Bruegel

The possibility of European industry facing persistently higher energy costs compared to the US and other global and regional players as the energy transition proceeds could become a bigger threat than the energy crisis itself, according to a study on EU competitiveness conducted by Brussels-based think tank Bruegel.

The study, presented yesterday to the EU’s 27 finance ministers during a Eurogroup meeting, gives rise to a range of issues, from taxation and regulated tariffs to competition between big and small countries, while also making note of considerable energy quantities required to develop green technologies.

The first and main question raised by the study enquires whether the recovery of energy-transition costs should continue to be made through electricity tariffs or via general tax policies of EU member states.

A second question considers whether the tax distribution balance between households and industry should be altered. The study also explores the need for a tax redistribution between energy-intensive and non energy-intensive enterprises.

It also notes that, in the context of the single market, energy-consumption increases by large countries come at the expense of countries with smaller energy needs.

A fifth main point raised by the Bruegel study questions whether it makes sense to invest in renewable energy technologies such as solar panels, for example, when the production of polysilicon, a key component in the production of solar panels, requires extremely large amounts of energy.

According to the study, the anticipated prevalence of renewables will lead to a decrease in electricity prices but part of the decline will be offset by cost increases concerning a range of tariffs, fees and various policies.

The EU is adequately prepared to cover its energy needs this coming winter, despite the effects of prolonged efforts that were needed last winter to overcome unprecedented challenges, data provided by ACER, Europe’s Agency for the Cooperation of Energy Regulators, has indicated.

The EU’s gas storage facilities are already 90 percent full, two months ahead of a November deadline.

Also, in the first two quarters of 2023, a target set for a 15 percent reduction in gas demand was achieved, while LNG import capacity has expanded by 20 percent, with the global market remaining well supplied, courtesy, in part, to limited demand growth from China.

Increased LNG imports and reduced demand have been key parts of the EU’s energy-crisis strategy.

LNG imports into the EU-27, as a percentage of overall natural gas imports, doubled from 20 percent in 2018-2019 to 40 percent between August, 2022 and July, 2023. This percentage rise has been greatly attributed to LNG imports from the USA, up six-fold to 600 TWh.

Furthermore, solar, wind and pumped-storage energy solutions are being developed at a faster pace and contributing, slowly but steadily, to Europe’s reduced reliance on natural gas.

Despite the overall progress, Europe cannot afford to become complacent. According to Brussels-based economic think tank Bruegel, energy shortage fears have subsided but prices remain high.

Also, ongoing global instability could impact the industrial sector and the EU economy, the think tank warned.

The global LNG market, and, by extension, the natural gas market, will remain tight until more liquefaction plants come into play, Bruegel noted.

Encouragingly, new US LNG facilities to offer an annual capacity of 336 TWh, equivalent to half the EU’s LNG imports from Russia, are planned to begin operating in 2024.

Energy transition cost a ‘risk for EU industrial competitiveness’

EU adequately prepared for winter ahead, ACER notes