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European Commission

MEMO

Brussels, 22 January 2014

Commission publishes report on "Energy Economic Development in Europe"

Energy is an important issue in the macroeconomic surveillance of Member States. It affects the macroeconomic performance through several channels, the main one being the link to competitiveness, since energy costs affect the production costs of industries and services, as well as the purchasing power of households and the overall external balance. The report "Energy Economic Development in Europe" provides analysis and evidence for the economic impact of energy cost developments, including the energy and climate policy, in EU Member States, over the past few years.

In a global context, the EU manufacturing sector exhibits low energy costs relative to both output and value added, and has so far managed to respond to energy price increases through sustained energy intensity improvements. However, high energy prices in Europe remain a concern, in particular in view of the increasing EU-US energy price gap due to the development of shale gas and oil production in the US.

While fossil fuels remain key drivers of electricity and natural gas price formation, market opening and competition appear to have downward price effects. In addition, high import dependency and low diversification of imports in natural gas markets can contribute to increasing prices. In the electricity market, support to less mature renewables technologies has translated into higher electricity prices.

By contrast, the carbon price has been too low to influence electricity prices. The recent economic crisis has contributed to lowering the demand of allowances resulting in a market imbalance on the ETS market, and hence a decrease in the carbon price. Other factors, such as fuel switching and renewable penetration, have contributed to a lesser extent to lowering the carbon price.

The EU's energy and climate policies are expected to stimulate EU competitiveness and bring other economic benefits, in particular through developing low-carbon technologies. While the EU displays strong comparative advantages in the wind industry, it has not managed to develop such a position in the solar industry. When analysing the drivers of trade of wind and solar equipment, one interesting result is the role of innovation in driving trade flows.

Another expected benefit of developing renewable energy is the impact on the energy trade bill and its contribution to reducing our energy dependence. Until now, renewable energy has helped to reduce import fuel costs and contributed to improving the energy trade balance, but only to a limited extent.

For more information:

http://ec.europa.eu/economy_finance/publications/european_economy/2014/energy-economic-developments-in-europe_en.htm


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