The focus of energy subsidies is being questioned by European industrialists

Leading European industrialists have stated that Europe should shift its focus from subsidizing fossil fuel consumption to reducing demand and transitioning to renewable energy sources.

According to Philippe Delorme, the head of European operations at Schneider Electric, there is something wrong with where the money is being allocated. Delorme added that the focus should be on curing the disease rather than spending money on short-term painkillers.

Dimitri Papalexopoulos, the chair of Titan Cement and vice-chair of the European Round Table for Industry stated that although governments are trying to alleviate the pain of increasing energy prices, subsidies for fossil fuels are not sustainable. There is an urgent need to reduce reliance on carbon-heavy fuels and address energy use inefficiencies.

According to the International Energy Agency, global subsidies for fossil fuel consumption surpassed $1tn in the previous year, a record high. “Not enough attention is being paid to the five- to the eight-year horizon,” he stated. The focus should be on hastening the shift to renewable energy while ensuring that the majority of innovation’s value remains in Europe, he added.

Since September 2021, EU member states have allocated more than €657bn to protect consumers from rising energy expenses, according to economic think-tank Bruegel. However, as fossil fuels account for around 70% of Europe’s energy mix, it is likely that much of the spending will be directed towards supporting fossil fuel consumption, said Simone Tagliapietra, the Bruegel report’s author.

Tagliapietra stated that generalized energy subsidies are no longer sustainable and that governments should target only vulnerable consumers and incentivize them to adopt sustainable practices. This strategy will help Europe get out of the current situation in the long run.

Benoit d’Iribarne, the head of manufacturing at building materials company Saint-Gobain, agreed and suggested that reducing energy demand would be more beneficial for Europe and its industries than continuing to use generalized subsidies. He proposed that half or one-third of the current subsidy amount be allocated to accelerate the transition to sustainable practices.

The European Commission is preparing a package of measures in response to the US Inflation Reduction Act, which provides $369bn in clean energy incentives. European industry hopes that the plan will address challenges such as high energy costs, a fragmented energy market, and complex regulations.

While Europe was early in planning for the transition to renewable power, it has been slow to implement these plans, according to d’Iribarne. Jori Ringman, director-general at Cepi, a trade body for Europe’s paper and pulp industry, believes that improving energy efficiency is one of the most important steps in the transition, as clean energy will be a scarce commodity.

According to him, the paper industry does not seek energy subsidies. Instead, they aim to eliminate their reliance on natural gas. The industry sees potential opportunities, but it requires a more efficient regulatory and permitting process. For instance, installing solar panels on a factory roof should not require an extensive waiting period for a permit.

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