Costs, competitiveness and climate policy: distortions across Europe
Costs, competitiveness and climate policy: distortions across Europe / David Buchan. Oxford Institute for Energy Studies, April 2014, 20 p.
Presentation (© OIES) :
Inside its 28-country energy market the European Union is permitting serious distortions. These arise out of the current patchy way whereby energy-intensive industries are relieved of the costs of ambitious, clean EU energy policies of capping carbon and promoting renewables. This comment argues that the EU should adopt a common approach to such carbon cost relief, rather than leaving it to member states, of which only a few are able and willing to help their energy-intensive sectors.
Europe now has substantially higher energy prices than its main competitors. This gap is due partly to the shale revolution in the US; the EU can do little about that, although the European Commission has given a green light to environmentally-responsible exploitation of shale resources in Europe. The gap is also due to clean energy costs which stem from the EU pursuing a climate policy more ambitious than its competitors. There is no evidence yet that carbon costs (purchase of emission allowances + renewable energy subsidies) have led to ‘carbon leakage’ – energy-intensive industrial output leaking out of Europe to locations without carbon costs or constraints. But there is already some evidence that EU carbon costs are discouraging new investment in energy-intensive sectors in Europe. If Europe’s energy costs remain higher than those of its competitors for many years – which they are forecast to do – it is very likely that carbon leakage or investment leakage will occur.