Energy-intensive industries in Europe are no longer competitive globally and the EU regulatory and legislative framework is putting European industry at serious risk.

Theo Walthie, Dow’s Business Group President for Hydrocarbons and Energy and Ethylene Oxide/Ethylene Glycol, explains. I am proud of the fact that the chemical and plastics sector originated in Europe. With a proven track record of performance and contribution to the pillars of sustainable development, the industry has also delivered on safety, investment, job creation, innovation and new technologies that have helped transform our society and our world.

At the same time we have proactively improved our environmental performance, engaged in voluntary agreements, delivered substantially on carbon dioxide reductions and have in fact met Kyoto targets of more than 30 per cent reduction in green house gas emissions since 1990.

So we are an industry that is willing to be tested and held accountable for our performance. Why, then, are we under fire?

The European petrochemical industry is being squeezed from the standpoint of increasing costs and operational burdens, with bodies of regulation and legislation – from Reach to emissions trading – progressively distorting competition. As if that is not enough, we are also being squeezed to deliver disproportionate results to make up for shortfalls in other sectors such as transportation and housing, in addition to being squeezed by a power sector that is poised to shift its added costs onto its customers – us.

On top of this, the promise of energy liberalisation has not materialised: distribution and storage channels remain limited and markets are still essentially closed. The EU is running out of its own reserves very fast, drastically increasing its dependency on imports.

The gas for Europe will have to come from abroad and this will require drastic improvements to both the ‘hardware’ and ‘software’: Connections and accessibility via market liberalisation must improve at a much faster pace.

And all this is happening while we operate in an overall global environment where costs can’t be passed on - and one in which our customers are demanding more for less.

We are being squeezed to the point that our competitiveness in the European framework is in danger: we are not being recognised for our accomplishments and delivery against targets; costs are deterring investment, and the practical application of Kyoto and EU emissions trading is threatening to further isolate our industry.

But if we find ourselves unable to compete in the global arena, the impact will be felt far more widely, by our employees, communities, customers, suppliers, and the Member States in which we operate.

On the edge of change

Here we stand on the edge of massive change in Europe. Change which is focused on developing a knowledge-based population, being a leader in environmental protection, and on the verge of growth, both politically and in terms of population. But what about from an economic perspective? What about from a competitive perspective? Is Europe on the verge of creating a business environment in which industry and business is drawn to this area to create jobs and maintain wealth?

An enlarged Europe holds much potential, but an enlarged Europe without a concrete and growing industrial base will not result in the growth we seek, nor will it mean the stronger economic, social or environmental foundation that politicians and the people of this continent seek.

We have all been encouraged by the words spelled out in the Lisbon Strategy, defining the EU objective to enable more jobs and prosperity for its citizens… “making Europe the most competitive, knowledge-based economy in the world”. Also we have been encouraged by the EU’s recent announcement to build a technology platform on ‘sustainable chemistry’. This has brought a commitment to invest real dollars, incentivise development of energy efficient processes and technologies, and breakdown barriers to innovation.

But we are all concerned that the words are not translating into action. The signals are all flashing red. What we really see is policy that dis-incentivises growth, penalises industry, and negates any hope of having a level playing field – either between Member States or globally.

As a company, and as an industry, we will not sit idly by. We are committed to do all we can to ensure a sustainable future. But we can’t do it alone. We need governments and all other stakeholders to work together to create a competitive playing field. In Europe this means:
*Energy policies that support rather than disadvantage energy-intensive industry.
*Environmental legislation that does not distort competitiveness between the EU and other global economies.
*Energy liberalisation that works.
*Access to a diverse and robust supply of energy at competitive prices: Europe cannot go the way of the USA with preferential treatment of natural gas which distorts the supply/demand balance.
*Security of supply: as North Sea fields are depleted we must ensure security of supply for the future.
*Shared and equitable sharing of burden between sectors: our industry cannot bear the burden of making up for increased emissions in the household or transportation sectors.
*Incentives and recognition for investment in new technology.

We are quite confident at Dow that we will see our share of the estimated four per cent growth in the global chemical industry. But if the fundamentals don’t change, we won’t see it here in Europe. As with the other energy-intensive industries, we cannot be the shock absorber for taxation, operational burdens and distortions in the market.

Even so, as a company we are not giving up. Among a whole raft of initiatives, we are working to have open dialogue about the competitive realities with governments, directly and through our trade associations. We are focusing on innovations to improve our products and processes and to improve our energy use per unit of product produced. At the same time we are engaging in the futures market and using hedging mechanisms to moderate high and volatile energy and feedstock prices. These instruments will develop further, but they are applied with significant costs.

At the end of the day, the European petrochemical industry has a strong message, a solid history and a huge impact on the fabric of Europe. A de-industrialised Europe, one that squeezes out industry, will squeeze out the possibility of a sustainable future. That’s not in anyone’s interests. It’s only by being partners with all those other stakeholders – employees, communities, customers, suppliers, and Member States – that we will thrive.