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The Warsaw Voice » Business » August 29, 2014
Central Europe Energy Partners
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Energy-Intensive Industry Under Threat
August 29, 2014   
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by Herbert Wirth

Key issues in the European Union’s energy policy are among the most important problems that must be dealt with by Europe today. Increasing dependence on imports, rising prices, and the need to protect the environment determine the steps taken by the European Union. Current European policy aims at a reduction of CO2 emissions, while increasing the share of renewable energy in total energy consumption. Such a policy can be a threat to energy-intensive industries in the European Union.

As a producer and leader on the raw materials market, KGHM belongs to this group of energy-intensive companies. Each year, KGHM consumes over 2.5 TWh of electricity. After the launch of new shafts and carrying out a pyrometallurgy modernization program, energy consumption will increase to approximately 2.8 TWh per year.

KGHM annually consumes about 150 million cubic meters of gas (from this year, the figure will be 300 million cubic meters), along with a significant amount of heat and fuel. The increase in the prices of energy carriers caused by the EU’s strict climate policy may affect the competitiveness of KGHM as a producer of silver and copper. In a negative scenario, that policy may hit the company financially. Therefore, from the standpoint of both KGHM and energy-intensive industries in general, it seems necessary to take appropriate action that can protect energy-intensive industries in order to avoid reducing their competitiveness and, in extreme cases, to their collapse.

First, it seems necessary to introduce the definition of “energy-intensive companies” or “energy-intensive industries” in the legislation of the EU’s member states. Specifying such entities is required to support the use of an exemption from any and all taxes (for example, excise duty). The definition contained in Art. 17 Directive 2003/96/EC seems to be a good first step, as it should be the basis for creating support systems for energy-intensive industries.

The next step should be to enable member states to create support systems for the above-mentioned energy-intensive companies or industries. At present, attempts to create such support systems are effectively blocked by the European Commission, and are often and deliberately treated as forbidden state aid. Compensating energy-intensive businesses for costs directly and indirectly related to the purchase of CO2 emission rights is another way to reduce the risk of decreasing competitiveness in energy-intensive industries.

Similarly, any action taken by energy-intensive companies associated with the development of green energy (wind, biomass, photovoltaic systems), and associated with increased energy efficiency, should also result in a reduction of direct and indirect costs of purchases of CO2 emission rights.

Promoting the development of their own sources of power generation by energy-intensive industries should also be an important activity. The incentive for such action could be a reimbursement system, for supporting the power solution as well as a cost reduction.

Adopting the above-mentioned steps would reduce the adverse aspects of EU energy policy for the energy-intensive sector and could boost the dynamic growth of such companies.

Herbert Wirth is president and CEO of Polish copper and silver giant KGHM, one of the biggest companies listed on the Warsaw Stock Exchange.
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