Energy transformation at times of austerity

ETUI workshop

Brussels

25 November 2013

Béla Galgóczi

bgalgoczi@etui.org

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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

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Project objectives

In 2011-2013 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

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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 (2005-2012)

Source: BNEF, 2013

New investment in clean energy 2012 (USD bn), 2012/2011 change (%)

Source: BNEF, 2013

country New investment in clean energy (bn bn USD)

Yearly change %, compared to previous year

world 268,7 -11

China 67 +20

USA 44,2 -32

Germany 23 n.a.

Japan 16,3 +75

Italy 14,7 -51

South Africa 5,5 Cca +5000

Spain 3 -68

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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 20-64 should be employed

INNOVATION 3% of the EU's GDP should be invested in R&D

CLIMATE / ENERGY A reduction of CO2 emissions by 20%

Share of renewable energies up to

20%

An increase in energy efficiency

by 20%

EDUCATION The share of early school leavers should be under 10%

At least 40% of the younger generation should

have a tertiary degree or diploma

POVERTY 20 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 2020-40% in 2030-60% in 2040

80% 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.

0%

20%

40%

60%

80%

100%

1990 2000 2010 2020 2030 2040 2050

0%

20%

40%

60%

80%

100%

Current policy

Power Sector

Residential & Tertiary

Non CO2 Other Sectors

Industry

Transport

Non CO2 Agriculture

Four requirements regarding EU energy policy

Energy landscape

Policy priorities

Job potential

Austerity and investment crisis undermine the transition

Price issue

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

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If the business case is there, the capital comes

● Deregulation, market demand: US shale gas● Technology pull policies: German renewables

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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

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Change in EU energy balance 2010-2050

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 2011-2050 (€ bn, 2008 prices)

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• Total more than €1tn p.a.

• Addition~ 1.2-2.1% 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)

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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