Member Article

Signing the transatlantic free-trade agreement could increase Europe’s energy security. The trick is how to compete with American companies that are already using cheaper energy and don’t have to comply with the same restrictions on CO2 emissions.

The 10th round of negotiations of the Transatlantic Trade and Investment Partnership agreement, or TTIP as it is known, was held in Brussels in July 2015. In the middle of the talks, the European Commission held an open house for stakeholders, where representatives of about 70 different private and public entities had an opportunity to present their comments and demands concerning the agreement under negotiation. Central Europe Energy Partners, of which Wardyński & Partners is a member, was one of the groups presenting the position of European power and energy-intensive industries.

Representatives from this sector stressed one fundamental difference between the American and European energy markets, namely that the US is on the way to achieving energy self-sufficiency, while Europe is dependent on energy imports. They argued that TTIP can be a tool that brings Europe greater energy security by ensuring it supplies of energy from stable American sources—primarily liquefied natural gas. It is undisputed that European industry perceives this potential and hopes to gain access to cheaper American energy.

But cheaper energy also means lower production costs for energy-intensive industry in the US. There is visible reindustrialisation underway, with factories being moved there from Europe. It was pointed out that over 50% of the investment in the American chemical industry is now being made by European investors. Producers of artificial fertilisers stress that energy costs represent up to 60% of their production costs, while the prices for electricity and gas in the US are only a third what they are in the EU.

Another problem for the sector is restrictions on CO2 emissions connected with the EU’s increasingly strict climate policy. Per capita CO2 emissions are twice as high in the US as they are in the EU. As a result, the costs of Europe’s ambitious climate policy reduce the competitiveness of its energy-intensive sector. This issue was ignored in the report prepared at the beginning of this year by the European Parliament on the effect of TTIP on the European energy market and industry.

For these reasons, representatives of the power industry and energy-intensive sector called for introduction of at least 10-year grace periods for reduction of duties on energy-intensive goods, such as refinery products, petrochemical products, fertilisers, steel and cement, and inclusion in the agreement of protective clauses allowing for increases in import duties on these goods. The European Commission’s promise that TTIP will not affect the application of REACH (the Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals), which will cover all enterprises selling more than one tonne a year of chemicals products in EU territory, was also stressed.

In the view of representatives of the power industry and energy-intensive sector, the prospect of opening of the European market to competition from the United States should encourage European institutions to take actions to improve the conditions for operation of these sectors. With respect to climate policy, demands were raised to depart from the strong decarbonisation trend and to make special exceptions for industry. It was suggested, for example, that the power industry and energy-intensive sector be exempt from the emissions trading system, or awarded 100% free emissions rights while eliminating the risk of carbon leakage. Such exemptions or special entitlements would remain in force until CO2 emissions in the US become comparable to emissions in the EU.

The 11th round of TTIP negotiations is scheduled for this autumn in the US. It is clear that issues concerning energy, the power industry, and the energy-intensive sector will be an important element of the talks.

Agnieszka Kraińska, EU Law Practice, Wardyński & Partners