Blog Post

Empirics of energy competitiveness

The loss of competitiveness because of elevated energy costs is concentrated in a limited number of sectors. The cost of subsidising energy-intensive companies might be greater than the benefits.

By: and Date: October 11, 2013 Topic: Energy & Climate

The loss of competitiveness because of elevated energy costs is concentrated in a limited number of sectors. The cost of subsidising energy-intensive companies might be greater than the benefits.

Energy competitiveness is in the spotlight. In February 2014, the European Council will discuss the impact of energy costs on the “EU’s competitiveness vis-à-vis its global economic counterparts”. Concern about a loss of competitiveness arises from more than doubling in the last decade of electricity prices for industrial users in Europe, while in the US only a moderate increase was seen.

Industrial user electricity prices in $/kWh.

Source: IEA.

According to our study (Chapter 6 in the Bruegel blueprint on Manufacturing Europe’s future), total manufacturing exports are generally not driven by electricity price differentials. But obviously electricity prices have an impact on sectoral competitiveness. In fact, we can identify a number of sectors that are strongly concentrated in countries with low energy prices (such as aluminium, some chemicals). Interestingly, higher energy prices that render some energy-intensive products less competitive on the world market do not necessarily translate into competitiveness losses further down the value chain. In Germany, for example, the local aluminium industry suffered from a 166 percent hike in electricity prices between 2001 and 2008. This had no visible collateral consequences for car sector competitiveness – car sector exports increased by 142 percent in the same period. Greater reliance on importing aluminium (German aluminium net imports rose by 242 percent) meant that German car manufacturing could remain competitive.

Furthermore, we find that countries with elevated energy prices tend to specialise in sectors with higher levels of value added and employment, compared to countries with low energy prices. Therefore, policies designed to protect energy-intensive sectors might have adverse effects when the cost of these measures is borne by other parts of the economy. As energy intensive sectors contribute relatively less to employment and value added, any advantage that they might gain is likely to be insufficient to compensate for the loss of jobs and value added caused by the loss of competitiveness elsewhere in the value chain.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic

Opinion

Europe’s Green Deal must reach beyond its borders

A European Climate and Sustainable Development Bank could become the external investment arm of the European Green Deal

By: Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate Date: February 4, 2020
Read article More by this author

Blog Post

Climate risks to European banks: a new era of stress tests

Several European central banks have begun assessing the impact of adverse climate scenarios on banks’ capital. Comparable work at EU or euro area level has evolved more slowly. Supervisors need build up a distinct and more complex type of analysis, and should engage with banks now.

By: Alexander Lehmann Topic: Energy & Climate, Finance & Financial Regulation Date: February 4, 2020
Read article More on this topic

Opinion

Berlin will make or break the European Green Deal

€1 trillion isn't enough for the European Green Deal and the EU's fiscal framework is constraining public investment. "Mrs Merkel, tear down this rule".

By: Grégory Claeys and Simone Tagliapietra Topic: Energy & Climate Date: February 3, 2020
Read article More on this topic More by this author

Podcast

Podcast

Paying for the European Green Deal

The European Commission has presented its Just Transition Fund to help regions still dependent on fossil fuel as they move towards green energy. But where does the money come from and is it enough to make Europe carbon neutral by 2050? Should the EU re-write its fiscal rules to encourage sustainable investment? And should environmentalists be optimistic? Nicholas Barrett asked Simone Tagliapietra and Grégory Claeys.

By: The Sound of Economics Topic: Energy & Climate Date: January 16, 2020
Read article More on this topic More by this author

Blog Post

European green finance is expanding, a discount on bank capital would discredit it

If EU banks are to mobilise a greater share of loans for sustainable projects they will need a reliable policy framework, clear internal performance targets and the relevant skills. A discount on bank capital underlying such assets is neither justified nor likely effective. A comprehensive review of how climate risks are reflected in prudential regulation is nevertheless in order

By: Alexander Lehmann Topic: Energy & Climate Date: January 15, 2020
Read article More on this topic

Blog Post

A trillion reasons to scrutinise the Green Deal Investment Plan

The European Commission has revealed its €1 trillion investment plan for the European Green Deal. This will not be enough to unleash the expected "green investment wave". For that to happen, more must be done

By: Grégory Claeys and Simone Tagliapietra Topic: Energy & Climate Date: January 15, 2020
Read article More on this topic More by this author

Opinion

The Green Deal is not just one of many EU projects, it is the new defining mission

The EU has already invested so much of its political capital into the green transition that a failure to deliver would severely damage its legitimacy.

By: Jean Pisani-Ferry Topic: Energy & Climate Date: January 3, 2020
Read article More by this author

Blog Post

2019 on #econtwitter, in a million tweets

What did academic economists talk about in 2019? I collected one million tweets from popular academic economists over the year, and analysed the topics discussed.

By: Enrico Bergamini Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Date: December 19, 2019
Read article More on this topic More by this author

Opinion

Europe’s Apollo 11 will not be about the moon

The European Green Deal has an ambitious double target to “reconcile the economy with the planet” and to become Europe’s “new growth strategy”.

By: Simone Tagliapietra Topic: Energy & Climate Date: December 13, 2019
Read article More on this topic More by this author

Podcast

Podcast

What's inside the European Green Deal?

President Ursula Von der Leyen has presented her European Green Deal before the European Parliament. How will it work? What are its implications? And will it make Europe carbon neutral by 2050? Nicholas Barrett asks  Simone Tagliapietra what's inside the Green Deal.

By: The Sound of Economics Topic: Energy & Climate Date: December 11, 2019
Read article More on this topic More by this author

Blog Post

The European Green Deal needs a reformed fiscal framework

The European Green Deal should include a sustainable investment strategy that will help citizens change behaviour and companies switch technologies. But to finance it, the EU will have to increase the flexibility of its fiscal rules to encourage member states to invest in the transition.

By: Grégory Claeys Topic: Energy & Climate Date: December 10, 2019
Read article Download PDF More on this topic More by this author

Policy Contribution

The European Union-Russia-China energy triangle

Concern is growing in the European Union that a rapprochement between Russia and China could have negative implications for the EU.

By: Georg Zachmann Topic: Energy & Climate Date: December 9, 2019
Load more posts