Energy costs require rethink for EU heavy industry: IEA


Europe faces higher fuel costs than the United States and China for the foreseeable future and therefore needs to reconsider its reliance on energy-intensive industry, the chief economist of the International Energy Agency said.

Debate over competitiveness is intense in Europe as shale gas in the United States has drastically cut costs and led some heavy industry to relocate there. A summit of EU leaders next week is set to discuss ways to limit the impact of energy costs.

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"We can narrow down the cost gap between Europe vis-a-vis the United States and China, but even then Europe is likely to retain higher energy costs for many years to come," the IEA's Fatih Birol said on the sidelines of a conference on Tuesday.

"Geology and geography dictate this. Maybe it's time to look at European long-term industry strategy."

While many in industry are pushing for help with energy costs and for the development of shale gas in Europe, analysts and the executive European Commission say the circumstances are very different from those in the United States.

Under EU law, the Commission cannot dictate the energy mix of individual EU member states, but is working on a framework for shale gas exploration and regulates on environmental standards.

Shale gas has lowered carbon emissions in the United States because it has become so cheap it has displaced carbon-intensive coal, which has instead been burnt in Europe, where it is cheaper than European natural gas.

Birol said shale gas alone could not limit global warming to the two degree Celsius target, which scientists say is necessary to stave off the most damaging consequences of climate change.

"The gas winning over coal fight is not yet a clear story," Birol said, referring to ongoing debate about environmental implications of shale gas extraction in the United States as well as in Europe.

"Gas alone can't bring us to a two degree climate goal. We will still need energy efficiency. We will still need renewables. We will still need nuclear, in my view, and other advanced technologies."

(Reporting by Barbara Lewis; Editing by Helen Massy-Beresford)