “better to make those industries low carbon and use them more in the EU”. This involves “structural change,” he said, insisting that WWF and other environmental NGOs were “not against industry”.
“We have to invest in EU industries; the shift to clean energy is not a luxury, but a necessity.” Jason Anderson
Philip Pearson, senior policy officer at the Trades Union Congress (TUC), called on “labour and industry and policymakers to get their act together and follow the lead of the recent reports from the Intergovernmental Panel on Climate Change (IPCC), which, among other things, set down “a global carbon budget, show that emissions have to peak and decline, and that the EU has to lead the way”. These reports prove that “pressure has to be applied” to bring about change, but this must be carried out with a “balanced approach,” said Mr Pearson. He too called for a greater emphasis on EU industries, asking where the EU electric car market was, for example. Pearson also underlined the need for “a just transition” based on worker involvement and investment in green jobs, schools, social protection and human rights. The EU 2030 climate and energy package was “silent on workers voices and social dialogue,” he warned, adding that “if we don’t involve workers, we will miss a trick”.
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“The EU 2030 climate and energy package is silent on workers voices and social dialogue.” Philip Pearson
Mr Pearson said that jobs were being “lost in the UK because of carbon leakage” and that the UK had introduced a carbon price that is “higher than elsewhere” This meant, for example, that the country was “importing bricks because we have failed to ensure that the brick industry is appropriately managed”. Further, the carbon added to the atmosphere in the transport of these bricks was not factored in and they were being imported from countries outside the EU with no climate policies, he rued. Similarly, he said that steel was being imported into the EU from Korea to make wind turbines. “The EU needs to integrate environmental and industrial policies,” he repeated. Mr Pearson also slammed the idea that shale gas offered a solution in Europe. “People don’t want to be locked into a carbon solution,” he said, doubting that there really was public support for the technology. “Look at the pressure from the oil companies on governments, communities: is that consent? We don’t see shale as a solution.” The third speaker on the panel was Benjamin Denis, advisor at ETUC, who waxed that after Dr Birol’s presentation, “I feel like after a walk in the mountains; I can see a landscape that is much clearer than before,” though he admitted that “some questions remain about shale and nuclear prices”. The main conclusion he had drawn was that the EU “has an amazing challenge” on its hands. “We have to completely change our energy system and in a context where we still have to compete on global markets,” commented Mr Denis. He questioned what it meant for industrial policies from a trade union point of view if, as Dr Birol had stated, high energy prices in the EU were structural. He noted that “some conservative organisations in Brussels draw the conclusion that energy should be as cheap as possible and they look for business strategies that are based on low costs”. He suggested that such a strategy was “short-sighted” and that climate and energy policies should be focused on decarbonising as a “matter of solidarity with future generations and people who are already suffering” from the effects of climate change. Even if the latter were not happening, it would be a good
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“We have to completely change our energy system and in a context where we still have to compete on global markets.” Benjamin Denis
idea to decarbonise to reduce EU energy dependency, improve its trade balance and because of air quality issues, stated Mr Denis. When talking about EU energy policies, the focus is generally on defending 30 million jobs, he said, but commented that the bloc already had “a set of mechanisms that are tailor-made to protect industries at risk such as state aid and the recycling of ETS revenues”. And he added that others could come online in the future. “It is not a choice between manufacturing, but how to strike the right balance,” he said, and questioned whether EU industry as a whole was really exposed to carbon leakage, especially with the current low carbon price. The threat was only “perhaps for a few sectors,” he suggested. Nevertheless, Mr Denis concluded that existing EU policy instruments were not commensurate with the challenges faced. They were “too fragmented” and investment levels too low, he said, and called on heads of member states to “go beyond the current level of cooperation”, for example, when negotiating long-term gas contracts. The European Commission has estimated that the EU will need 270 million euros a year to invest in low carbon solutions and to reduce emissions by 80% by 2050, but Mr Denis noted that recent figures show that funding levels in this domain have actually decreased since 2011. To try to turn the situation round, “we need to connect the energy policy debate with really concrete issues,” said Mr Denis. “The EU energy debate has been limited to competiveness and security of supply. This is too narrow.” The debate must become broader as the choices made will have wide-reaching effects, including an impact “on the communities who live on the territories and on working conditions, for example of those who manage the waste from our power plants”. He ended his intervention by highlighting that the IPCC’s Working Group III report had confirmed that the more we delay on climate change mitigation, the more it will cost. “If we don’t act now, we will considerably increase the debt of future generations and it will be more difficult to finance, for example, social schemes,” said Mr Denis, urging “solidarity with future generations”.
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Questions Béla Galgóczi, senior researcher at the ETUI, asked whether Dr Birol thought the EU should copy the US shale revolution and then copy China on labour. Charlotte Billingham, executive advisor at the Foundation for European Progressive Studies (FEPS), picked up on Dr Birol’s comment about the UAE importing gas from the US and asked about the country’s solar industry. Sanjeev Kumar from Change Partnerships suggested Dr Birol should cast his view wider instead of insisting solely on energy as the driver for competitiveness and look at the “full trend”. Questions from the floor also included asking for Dr Birol’s feedback on the Polish Prime Minister Donald Tusk’s idea for an EU energy union, and whether the transition to a low carbon economy was compatible with the laws of the free market. Willy De Backer rounded off the questions, commenting that Dr Birol had told the media that the world would need four Saudi Arabias to compensate for oil fields that were no longer producing. Is this still the case, he wondered, or has unconventional energy changed the picture? Dr Birol took a couple of minutes to reply to the plethora of questions. It was not possible for the EU to copy the US and “even if it was I’d say no,” he told Mr Galgóczi. The EU “shouldn’t copy, but it needs to understand and be inspired [by the US]”. In response to Ms Billingham’s question, he said the UAE was making “some efforts regarding solar,” but that the share of solar in the country’s energy mix still remained at 0.01%. “There is lots of opportunity and it would be good if they and other gulf countries would push solar,” said Dr Birol. Regarding a potential EU energy union, he commented that “even before the recent problems, it would be good for the EU to speak with one voice, rather than on a countryby-country basis”, which makes it “less powerful”. But he added that such a change poses “many challenges”. As to whether the transition to a low carbon economy could take place only with market instruments? “Absolutely not,” was Mr Birol’s answer. “We need new standards, norms, and environmental regulations. The EU should do a lot, but it should also make others move.” As he said, if only the EU acts, this will “not change global climate change”. The proposed 40% reduction in EU emissions by 2030 was a “decent target - I wish it could be higher – but a likely scenario shows that even if the EU were to reduce its emissions by 100%, the world would still be on a 3.6 global temperature rise trajectory, said Dr Birol.“The EU needs to be a leader and play hard with other parties in the game.” He agreed with Mr Kumar that “energy, labour, capital are all parts of competitiveness,” but argued that “the main evolution is taking place in energy” and that changes are happening in terms of competitiveness because of high energy prices in the EU with big corporates moving production to the US. “An oilfield is like a human being, it produces a lot to a certain level and then it goes slow” he said in response to Mr De Backer. Many fields in the world today were now at this point and “yes, we still need to find four more Saudia Arabias to replace what is no longer being produced”. Dr Birol made his final two points to the trade unions. First, he said that the push to decarbonise should not be at a cost to the competiveness of industry. But, there will be costs associated with decarbonisation and these need to be “proportionately distributed among different sectors of society and not just on labour,” he added. “The right noises will get the right results,” he concluded confidently.
