Chemical industry stifled by lack of EU courage over reforms

Paul Boughton

Dr Jürgen Hambrecht, President of the German chemical industry association (VCI) and Chairman of BASF, believes that the EU has for too long lacked the courage to make the reforms needed to support a successful chemical sector. Here he outlines three such reforms - on energy policy, REACH and green biotechnology.

The global economy continues to grow – especially in the USA and in Asia. But irrespective of favourable business impulses worldwide, the economy in Europe and in particular in Germany does not get going.

The EU countries benefit from the globally stronger demand but internal growth forces are weak. While Great Britain and Spain drive the European economy forward, Italy and Germany are on the slow track. The strong euro and the high oil price can only partly explain this weakness. Europe has a structural problem.

So what is our outlook? After a good start in the present year, the current business situation of German chemical companies once more deteriorated in the course of the first half of 2005. We fear that the economic recovery will further weaken during this year. The growth of the global economy in the USA, in Japan and the newly industrialised countries in Asia is somewhat losing in dynamism.

The domestic business situation in Europe and in Germany cannot make up for decreasing impulses from foreign business. All in all, we are expecting for the year 2005 a production increase by 2–2.5 per cent. We think that prices will remain high on raw material markets. Consequently, producer prices should rise by some 3 per cent.

Once more we must postpone our hopes for a more dynamic development in Germany. The prerequisite for a sustained recovery is a better climate for investment and consumption. Framework conditions must be improved so that we will have once again more growth also in Germany. These connections are clearly seen in regions where growth has been dynamic for several years. There, it is endeavoured consistently and vigorously to improve one's own competitiveness on a permanent basis.

A lack of courage

By contrast, in Germany and in the EU we have lacked for much too long the courage for profound reform. We have spent infinite amounts of time, money and energy to shape regulations as perfectly as possible for all conceivable eventualities – with the outcome that these regulations are now barely understandable or even implementable.

In Germany and in the EU we have reached a point where it is realised with ever more clarity: this does not get us any further. It is no longer enough to adjust only individual points in our present system. What we urgently need are comprehensive reforms. Reforms for more growth, more investment and more jobs. All governments must be measured on achieving these goals.

We are convinced that companies will be able, also in future, to develop and manufacture competitive products in Germany. And they can do this on their own strength - without subsidies and protectionist measures against competitors. But we expect politicians to provide for fair framework conditions and to make an end to situations where innovation and investment are slowed down.

With this in view, we have concrete proposals for three such reforms.

Energy policy

Chemistry with its basic materials stands at the beginning of many industrial value chains. This production is energy-intensive, requiring large amounts of electricity and gas. Here the largest share of energy, also of electricity, is used as an input and a production factor.

Therefore, chemistry needs energy at competitive prices. But for five years, costs for electricity and gas have been moving in only direction: up. The net electricity price alone at the power exchange has risen by over 50 per cent since early 2003.

How could this massive increase come about?

First, the federal government pursued a deliberate price increase policy. The eco -tax and the generous promotion of renewable energies heavily burdened especially electricity. Also the withdrawal from nuclear energy caused new costs in national economic terms. Second, electricity prices have gone up due to a lack of competition between suppliers. What worries us most at the moment is the unjustified electricity cost increase due to emissions trading. Even though electricity suppliers largely received their emission certificates for free, they fully include their commercial value in electricity prices.

We plead for a reversal in the energy policy. The goal of a successful energy policy must be the optimal management of scarce resources. This cannot be achieved with higher prices and state-imposed restrictions but through the market, through competition and technology innovation.

Here, chemistry makes an essential contribution. Examples include: new materials, such as building insulation; novel forms of catalysis to improve the energy efficiency of processes or to develop new fuels; and last but not least white and green biotechnology for more efficient and better quality biomass. But in this sector, chemistry can be innovative only if energy costs do not drive us out of the country.

Therefore, we need a reversal in the energy and climate protection policy:
* It must be understood as an element of the industry location and economic policy.
* The price increase policy of the last years must be corrected.
* Competition on energy markets must be intensified.
* No technology must be discriminated against - this applies also for nuclear energy.
* And finally - climate policy activities must be coordinated worldwide.

EU chemicals policy – REACH

The chemical industry has a clear-cut goal: we want safe chemistry, and we want our chemistry to contribute to a better quality of life and more safety. But we think that the EU Commission’s draft regulation for a chemicals policy in its present form is not acceptable.

REACH is too expensive. In its present form, REACH leads to immense cost increases for all stakeholders. It is not workable and - as numerous studies show – it is too complex. Not only for many companies, also for public authorities.

REACH endangers the existence of small and medium-sized enterprises. Some 80 per cent of the 1700 chemical businesses in Germany are SMEs with fewer than 250 staff. They largely produce specialty chemicals and preparations. For them, registration costs under REACH can get as high as developing costs. The consequence: 20–40 per cent of substances can be no longer manufactured in Europe under economically viable conditions.

The absurd point: in no way will this enhance the protection of the environment and consumers - but the competitiveness, the innovative strength and the very existence of many companies is at stake.

In its present form, REACH means an acute danger to the competitiveness of the entire industry and thus to growth and employment in Europe. We hope that in the European Parliament and Council those will prevail who want a reasonable chemicals policy. We have presented comprehensive proposals toward this aim.

Green biotechnology

My third example is biotechnology. Bio- and gene technology is developing with impressive dynamism and a wide spectrum. On worldwide cultivation areas it is confirmed that biotechnologically modified plants can be used in a sustainable, beneficial and responsible manner.

Where this subject is concerned, unfortunately in Germany ideology still overrides innovation. The gene technology act Gentechnikgesetz is a brake to innovation. It is essential to release this brake, because it factually prevents the use of green gene technology and thus removes one corner from the magic triangle formed by green biotechnology together with white biotechnology and renewable resources.

Therefore the Gentechnikgesetz must be revised in a way to have a 1:1 transposition of EU directives in Germany - without tighter rules at national level.

Conclusion

Our regulatory zeal has taken us to a point where the original aims, such as legal certainty and justice in the concrete case, turn into the opposite. An ever-rising number of people come to the conclusion that we do not want it this way!

A clear signal has been given to politicians and administration. There must be an end at last to detailed rules for each individual case, to tutelage of the individual and ideologically motivated blockades.

We entrepreneurs contribute as much as we can to more knowledge and know-how, to more entrepreneurial spirit and the ability to innovate in Germany as an industry location.

I have given examples here of where our slogan 'Chemistry. Elements of Life' applies. It is the task of politicians and public administrations to create a framework that leaves enough scope for initiative and creativity.

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