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INTERVIEW WITH CLAUS BECKMANN, HEAD OF ENERGY AND CLIMATE POLICY, BASF : "WE STRONGLY OPPOSE CAPACITY MARKETS IN THE EU".

Claus Beckmann is head of energy and climate policy at the German chemicals giant BASF SE. He advises against capacity mechanisms that are being introduced across the EU, fearing higher power prices for the industry. He is worried that ambitious climate targets would "overwhelm" BASF, which he claims is already highly energy efficient.

The German government has introduced cuts to its green energy scheme, the EEG, partly giving in to pressure from the European Commission. BASF has frequently called for reductions in subsidies to green energy. Are you content now?

Overall, the long-term transition to low-carbon energy supply is a step in the right direction. But we think that it is paramount for Germany to limit the costs. It makes sense, for example, to introduce clear corridors for renewable energy. However, subsidies for expensive offshore wind power installations could have been curbed further. Market instruments should have been introduced more quickly.

How is BASF affected?

In Germany, we produce most of the electricity for our plants on site in our own power stations. Under the government's proposal, these plants should contribute to EEG payments. At our main site in Ludwigshafen alone, this would mean a yearly payment of around 60 million, based on the current proposal. We think it is unacceptable that green energy investments of the past are protected, whereas the value of our assets is expropriated. We have invested strongly in environmentally friendly power generation technology and the energy efficiency of our combined power and heat plants is as high as 90%.

France and Belgium have decided to introduce a capacity mechanism, subsidising power plants that are not profitable but important as a backup for intermittent green energy production. In Germany, fossil power plant operators are lobbying strongly to also secure support for their ailing plants. The European Commission is sceptical. Is a capacity scheme important for security of supply?

We strongly oppose capacity markets at this stage. It would be very costly and would create long-term obligations for all power consumers. Currently, Europe enjoys capacity oversupply, built during the time of state monopolies. In some cases, such as in Southern Germany, where most nuclear power plants that will be shut down in the coming years are located, we see regional capacity problems. Hence, the best solution is to extend grids nationally and concurrently to build interconnectors between countries. This would be sufficient for the foreseeable future.

BASF keeps warning that Germany should not embark on a solo trip with the energy transition (Energiewende) and that a European approach would be more efficient. But when the prices in the EU's Emissions Trading System (ETS) fell so low that investment incentives vanished, you lobbied against reviving the system by temporarily withdrawing emission certificates, called backloading. The scheme has now found enough support and will be implemented in March. How do you explain your contradictory stance on the issue?

It is not contradictory at all. We fully support the ETS per se, because it is indeed the most efficient system to allocate the burdens of making the EU greener and more climate-friendly. But once such a system has been set up, you should accept the price it produces. We categorically oppose political fiddling while the system is running. Meddling with the ETS has damaged the confidence of businesses that they can rely on political decisions.

The EU's climate goals for the period from 2020 to 2030 will be decisive for the future of the ETS and carbon prices. Do you support the German government and the Commission, which aim for a 40% reduction of emissions by 2030?

We think it is very problematic that the Commission wants to achieve the goal mainly by cutting emissions in sectors that are part of the ETS, which only cover 45% of the EU's overall emissions. What is more, the policy is overambitious. The 2020 target is a 20% reduction compared to 1990. To repeat this reduction in the ten years that follow at triple the speed would be overwhelming. In Ludwigshafen, we have already achieved a very high level of energy efficiency due to investments over the past years. Hence, the 40% target would just raise prices for us with no chance to make up for that with higher efficiency. This would seriously undermine our competitive advantage compared to the rest of the world.

Are you planning to shift investments from the EU to other markets?

Clearly, energy and carbon prices influence our investment decisions. They have to, if we are to succeed when faced with strong global competition. The very low gas prices in the US are already making the country very attractive - for us and for our customers. For example, we recently converted one of our US plants from liquid fuels to use more gas and are investing in two new plants. In the future, more investment decisions might be in favour of countries outside the EU if high carbon prices further distort competition.
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Publication:Europe Environment
Date:Mar 21, 2014
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