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Pioneers and Profit in Energy and Research Policy

Submitted by on 09 Mar 2012 – 11:11

By Jens Rohde MEP, Vice-Chair, Industry, Research and Energy Committee, European Parliament

It is no secret that the Danish presidency is taking place at a ‘make it or break it’ time for the European Union. The financial and economic crisis still tops the agenda but increasingly so the word ‘growth’ immediately follows on: We need to generate new economic growth to emerge from the crisis. On the face of it that seems obvious. However, scratch the surface and you will find that it is far from obvious. For some ‘growth’ is simply another way of saying that we have had enough austerity and it is time for more fiscal stimulus.

Simply put this is not the road to take. First of all, none of Europe’s governments have the money to spare. Secondly, fiscal stimulus will not change the underlying reasons for our economies’ weak competitiveness. We need reforms: Reforms that will enable us to use the market forces to our advantage. This demands more market, not less market: A market that fosters pioneers because pioneers are what drive innovation and thus the market and the economy forward.

Pioneers are motivated by the significant benefits that arise from being a market leader: gaining market shares ahead of their competitors, positive spin-off effects from their brand and the development of an organisational culture that constantly leads to further innovation. This is nothing new but common business sense.

What is new on the other hand is the EU trying to apply this logic to its own growth policies. In some areas we are certainly moving in the right direction. In others much is still left to be desired.

We are getting there in research policy with the proposed Horizon2020 programme which aims to bridge the gap between our excellent researchers and the market enabling an increased commercialisation of our research results. Of course there will still be room for frontier research that does not necessarily have a set purpose but yet has the potential for ground-breaking economic development. Horizon2020 is based on trust in both researchers and businesses confining the politicians’ task to defining to overarching challenges that research and innovation should address but leaving it to the scientists and pioneers to develop the solutions.

When it on the other hand comes to energy policy we are far from a market-led approach. The key market-based instrument in the EU’s energy policy, the ETS, is failing to provide the intended impetus for green investments as the system is flooded with quotas. In other areas such as energy efficiency the Member States have been hesitant to commit to an ambitious and binding target and as a result we could be jeopardising the potential benefits from increased energy efficiency. As long as we do not strangle the market in regulation but ensure favourable framework conditions the market has proven time and time again that it is capable of not only reaching but overreaching the politically set goals.

One of the best examples that ambitious political targets mixed with trust in the market leads to the best results both in terms of achieving your energy policy goals as well as gaining the competitive advantage is the Japanese ‘Top Runner’ programme from 1998. The programme is designed in a manner that ensures the most efficient product within a product group becomes the standard. The original target for PCs was an 86 percent reduction of electricity consumption from 1998 levels by 2005. That target was already reached in 2001 and by 2005 PCs electricity consumption had been reduced by nearly 99 percent.

What is more is that energy and climate policy is no longer only a matter for highly developed countries. The emerging economies have significantly increased their efforts in developing new energy sources. Though China remains one of the most ardent opponents to a legally binding international agreement on climate change the country has taken huge strides towards a cleaner energy mix. Not because China suddenly turned into a climate change activist but because it makes economic sense. From not having one single wind turbine producer China now hosts 3 of the world’s largest producers and China aims to produce 100 gigawatt wind energy and 1,8gigawatt of solar energy by 2020. Although it of course remains to be seen whether China will reach their goals it is however already clear that they have made significant economic gains as a result of their political energy goals.

The hopes for the Danish presidency are high as Denmark has done very well as the honest broker on previous occasions. This time the challenges are even greater and there is strong pressure to deviate from the path set forth of fiscal consolidation. This must not happen. The Union’s growth policy cannot be one of spending but must be one of reform and based on the market dynamics. Energy and research policy might be policy areas that traditionally have been state-controlled and highly regulated. However, if we are to reap the economic benefits from our investments into these policies they must be market-based and we must trust in the market pioneers to do the job for us.