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Christopher Stakhovsky

Christopher Stakhovsky

Christopher Stakhovsky is an EU energy policy consultant based between Paris and Kiev with over 30 years experience working with EU institutions. 

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Despite Promises, EU Failing to Deliver on Economic Investment

Despite Promises, EU Failing to Deliver on Economic Investment

Politicians have always been known for making promises they failed to keep, especially during electoral campaigns. In the early years of the 20th century, the British Labour Party promised to cut military spending; upon taking power, they engaged in a Dreadnought arms race with Wilhelm II’s Imperial Germany that helped fan the flames of animosity that became World War I.

Australia’s Prime Minister Bob Hawke famously promised in 1987 that “by 1990 no Australian child will be living in poverty.” One year later, American presidential candidate George H.W. Bush famously asked the American electorate to read his lips as he pledged to allow “no new taxes.” A 1990 budget compromise he negotiated with the American Congress forced him to break that promise and, in so doing, scuttle his chances for a second term in office.

In the first-ever campaign for President of the European Commission, Jean-Claude Juncker promised, “My first priority will be to put policies that create growth and jobs at the centre of the policy agenda of the next Commission.” His promise sounds well and good, but what have he and the Commission done over the past year to make good on it? Related: Can Russia Withstand Saudi Onslaught In The European Oil Market?

The European Union’s economic lifeblood is small and medium-sized enterprises (SME). The EU divides small businesses into three categories – micro (less than ten employees and €2 million or less in turnover), small (less than fifty employees and €10 million or less in turnover), and medium (less than 250 employees and €250 million or less in turnover). Twenty-one million SMEs provide eighty-five percent of Europe’s jobs. As a group, SMEs account for one fifth of the world’s trade. Roughly nine out of every ten businesses in the EU is an SME.

The European Commission has expressed its commitment to SMEs on several occasions, and in several ways. Last month, the European Investment Fund (EIF), in conjunction with the European Fund for Strategic Investments (EFSI), signed twenty-eight investment agreements representing over €1 billion for equity financing for SMEs. Citing the less-than-welcoming economic environment of the EU as the reason for SMEs being driven off the continent, the agreements are expected to result in a total of over €12 billion of investment funds for SMEs in the EU market.

In addition, the EU has made great strides in encouraging the development of environmentally-friendly energy technology. This month, the EU also announced an additional investment in its Horizon 2020 economic initiative that increases the total available to “energy related activities” to €1 billion. This is just the latest in a tremendous amount of capital already available in the EU for energy-efficiency products. In 2012 the amount of funds available for the cause totaled $310 billion, prompting the Director of Investor Confidence Project Europe to declare that, “[f]ollowing the money of this scale will make energy efficiency the new black.” Related: IEA Sees No Oil Price Rebound For Years

However, the rising tide of economic support for SMEs and renewable energy hasn’t lifted all boats.

For instance, the emissions trading scheme (ETS) enacted by the EU, currently under revision for the post-2020 period, still needs a good deal of improvement. Energy-intensive manufacturers of chemicals and steel are forced to navigate the significantly different compensation schemes from state to state on account of higher electricity costs, caused by the price of CO2.

A good example of misguided funding priorities comes from the biomass sector. Recent reports showed that the generous EC subsidies for wood pellet burning – seen as carbon neutral – resulted in significantly higher emissions of CO2. Analysis from the Drax Power Station in the UK showed that its boilers emit 15 to 20 percent more carbon through wood burning than through coal, without even factoring in the decrease in carbon absorption capacity as a result of logging.

The power plant is one of many that have been retrofitted with the help of EU funds, after an investment drive worth €80 million was used up to finance biorefinery research with the stated goal of making sure that “every Member State will use a minimum of 10% renewable energy – especially biofuels” and create 200,000 local jobs. However, as scientists have pointed out for decades, burning wood is not carbon neutral – even if forests can be replanted, it takes half a century for trees to grow to their maximum carbon absorption potential. Related: Can Fuel Cells Help Clean Up China’s Air?

Another notorious example of the EU’s miscalculations are the antidumping duties affecting the raw material supply chain of SMEs. Take the aluminum foil sector. In 2009, acting on complaints from European manufacturers, the European Commission put in place antidumping duties that cut off European SMEs from aluminum foil imports from China, Brazil and Armenia. It did not matter that for EU SMEs, the cost of raw material amounted to 80 percent. And it did not matter that several EU SMEs would go out of business as a result.

Then there is the ongoing negotiations over the Transatlantic Trade and Investment Partnership (TTIP). To call the TTIP massively unpopular in Europe is a vast understatement. Earlier this month at least 150,000 people marched against TTIP in Berlin because, they argue, the proposed treaty is undemocratic and will lower important safety standards within the EU. In order to attempt to defuse the situation, European Trade Commissioner Cecilia Malmström introduced a new policy for transparency in TTIP negotiations as well as pledging to view negotiations through the lenses of sustainability and human rights. While this is a laudable statement, for TTIP to materialize it will be equally important to deliver on the promises of economic benefits to SMEs through actions and not just words.

So what can we say regarding Juncker’s promise to “create growth and jobs”? As far as SMEs are concerned, one year on, Juncker still has lots of homework to do to fulfill his political promises.

By Christopher Stakhovsky for Oilprice.com

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