EU energy union fails to tackle falling industrial efficiency

European leaders seem unaware that energy intensity in the steel, cement and chemicals industries has stalled or increased

Energy efficiency in EU steel production has not improved since 2008 (Pic: colink/Flickr)

Energy efficiency in EU steel production has not improved since 2008 (Pic: colink/Flickr)

By Gerard Wynn

EU leaders met this week to discuss how to improve the region’s energy security, but seem unaware that the energy efficiency of key industrial sectors is falling.

new assessment by the European Environment Agency (EEA) shows that the energy efficiency of European heavy industry has fallen since the financial crisis, for the first time in a decade. The assessment is supported by data showing declining energy efficiency in Britain among sectors including food, chemicals and steel.

The data show that it is vital that the EU invests in energy efficiency, to arrest manufacturing declines.

The decline in industrial efficiency contrasts with a brighter picture among other sectors, where residential energy use, for example, has seen consistent falls over the past two decades.

Industry is the third biggest consumer of energy in the EU (at 26 percent of the total), behind transport (32 percent) and buildings (40 percent), the EEA report says.

Energy efficiency is important in the European Union, to maintain cost competitiveness compared with economic rivals including the United States, many of which have much lower gas and electricity prices. It is also the lowest cost way to cut carbon emissions and reduce dependence on fossil fuel imports for example from Russia.

The prospect of declining industrial efficiency should be a concern for EU leaders who met on Thursday and Friday to discuss their latest “energy union” strategy, which is principally targeted at boosting the region’s energy security.

Report: Business leaders call for low carbon EU energy union

But the energy union strategy focuses on the efficiency of transport and buildings; the European Commission ignores industrial efficiency, in its communication on the energy union. Commission analysis refers to improvements in energy efficiency since 2001, which misses the deteriorating trend since 2008.

In a blog posted on Wednesday, the European Commissioner for energy and climate, Miguel Arias Canete, wrote: “Between 2001 and 2011 EU companies improved their energy intensity by 19% compared to 9% in the US. This has allowed them to maintain the same level of energy costs per million euro of added value as their US competitors, despite the latter benefiting from much lower energy prices.”

One measure of energy efficiency is energy intensity, which is defined as energy consumption per unit of output.

There are various explanations why energy intensity is actually rising in certain industrial sectors, after a decade or more of falls.

One significant factor is that these industries have fixed costs and energy use, which did not fall in proportion to a slump in output during the financial crisis, leading to an overall rise in energy intensity.

That drop in output has persisted since the end of the recession.

In addition, the recession led to a drop in investment, for example in equipment upgrades and new factories, which are usually a major opportunity for improving energy efficiency. This is an area that the energy union strategy can address – Europe’s heavy industry must invest in efficiency to compete, as well as meet carbon emissions targets. Ignoring the sector in the Commission’s main communication on energy union does not bode well.

Comment: How significant is news that CO2 energy emissions stalled in 2014?

As Karsten Neuhoff, who has published widely on this topic, told me in correspondence for this blog:

“The significant reduction of demand has resulted in lower utilisation rates, which explains some level of lower efficiency. Historically most improvements have occurred with addition of new or replacement of old plants, and during major refurbishments.

“With falling demand and very low margins linked to the economic crisis (steel demand is still 20% below pre crisis level and expected to not recover), very limited such investments will have occurred.”

The EEA assessment reported in January: “Since 2008, in the steel, cement and chemicals industries there were no more improvements (in energy intensity), and even a reverse trend with an increasing specific consumption.”

The data did not disaggregate industrial sectors, but showed that falls in the energy intensity of industry overall had slowed since the onset of the financial crisis, and had failed to match continuing falls in the household and transport sectors (see following chart).

Energy efficiency of industrial sectors in EU28 (Source: EEA)

Energy intensity of industrial sectors in EU28 (Source: EEA)

Britain’s Department of Energy and Climate Change (DECC) also published efficiency data in January, in its report, “Energy Efficiency Statistical Summary 2015”. The DECC report showed that energy intensity was flat or rising in the “iron and steel”, “food, drink and tobacco” and “chemicals” sectors (see chart below).


Rising energy intensity in these sectors contributed to a broader rise across industry as a whole.

DECC attributed the problem to falling output following the onset of the financial crisis. “Industrial energy intensity can be affected by changes in the volume of output. Increases in energy intensity can be seen in many industries during the recession as the volume of output fell faster than the energy use.”

The idea of an energy union, where EU countries exploit indigenous energy resources while cutting consumption, is a good one. However, at present the strategy has failed to recognise the new threat of falling industrial energy efficiency, and is directing resources into sectors which are already performing better. The EU must invest in the efficiency of industry, too, where its manufacturing competitiveness is at stake.

This article was first published on the Energy and Carbon Blog

Read more on: Comment | EU |