ENERGYzing the European chemical industry HLG Chemicals Ad-hoc group Energy , Feedstock and Logistics 15 January, 2008

1. ENERGYzing the European chemical industry HLG ChemicalsAd-hoc group Energy, Feedstock and Logistics15 January, 2008 P Claes, Essenscia

2. ENERGYzing the European chemical industry • Energy is vital to the chemical industry - as raw material and fuel • Industry’s essential need: Access to competitively-priced electricity and gas • Impact of climate and energy policies on EU competitiveness • Energy efficiency is of prior importance for the industry • Chemical products help to save energy

3. ENERGYzing the European chemical industry • Energy is vital to the chemical industry - as raw material and fuel • Industry’s essential need: Access to competitively-priced electricity and gas • Impact of EU climate and energy policy on competitiveness • Energy efficiency is of prior importance for the industry • Chemical products help to save energy

4. The chemical industry is a large energy consumer

5. For chemicals, energy is more than a fuel EU chemical* industry energy consumption by source Source: Eurostat *including pharmaceuticals

6. Energy costs and energy policy matter for important building blocks of the chemical industry

7. Energy is vital to the chemical industry – as raw material and fuel • Chemical industry is the most important energy consumer among manufacturing sectors • Energy serves not only as fuel but also as feedstock: oil and gas are used as raw material for higher value added products. • The chemical industry is globally active, highly integrated and depends on very energy intensive building blocks

8. ENERGYzing the European chemical industry • Energy is vital to the chemical industry - as raw material and fuel • Industry’s essential need: Access to competitively-priced electricity and gas • Impact of EU climate and energy policy on competitiveness • Energy efficiency is of prior importance for the industry • Chemical products help to save energy

9. EU electricity prices: A disadvantage in global competition General Industrial Power Price (in €/MWh) EU range * EU average * = 45 (*) Estimates for the European chlor-alkali industry Sources: Prochemics based on Information from IEA; Eurostat; EIA (2006).

10. Electricity prices traded in the European exchanges are on the rise Increase 2001-2006 ~ +110% Source: Prochemics based on Information from EEX (electricity base prices). Note: These prices do not necessarily reflect prices paid by chlorine producers.

11. EU gas prices: A disadvantage in global competition Global Natural Gas Costs – 1st Quarter 2007($US per million BTUs) Germany: $7.60 Russia: $1.50 UK: $8.65 Canada: $7.10 Belarus: $3.15 Belgium: $8.50 Ukraine: $3.60 South Korea: $8.80 USA: $7.20 Iran: $1.25 Libya: $1.00 Japan: $8.70 China: $6.30 Qatar: $1.80 Mexico: $6.85 Oman: $1.00 India: $3.70 Saudi Arabia: $0.75 Trinidad: $1.65 Brazil : $4.90 Bolivia: $1.85 Argentina: $4.85 Source: ACC

12. Industry’s essential need: Access to competitively-priced electricity and gas • Energy prices are key to competitiveness • While oil has in principle global price levels, electricity and gas remain national/regional markets (gas has the potential to become a global market) • EU electricity and gas prices are a competitive disadvantage for EU industry

13. ENERGYzing the European chemical industry • Energy is vital to the chemical industry - as raw material and fuel • Industry’s essential need: Access to competitively-priced electricity and gas • Impact of climate and energy policies on EU competitiveness • Energy efficiency is of prior importance for the industry • Chemical products help to save energy

14. Competitive energy markets are essential EU energy markets are not competitive • Access to grids, gas storage and cross-border connections for non-incumbents difficult • Few energy suppliers dominate the markets Third package is an important step • Cefic supports the EC Third Package and call for its rapid adoption and implementation. • Cefic calls for improvements to the Third Package in key areas to ensure its effectiveness. • Cefic calls for transitional measures until energy markets are competitive.

15. Electricity price largely determined by national policies

16. Climate change policies cause energy prices to rise Impact of CO2 costs on electricity prices Source: Prochemics based on Information from DGEMP of the Ministiere de l’Economie, de Finances et de l’Industrie, France (2003). Note: These prices do not necessarily reflect prices paid by chlorine producers.

17. What drives electricity prices… ? Development of the certificate prices and electricity prices in Germany – first trading period 2005-2006 Certificates Electricity

18. EU-25 EU-15 Use of renewables in the European chemical industry Use of renewables in the European chemical industry as raw material (2003) Chemical Industry ~6.4 million t Other industries ~2.6 million t 74.1 million t petrochemical and about 6.4 million t renewable raw materials are used in the EU-25 chemical industry in 2003, i.e. roughly 8% of the raw materials are renewable raw materials Source: German Agency Renewable Resources

19. ENERGYzing the European chemical industry • Energy is vital to the chemical industry - as raw material and fuel • Industry’s essential need: Access to competitively-priced electricity and gas • Impact of EU climate and energy policy on competitiveness • Energy efficiency is of prior importance for the industry • Chemical products help to save energy

20. Energy efficiency is not only driven by high prices

21. EU Chemical industry is leading in CO2 efficiency gains Chemical industry greenhouse gas emissions per production: EU versus US

22. To ensure overall GLOBAL sustainability….minimise measures that stimulate investment leakage to most CO2 inefficient regions Country CO2 / GDP efficiency indexed to Japan = 1.0 Data source: IEA 2006

23. Global comparison: EU chemical industry most energy efficient

24. Energy efficiency is of prior importance for the industry • Energy and resource efficiency is a means for competitiveness • The chemical industry has decoupled production growth and energy use (e.g. technological breakthroughs, diffusion of CHP) • Timing of energy efficiency measures often depends on life-time of major assets rather than energy prices • The European chemical industry, overall, is more energy and CO2 efficient than other world regions. The current EU ETS design encourages growth in carbon-intensive countries. Delocalisation harms global environmental aims.

25. ENERGYzing the European chemical industry • Energy is vital to the chemical industry - as raw material and fuel • Industry’s essential need: Access to competitively-priced electricity and gas • Impact of EU climate and energy policy on competitiveness • Energy efficiency is of prior importance for the industry • Chemical products help to save energy

26. Innovation in chemicals is contributing to fight climate change Energy neutral housing • High-performance insulation materials • Solar panelling and photoelectric cells • Heat-absorbing wall-board material can reduce a building’s energy consumption by 15% to 32% The “Three-Liter House” Source: BASF

27. Chemical products support other sectors to tackle climate change Cutting back emissions in transport • Energy efficient tyres lower rolling resistance thereby reducing GHG emissions of cars by 5% • Lightweight, high-strength plastic components replace metal and save weight for greater fuel efficiency in cars • New jet aircrafts are making increased use of plastic and carbon fibre composite materials – achieving major emissions cuts in air transport • Making fuel cells commercially viable • Smart coatings reduce drag through the fouling of a ship’s hull

28. Chemical products help to save energy • Chemical industry saves energy through innovative solutions for downstream users. Chemical products save at least twice the CO2 used in their production. • Curtailing growth of the chemical industry through absolute CO2 reduction targets harms global environmental aims.

29. The way forward to ENERGYze the European chemical industry • ACTIONS NEEDED • Competitive energy markets are essential: The Energy Package must be strengthened, not weakened Beyond what the Energy Package will achieve: • Market dominance: Provide guidance to national regulators on effective measures to prevent abuse of market power. • Long-term contracts: Workable guidelines on long-term contracts, enabling consumers to enter into long-term supply contracts. • Transitional measures to allow access to affordable energy for energy-intensive industries until energy markets are competitive.

30. The way forward to ENERGYze the European chemical industry • ACTIONS NEEDED • As long as there is no international agreement on climate policy, the EU ETS design must not put unilateral constraints on globally competing industry. • Special contribution of the chemical industry to energy and ghg efficiency in economy and manufacturing must be recognised.

31. The way forward to ENERGYze the European chemical industry • ACTIONS NEEDED • Chemical industry uses renewable raw materials for some of its processes and is an important actor with regard to the development of renewable energies. • EU legislation must not favour the use of renewable resources for energy generationover their industrial use • The promotion of renewable energies should adhere to key principles: cost-efficiency, sustainability, technology-neutrality • EU legislation should provide for national exemption measures for energy-intensive industries to alleviate the cost burden and thereby guard international competitiveness