European industrialists question focus of energy subsidies

Europe should not be spending billions on subsidies for fossil fuel consumption but be focusing instead on reducing demand and the transition to renewables, according to leading European industrialists.

“There is something wrong in where the money is going,” Philippe Delorme, head of European operations at industrial group Schneider Electric, told the Financial Times. “I understand the pain. [People] are screaming hell because they cannot pay their bills. But we are spending all our money on short-term painkillers rather than curing our disease.

“There is an urgent need to cut reliance on these carbon-heavy fuels and address inefficiencies in energy use,” he said.

Dimitri Papalexopoulos, chair of Titan Cement and vice-chair of the European Round Table for Industry, said it was understandable that governments were trying to ease the pain of soaring energy prices for households and businesses this winter but these subsidies were not sustainable.

“Not enough attention is being paid to the five- to eight-year horizon,” he said. The focus should be on accelerating the transition to renewable energy, while ensuring that as much of the value of innovation as possible stays in Europe, he added.

Global subsidies for fossil fuel consumption were more than $1tn last year, the highest amount on record, according to the International Energy Agency.

Economic think-tank Bruegel estimates that more than €657bn has been allocated by EU member states to shield consumers from rising energy costs since September 2021, with Germany alone accounting for €265bn.

Not all of this will subsidise fossil fuel consumption, said Simone Tagliapietra, author of the Bruegel report. But fossil fuels currently make up roughly 70 per cent of Europe’s energy mix, suggesting much of the spending will go that way.

“We can’t continue to have generalised subsidies for energy,” Tagliapietra said. “All governments should target only vulnerable consumers and incentivise them to go green. That will structurally help Europe to get out of this situation in the long term.”

Benoit d’Iribarne, head of manufacturing at building materials giant Saint-Gobain, agreed. “General subsidies are not the best way to spend money,” he said. “If we could spend half or one-third of that to accelerate the transition, that would be much better for Europe and its industries. If we reduce demand we also reduce the cost of energy.”

The comments come as the European Commission is putting the final touches to a package of measures designed to respond to the Inflation Reduction Act in the US, which offers some $369bn in clean energy incentives.

European industry is hoping the plan will address some long-running challenges, such as the bloc’s high energy costs compared to the US and Asia, a fragmented energy market and complex regulation.

Europe had been early in its planning for the transition to renewable power but “too slow to implement”, said d’Iribarne.

Jori Ringman, director-general at Cepi, the trade body for Europe’s €95bn-a-year paper and pulp industry, said improving energy efficiency was one of the first and most important steps in the transition. “We are starting with energy efficiency because we know that clean energy will be a scarce commodity,” he said.

The paper industry was not asking for energy subsidies, he added. “We need to get rid of our natural gas dependence. We have opportunities but we need a better regulatory and permitting environment. If you just want to put some solar panels on the roof of your factory, it shouldn’t take years and years to get a permit.”