Caring for our environment, remaining competitive in our industry and commerce and avoiding dependency on Russian gas? (MEUC-seminar, British Major Energy Users´Council)

Gentlemen and ladies, ……well as an elected politician, I am bound to address first the gender with the most votes…

So, gentlemen and ladies, thank you so much for inviting me to speak at your dinner. I see from the programme that you were expecting the Portuguese Energy Minister so I must be the nearest replacement that you could get. I am from Finland – the most distant EU country from Portugal, – he is a man, I am a woman and, unless I am mistaken, our Portuguese absentee is not a blonde! But I will do my best to fill his shoes which do seem to be rather large!!!

Well, you know I was told that the UK industry was run by middle aged men in grey suits – I see that’s not true as some of your suits are black and I have 7 female colleagues in the room.

My theme for this evening is "How can we in the European Union balance the conflicting demands of:

• Caring for our environment
• Remaining competitive in our industry and commerce, and
• Avoiding dependency on Russian gas?”

Now, let’s be honest with each other:
• You are here in Brussels because your businesses depend on competitively priced energy,
• I am here because I have a passion to protect our environment and our future,
• We are all here because we have a Union in Europe that must not allow political power to re-grow in places beyond but close to our borders.

Gas has become the fuel of choice because it is half as dirty as coal and has been the cheapest way to generate electricity in the last 20 years or so.

In the UK, you reduced your emissions every year of the 90’s because you replaced coal with gas. Then your gas ran out and now you are a net importer of gas, your energy demand continues to rise so every year of the new millennium has seen your emissions rise again.

Something has to be done.

We in the EU are now 40% dependent on Russia for our gas and that will rise to 60 % by 2030 if we allow “business as usual”. Ask anyone in Ukraine, Belarus, Latvia and even my own country, Finland, how it feels to become so dependent on a power hungry neighbour.

Now the question of emissions and why we must, yes MUST reduce them. For the past 40 years, the planet has become warmer, Polar ice-caps and glaciers are melting, the sea level is rising and, quite frankly, we are under threat – if not yet under water.

This is a new problem and demands innovative action. Of course the thrust for renewables has been born of this need and it will help – but by how much. A colleague of mine when asked about renewables replied:

“Yes, renewables will help to reduce emissions but that’s like getting a haircut if you want to lose weight.”

Even the term ‘Renewables’ is unhelpful – far better we refer to zero and low carbon fuels so that we can recognise that nuclear energy is the only large scale clean energy currently available to us. We must retain it, enlarge its market share BUT deal with the public perception problems that restrict its use.

We are a market based economy with democratic rights which means we have choices – but in the case of energy, environment and business, I contend that those choices are limited and each brings benefits as well as disadvantages.

At the relatively simple end of the scale, we are all energy wasteful and we can all find ways to economise on our energy usage. But, like the renewables and haircut analogy, there is a limit from this part of the equation.

Big reductions in emissions that remain over time can only be achieved, in my view, by market based mechanisms. That is to say savings in emissions must equate to savings in expenditure otherwise they will be short lived, rather small and our global competitive advantage will be lost to those who choose to do nothing.

That is why I support the idea of the Emission Trading Scheme or ETS, in principle – the first ETS was flawed in many ways and it will be a market risk as long as it is not global. This is the first basic mistake of ETS.

The second basic mistake was connecting emissions trading to the emission reduction targets defined for each member state. When a flexible market mechanism meets a strict national limit, emissions trading becomes more like a planned economy, directing resources into the bureaucracy and rewarding, not those who have done the most, but those who have the most to do.

We expect a revised ETS Directive by the end of this year and I would love to be the Parliament Rapporteur for that – though there is also a competitive market for significant reports.

I know my former colleague, Gordon Adam, here at the dinner prefers an energy or CO2 tax but I don't suppose many others in the audience would support that PLUS, I don't think taxes necessarily change habits much. Your tax on diesel fuel is the highest in Europe but you drive more miles per person than any other Member State and, I am sure you will agree, your roads are overloaded with large trucks from all over Europe.

To be honest, taxes on the EU-level would not necessarily be a foolish idea. Let me give an example which compares the costs of emissions trading and a possible alternative, climate tax. We could put forward a simple calculation, that we made when the average rise in the wholesale European electric market was about 10 euros/MWh: If EU emissions are reduced during the first emission trading period around 100 Mt CO2/a, is the price of this approximately 2500 million euros per year.

The electricity consumption of the EU-25 was around 3 000 TWh/a. So the imaginary cost to the wholesale market in the EU-25 would be around 30 billion euros per year.

Of course all methods leading to emission reduction have market effects. One starting point – and a rather unorthodox one – would be to tax electricity and allocate the funds gathered to actual emission reduction investments. The hypothetical cost of 30 billion per year in investment grants would help build an enormous of capacity that in turn would replace fossil fuels.

Nuclear power, for one, is one way to produce energy and even without subsidies. An investment of 3 billion euros (e.g. Olkiluoto 3) in nuclear energy amounts to a reduction in emissions of around 10 MtCO2. This means that a 30 billion investment in nuclear energy would cover the emission reduction of 100 MtCO2/a needed. With of course the difference that the energy is there to sell as well. So not only would there be emission reduction but also profit to be gained.

However, it is interesting that it is our treaties, our legal bases, and the competences of the EU that actually determine the tools we have in climate policy. There is a saying that the EU has no competence on competence: this means that the EU cannot decide on its mandates, but the member states can. The EU does not have a strong competence on the area of taxation – unless you don't want to give it to it. But on the area of internal market it does. Emission trading became our tool because it sounded internal market and because it was an unknown tool. At least we legislators, including the commission had not any clear idea about it. Now afterwards, we can say that it actually is against the EU law when creating market distortion, but the damage is done.

Lastly, on the global scene, many say that the EU should not take the lead on climate change issues,

“…….we should not be the pace-maker in the marathon because the pace maker never wins.”

This is the real problem. In Finland, much of our energy intensive industry is relocating outside the EU partly because of the so-called "Cost of Carbon". Whilst in other EU Member States I have heard that some companies are making billions from carbon trading whilst not benefiting the environment at all – so:

• What is the truth?
• What is the best way ahead?
• How can we in the European Union balance the conflicting demands of:

1. Caring for our environment
2. Remaining competitive in our businesses, and
3. Avoiding dependency on Russian gas?

Please tell me, I’m listening and I’m sure my colleagues are too!

Thank you.

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