SPECIAL REPORT: Lack of access to affordable energy is the key driver behind the slow erosion of competitiveness in the European chemical sector, warns Jean-Pierre Clamadieu, who urges policymakers to reach agreement on a genuine European energy policy.
Jean-Pierre Clamadieu is the CEO of Solvay, a global chemistry company founded in Belgium, and President of the European Chemical Industry Council (CEFIC).
The first three questions in this interview are taken from a press conference held by Mr. Clamadieu on 20 November in Brussels. The remaining are from an interview conducted by Frédéric Simon, EurActiv’s publisher and editor.
CEFIC published a report on 20 November about the competitiveness of the European chemicals industry, which is rather pessimistic. Yet, figures show production in Europe has grown steadily over the past decade, so why worry?
We think we are right to worry about chemical industry competitiveness. And we are right to worry because of a key element, which is access to energy.
We have the feeling for quite some years that this was a key issue. And we have a study today which clearly demonstrates that the European chemical industry is losing competitiveness and that is something very serious.
And the phenomenon is only starting because the study was done in 2012, when the US energy revolution was only starting. Now, the revolution has continued so if we were to redo the same study a couple of years from now, I think we would see much more damage done.
The key factor which explains this loss of competitiveness is access to energy – both as a feedstock and as a source of energy. It means we are investing less because of this gap in competitiveness, which has grown especially in relation to the US chemical industry, whose competitiveness is now close to Saudi Arabia thanks to shale gas.
We think Europe needs to react. Reaction is probably twofold: one is energy cost. We think we badly need a European energy policy which focuses on security of supply and competitiveness. And we are probably at a time where policymakers agree that this is a priority, which was not the case two or three years ago. Today, the issue is part of the priorities of the new President of the European Commission and many member states leaders who see this as a key priority.
But we have very few proposals on the table and we think it is urgent now that we move with an energy policy that would secure energy cost competitiveness for the chemical industry.
Your assessment of the European chemical sector’s competitiveness is quite alarmist. What is your message to shareholders. Should they be selling their shares?
First about being alarmist: We could wait and come in a few years saying our trade balance has deteriorated very strongly and we are losing jobs. We are not doing that. Instead, we are coming ahead of this phenomena looking at competitiveness which is a driver for trade surplus and employment. So we are coming at a time when we think there are still possibilities to reverse this trend.
Now, talking to our shareholders, the message is very simple. Taking the Solvay example, we are not a European chemical company, we are a global chemical company. Today, Solvay is exposed more or less equally to Asia, Europe and the Americas – one third of our sales in each of these regions. And second, we are transforming our portfolio to focus on innovative products.
So the messages to policymakers and shareholders are not the same. But if the CEO of a chemical company was saying ‘everything is fine, no issues, don’t move’, I think shareholders should be worried. And I think a lot of chemical companies today are revisiting their strategies.
The fact is we got a good vibrant industry today, but the warning signals are becoming stronger. So, we are not alarmist, but saying let’s not allow this situation to drift.
The European chemical industry has been sounding the alarm bell for many years now. What are policymakers not hearing? Surely, that message should have been conveyed and acted upon by now?
Again, two or three years ago, we were not receiving a lot of attention. Germany was busy moving out of nuclear, investing massively in renewables. France was trying to figure what to do after the last Presidential election where nuclear was part of the discussion between the various parties. Shale gas was considered as a peak on the curve and something that would quickly disappear. And all countries were going in their own direction.
Now, we have made progress. In discussions we had with Mr. Barroso, Mr. Hollande or Mme. Merkel, they all recognise that energy policy is key and has a significant impact on competitiveness. So that’s a first step.
Now, have we seen much in terms of action, frankly speaking no. When we discussed with Mr. Oettinger in the previous Commission, he would make the same analysis of the facts. But have we seen the previous Commission coming up with a European energy policy? – No. And when we ask why, the answer was, ‘This is not part of our mission’. Energy mix is the responsibility of the various member states, with little coordination. And the feeling was that the Commission had little ability to put together a policy.
As a large energy user in Europe, I still see fragmentation of the European energy landscape, each member state pulling in its own direction. Now this seems to be changing a bit. Energy policy seems to be one of the priorities of Mr. Juncker, we are starting to see the EU leaders and policymakers expressing their willingness to grasp the issue. Have we seen yet a proposal on the table framing what could be a European energy policy? Frankly speaking – no.
This is why we are passing on this message today. And we will meet with the various EU commissioners in the next few weeks and we will insist on the urgency of developing quickly such a policy. What you have to realise is that things are moving very quickly. I see the situation is getting more and more challenging. Without being alarmist, it’s something which is becoming increasingly urgent.
The Barroso Commission set an objective of raising the share of industrial activity in Europe to 20% of GDP, up from 15% today. Do you believe this objective can be met and how?
It’s clearly a challenging objective. And if we look at what has happened in the last few years we see European industry competitiveness slipping more than increasing. But yes I think it’s very important that Europe sets clear priorities and this one is very important.
If you look at the levers, some of them apply to all industrial sectors. One of them is better regulation – long-term regulation, predictability of regulation, avoidance of duplication. Having a European regulatory framework which is as homogeneous as possible, which means not letting member states making their little adjustments to regulations. This applies to all industries, not just the chemical industry.
So that implies a stronger Commission in your view?
Sure, we are pro-European, we think we need more Europe than less. But probably better Europe and one which is focused on the right subjects. For the chemical industry specifically, the key issues in terms of competitiveness is access to energy and fixed costs. And there what happened in the last few years has been catastrophic for the chemical industry; the fact that the US has turned almost overnight into a low-cost producer of energy -that has created a significant handicap for us. We think the EU has to react, and cannot stay in such a position for the next decades.
Should the EU intervene to encourage shale gas production in Europe?
There is no silver bullet, there is not one single measure that will help bridge the gap. Clearly, we don’t see in Europe the miracle or the quick transformation that shale gas has brought in the US. That said, we have to use all the levers and developing existing resources in Europe so shale gas has to be part of the EU’s energy policy. Same for nuclear, I think phasing out safe and competitive nuclear plants today doesn’t seem to me the right way to move forward. We have an issue with transportation infrastructure, gas prices are still quite different in several parts of Europe because of a lack of infrastructure to transport it. Infrastructure also to import gas into Europe such as LNG is also lacking.
And a third element of policy which is common for various industries is support to innovation. It’s both human resources – we need the brains. Europe used to have very high quality education systems regarding science, physics, chemistry etc. It’s still good, but eroding in terms of quality. it’s very important that we find the graduates that we need to bring into our teams and help us continue to innovate in Europe.
Support is also key. Various member states have support schemes for R&D made by corporations, it’s important that we have visibility and predictability of these schemes. And Europe has various programs to support innovation.
…and the budgets are increasing, with Horizon 2020
They are increasing but they are not very well designed to support industries like chemicals. They are more designed to support large programs in transportation for example. The chemicals industry has smaller size projects which makes it difficult for us to access these resources.
On energy policy, you said you haven’t seen yet anything convincing coming out of the European Commission. So what would you like to see?
First the clear message that we are moving towards a European energy policy. It has not been said yet if you look at the treaty, the energy mix is still the responsibility of the member states.
Would you want this to change? Should the Commission have a greater say on the energy mix?
Changing the treaty is probably not an option at the moment but we clearly need a European framework. We need to solve the ‘Balkanisation’ we are currently seeing, where each country is going its own way. This creates huge differences in prices for industrial players.
How can the Commission achieve that in practice?
They need to come up with proposals on the table addressing the various issues I have mentioned: infrastructure; policy schemes to support renewables energies which are creating today significant costs which are borne by the large energy users and again with a lot of differentiation between the member states so we need to create alignment and homogeneity; and in terms of security of supply (and the Russian crisis has shed light on that issue), coming up with a common view of how Europe should access energy coming from other regions of the world.
The common purchasing of gas is an idea which is supported by the Commission’s Energy Union Commissioner Maroš Šefčovič. He advocates a gradual step-by-step approach. What’s your view?
Common purchasing might be a little bit ambitious, but a clear view of how the member states, the Commission and the key players in this field could act in a more organised way to secure this access, yes. I think Europe should play strongly its political hand to secure competitive energy supplies.