Reducing energy costs to boost industrial competitiveness

In recent years, end consumers and, in particular, the European industry, have been confronted with extraordinarily high energy costs. Energy prices for European companies are significantly higher than those of comparable industrialised economies, such as the US and China. These high costs represent a significant burden and pose a fundamental threat to the competitiveness of European companies. 

In order to reach the European Commission’s goal of boosting industrial competitiveness in Europe and keeping up with the US and China, reducing energy costs must be an integral part of competitiveness strategies. At the same time, it opens up the opportunity to decarbonise Europe’s industry by using energy more efficiently, increasing electrification, and scaling up the infrastructure for-and the use of-renewable energy sources.

The Clean Industrial Deal recognises that economic resilience and decarbonisation are strongly intertwined and that one cannot be achieved without the other. 

As a response to these challenges, the Clean Industrial Deal prioritises the phase out of CO2 emissions to drive industrial growth across Europe. It rightfully focuses on improving the conditions for energy-intensive industries, such as the steel and cement industries, as they and small and medium-sized enterprises (SMEs) are particularly impacted by high energy prices and unnecessary bureaucratic procedures. 

The Affordable Energy Action Plan proposed by the Commission as part of the Clean Industrial Deal in February, has set out eight concrete measures on how to reduce energy costs. This package of targeted actions is highly welcomed, as it addresses the urgent needs to reduce electricity prices, ensure well-functioning energy markets as well as stabilise energy supply, and thus incentivises investment in clean technologies.

Essentially, the Action Plan recognises the issue of electricity bills being up to three times higher than gas bills in some European countries and calls for a decrease in the costs of electricity bills and the costs of electricity supply. Scaling up the use of affordable electricity is crucial for the clean energy transition.

Whether through the electrification of industrial processes, installation of heat pumps or the promotion of electric vehicles for private transport, its decarbonisation potential, versatility and efficiency make affordable electricity a cornerstone for a sustainable future. 

Beyond affordability, energy independence is also critical. Scaling up electricity not only allows for energy generation from renewable sources, integration with renewables via electricity grids and storage to cater fluctuations in demand, but also enables independence from problematic gas suppliers, such as Russia, Azerbaijan and Qatar. The high energy costs we are facing now were greatly exacerbated by the energy crises and Russia’s war on Ukraine. Boosting competitiveness requires us to stabilise our energy supply, respond flexibly to surges in demand and stop relying on unpredictable suppliers. 

Completing the Energy Union will help create an independent, integrated and stable electricity market in Europe that strengthens the coordination between EU member states and makes us better prepared to respond in times of crisis and fluctuations in demand. 

A stable and predictable environment is a prerequisite to attract investment from within and outside of Europe.

By formulating an action plan, increasing our independence from other nations and creating well-functioning energy markets, we are reducing uncertainties for investors and businesses seeking to invest in renewable energy sources, such as hydrogen, and their infrastructure.  

Similarly, we need to accelerate the approval procedures, particularly for SMEs and firms operating in energy-intensive industries, to transform their factories and operations to align with the clean energy transition. This goes hand in hand with the Industrial Decarbonisation Accelerator Act. The CEO of the steel mill in Salzgitter, Germany for instance, explained to me that he needs to receive over 50 approvals from different authorities to convert his mill in pursuit of climate neutrality. 

Such inefficiencies that hinder firms willing to invest and transform their operations to accommodate the clean energy transition cannot persist; instead, these firms should be supported throughout the process. The successful proposal to reduce bureaucracy for SMEs in the Carbon Border Adjustment Mechanism (CBAM) resulted in 91% of firms being exempted from CBAM reporting requirements while 99% of emissions continue to be captured. This shows how the streamlining of unnecessarily bureaucratic procedures is inevitable to reduce costs and time, and enhance efficiency. 

Finally, it is important to acknowledge that the implementation of the proposed measures, stabilisation of the energy markets and the long-term reduction of energy prices will take time. This transition requires structural changes and efforts on multiple levels. One measure, however, that can be immediately taken, is to reduce energy taxes in EU member states to provide short-term relief.

Overall, climate and competitiveness goals go hand in hand and require a coordinated approach. Reducing energy costs remains a crucial step toward achieving both.