US Energy-Climate policies: How will Europe be affected?

Transcription

1 in cooperation with The conference summary of the HEC Energy & Finance Chair US Energy-Climate policies: How will Europe be affected? 18 th February 2013, Paris Program Introduction Pr. Jean-Michel GAUTHIER, Executive Director, HEC Energy and Finance Chair Jean-Pierre SICARD, Deputy CEO, CDC Climat The US energy outlook: is shale gas extraction a game-changer? Richard H. JONES, Deputy Executive Director, International Energy Agency Decarbonization of the economy: crossed lessons in the US and the EU Pr. Denny ELLERMAN, Director, Climate Policy Research Unit, European University Institute Impacts of the US energy and climate policies for the EU energy companies Yves-Louis DARRICARRERE, Executive Vice President, President Upstream, TOTAL Impacts of the US energy and climate policies for EU energy intensive companies Olivier IMBAULT, Vice President, European Industry Affairs, AIR LIQUIDE Conclusion Benoît LEGUET, Head of Research, CDC Climat 1

2 A few days after the State of the Union Address, where President Barack Obama once again made energy and climate one of the United States' 1 political concerns, the timing of this conference, which was organised by the HEC Energy & Finance Chair, Deloitte and Société Générale Investment Banking, in collaboration with CDC Climat, was perfect for setting out the interactions between both continents in the energy sector. It is crucial to understand the consequences of the United States energy and climate policy for Europe at a time when there is a national debate on energy transition in France, and when the European Union is discussing road maps for moving to a low-carbon economy in The resurgence of oil and gas in the United States: a revolution that is changing the rules of the global energy game What will the consequences of the shale gas revolution in the United States be for the global energy market? It could be a major catalyst for changes in the global energy market over the coming decade. The unconventional oil and gas revolution is turning US energy supply upside down and is leading to energy independence for the United States. Following decades of decline, US oil and gas production is soaring in a way that is unprecedented, according to the International Energy Agency 2, thanks to the large-scale extraction of shale oil and gas. The production of shale gas in the United States increased sharply between 2009 and 2011, when it reached 180 billion m 3, or 27% of US gas production. The United States has been the leading global gas producer, ahead of Russia, since This unconventional gas revolution has led to an increase in gas production in the United States, which is lowering the price of gas and reducing its energy imports. The increasing production of shale gas has altered the US energy mix substantially, by reducing coal consumption, which is less competitive and more polluting, by US energy supply revolution 220 TWh between 2006 and 2011, and increasing the consumption of gas by 190 TWh. By 2020, the United States is expected to reach full gas independence, and even become an exporter of between 5 and 18 billion cubic metres of gas per year. Thanks to the promise of regained energy independence, so to speak, the United States is turning the global Source : International Energy Agency, 2012 energy trade upside down. It could become the world s largest producer of oil and gas by 2020, and a net exporter of gas, and even oil, around The United States could therefore become the world s leading oil producer, on par with Saudi Arabia, and so reduce its imports of crude oil by around 6 million barrels per day. However, the exportation of shale gas remains uncertain. Indeed, export authorisations take a long time to be delivered. Congress is currently wondering about the opportunity to export shale gas, and specifically the amount of gas available for export. Lastly, will the signatory countries to the Free Trade Agreement (FTA) be the only beneficiaries of US LNG? 1 I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy. The US President has set a new goal for America: let s cut in half the energy wasted by our homes and businesses over the next twenty years. Speech by Barack Obama on 13 th February IEA, World Energy Outlook 2012, Special report on non-conventional gas, Golden rules for a golden age of gas. 2

3 The silent unconventional gas revolution in the United States will influence European energy demand. The price of natural gas in the United States has fallen from US$13 to less than US$3/Mbtu since This steep fall in the US gas price has resulted in a decoupling between US prices and European (US$10-12) or Japanese (US$16-18) price levels. Since 2009, access to large amounts of low-cost oil and gas has enabled the US economy to restore its competitiveness, by giving a clear advantage to US industries that use natural gas: large projects for new ethylene production De-coupling of regional gas prices capacity, among others, are now based in the United States, accelerating the country s long-hoped for reindustrialisation, and developing new areas of employment. Indeed, gas is not just a fuel. The carbon and hydrogen atoms that it contains also make it a raw material for the petrochemical, refining, steel or industrial gas industries. The significant fall in its price makes Source : International Energy Agency, 2012 gas the fuel of choice for US power generation, rather than coal. Therefore, this falling coal consumption is enabling the United States to export its excess production to Europe, where coal has toppled gas, which is more expensive, as its price in Europe is tied to the oil price. The United States has become the second largest coal exporter in the world, while Europe has become the second largest contributor to coal demand growth after China. European imports have therefore increased since 2010, while the current low price of CO2 is not enough to deter them. What could the driver of the next energy revolution be, after the extraction of shale gas? Energy storage could be the next challenge in the disruption of the world energy game. The United States and Europe s climate policies: conflicting strategies The use of shale gas alone cannot support the decarbonisation of the United States. The impact of the shale gas revolution in the United States on climate is significant. Indeed, the competitiveness of shale gas compared to that of coal, and its much lower carbon emission factor enables it to play a key role in the decarbonisation of the economy. However, the use of shale gas alone will not enable the target of limiting global warming to a maximum of 2 C to be achieved. Furthermore, the role of shale gas in the decarbonisation of our societies raises environmental concerns, like the protection of water supply and distribution reservoirs, or the increased risk of an earthquake due to the use of hydraulic fracturing technologies. According to the International Energy Agency 3, greenhouse gas (GHG) emissions in the United States will return to their 2005 level in 2025, if we believe politicians statements. This forecast is different from the one made by the same agency six years ago. How can we explain this downward trend in greenhouse gas emissions in the United States? The first factor is a 25% downward revision in the GDP growth rate (1.6% in 2012 compared with 2.5% in 2006), resulting from the economic and financial crisis, as well as from the aging of the US workforce. The second factor is the 11% reduction in the CO2 intensity of GDP as a result of the strong increase in shale gas production, and its use in the 3 IEA, World Energy Outlook 2012, How will global energy markets evolve to 2035? 3

4 electricity mix as a substitute for coal. Despite the fall in GHG emissions in the United States, GHG emissions per capita are still twice as high as those recorded in Europe, and 10% higher than their levels in 1990, while European GHG emissions have been reduced by 10% over the same period. Reducing CO2 emissions over the long-term requires the implementation of a climate policy The major difference between the two continents is the fact that there is a climate policy in Europe, and none in the United States. Although US greenhouse gas emissions are currently falling, it is the consequence of substituting gas for coal, and not the result of political will. However, without a climate policy, no one can know what the various possible trends will be over the next six years. A climate policy is more than just an ambition: it requires the use of economic instruments and the definition of a legal framework, and cannot be assimilated with an energy policy. By implementing the EU ETS, the European Union has drawn up a climate policy for the period up until 2020, which requires an annual 1.74% reduction in the CO2 emissions of the sectors concerned until Since the failure of the draft Climate Change Bill (Liebermann Bill) in 2009 following its rejection by the Senate, the United States has adopted a regional or sector-based approach to climate policies. By mentioning the fight against climate change and his intention to act, regardless of what Congress decides, in the State of the Union Address, Barack Obama appeared to be confirming the outline of a potential climate policy. However, we need to put its impact into perspective. This is only a promise of executive action. A decree can take time to come into effect. It is a long process, both from an administrative and legal standpoint, which may exceed the length of President Obama s term in office and be called into question by his successor. Multi-national companies need an international climate agreement. The European Union has a policy that is united by the Climate & Energy package, which aims to achieve the 3 x 20% goal by 2020 (increasing renewable energy's share of the energy mix to 20%, reducing GHGs by 20% and increasing energy efficiency by 20%). In addition to this common climate policy for the 27 Member States, the European Union takes a strong position in international climate negotiations. Conversely, the United States has a regional or sector-based approach to climate policies, like the development of emission allowance trading schemes in California or in the North-East of the United States, via the Regional Greenhouse Gas Initiative (RGGI), and displays a lack of commitment in international negotiations. To provide an acceptable energy price, which includes the goal of combating climate change, it is necessary to reach an international agreement to combat climate change that would involve the countries with the highest GHG emissions, like China and the United States. Meanwhile, the European Union s climate initiative will remain useless if there are no equivalent measures in the rest of the world, due to the simple fact that the emission of any tonne of CO2 increases the level of concentration of GHGs in the atmosphere regardless of the place where the CO2 is emitted, and to the fact that the EU s share of GHG emissions accounts for only 20% of global emissions. The United States energy & climate policy is affecting European competitiveness The changing rules in the global energy game, driven by the extraction of shale gas in the United States, are having a fundamental impact on the competitiveness of European businesses. Large manufacturing companies that consume significant amounts of gas benefit from a competitive advantage in the United States, due to the fact that US prices are five times lower than in Europe. Conversely, their European counterparts, like the steel, petro-chemicals, aluminium, cement, and chemicals industries, are affected by relatively uncompetitive gas supplies. This negative impact is resulting in a net loss of competitiveness, which is exacerbated by Europe s energy dependence, and dependence on price changes. And what can we say about exports of US petroleum products, which are further depressing the refining margins of European operators? Indeed, US refineries, which are 4

5 processing the new volumes of US shale oil, are running at full capacity and are therefore depriving their European counterparts of the export income represented by the US driving season, when large quantities of petrol are consumed, and are further depressing the European refining industry as a whole. The competitiveness of European businesses must be supported by foreseeable, forward-thinking European legislation, which promotes low greenhouse gas emission investments over this decade. The 20% in 2020 goal will undoubtedly be achieved, but due solely to the economic downturn. However, the economic slowdown has also resulted in a carbon price that is at a record low without any prospect of a medium-term recovery on the European Union Emission Trading Scheme (EU ETS), the main European climate policy tool. The effectiveness of the climate policy is currently under threat, along with businesses competitiveness. Within the context of the EU ETS, uncertainties regarding the revised list of sectors exposed to international competition, and the percentage of free allocations that will be granted to them represents another obstacle to investment by European industrial companies. Jean-Michel, Executive Director of the HEC Energy and Finance Chair Contact: gauthierjm@hec.fr Disclaimer: The Energy & Finance Chair, which was created at HEC by Deloitte in 2005, is now jointly sponsored by Deloitte and Société Générale Investment and Corporate Banking, who are both benchmark-setting companies in an area of strategic expertise at the heart of the world of tomorrow s challenges, which are not only economic and financial, but also geopolitical and environmental. The Energy & Finance Chair, which is the product of an alliance between one of the world's leading business schools, a world-ranking full service bank and a leader in the audit and consultancy field, aims to develop unique expertise on economic and financial issues relating to energy and carbon. With over 300 students from all over the world, five teaching models, including an English language degree, and around 20 professional or master theses defended every year, the Energy & Finance Chair currently represents a benchmark that is internationally recognised in its field, at the crossroads between energy and carbon, and finance and economics. The HEC Energy & Finance Chair, its sponsors, Deloitte and Société Générale Investment and Corporate Banking, and all of the speakers institutions and firms accept no liability for this document. 5