PM Stubb in London: Smart Climate and Energy policy

Mr Chairman,
Ladies and Gentlemen,

It is a pleasure to be speaking at an event organised by the Centre for European Reform. I have always considered the CER to be a key think tank concentrating on EU affairs and reforming the Union. And I consider Director Charles Grant not only a colleague, but also a friend.

When speaking in London nowadays, a Finnish Prime Minister can choose from a multitude of topics: The financial, debt and growth crisis of the past few years, the Ukraine crisis and Russia or the UK's relations with the continent, to name a few. In all of these areas, we politicians certainly have our work cut out for us. A great deal of negotiating, fixing and solving needs to be done in the coming months and years.

However, climate change is perhaps the most pressing topic for any politician, company or think tank. Climate change affects us all, even if it only makes onto the front pages every now and again. It will affect our way of life, our security and our very futures. And our children's futures. It is one of the biggest security challenges for mankind. Indeed, other potential topics seem almost mundane in comparison.

In my speech today, "A smart climate and energy policy”, I will consider three aspects. 1. the EU’s forthcoming climate and energy package for 2030. 2. the European debate on energy security and 3. the business opportunities that we in Finland believe are emerging.

I am grateful to Shell for hosting us. Shell happens to have a Finnish chairman of the board, Jorma Ollila. Shell’s involvement in LNG, biofuels, carbon capture and storage and energy efficiency is a case in point: if we are to meet the challenge posed by climate change, we all need to play our part. States, companies and individuals alike. Big Oil and Small Solar alike.

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Global warming is accelerating, and the time available for its mitigation is running short. The latest report by the Intergovernmental Panel on Climate Change demonstrates the inadequacy of the actions we have taken so far. In Europe, emissions have fallen during the economic crisis, but demand for renewable sources faces difficulties, and state subsidies are distorting the internal energy market.

It is essential that we reach a global, binding climate agreement on climate change. Every effort should be made to achieve a deal in Paris next year. In one way or another, carbon needs to carry a price tag. Although Europe now accounts for only around 10 % of global emissions, much still depends on our leadership.

The European Union is set to decide on its 2030 climate and energy policy framework at the next meeting of the European Council, to be held in two weeks' time. This will represent Europe's contribution to the global negotiations on the issue. We need to find a model that is both ambitious and cost-effective. It should contribute to restoring Europe’s competitiveness and foster economic growth.

I welcome and fully support the Commission's proposal to cut our emissions by 40 % compared to the year 1990. We must also increase the share of energy based on renewable sources and improve our energy efficiency.

However, only the first target should be legally binding on Member States. Since our goal is to decrease emissions, we need to leave room for both the market - via emissions trading - and Member States to find the most effective ways of achieving this decrease.

The EU's Emissions Trading System has had mixed success. Emission allowances are priced around 5.70 Euros per tonne, which is still lower than anticipated. This is at least partly due to overlapping targets and lavish state subsidies for renewable energy.

Structural changes to the ETS will make it stronger, directing investment towards the most optimal and cost-efficient low carbon solutions. The Market Stability reserve proposed by the Commission is also necessary in order to balance the demand and supply of emission allowances during economic downturns and upturns.

Sectors outside the ETS, such as transport and housing, will play an increasing role in achieving the 2030 targets. We should develop a strategy for the decarbonisation of transport, in which I believe that 2nd and 3rd generation renewable fuels will play a key role.

Also in the non-ETS sector, we need to find the smartest, technologically neutral and most cost-efficient ways of reducing emissions. In practice, this means setting national targets in accordance with the estimated costs of emissions reductions. Those Member States who have already done a lot to reduce emissions will find it more expensive to improve still than others.

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As we try to reduce our emissions, energy security is becoming a more and more topical issue. Dependence on a single external supplier - namely Russia - is raising concern in many European capitals.

Russia has maintained its position as Europe's main supplier of crude oil and natural gas and emerged as our leading supplier of solid fuels also. Kreml has made a strategic choice of basing both Russia's economy and foreign policy on this strength. But the depence goes both ways. Whereas we in Europe import around 30 % of our energy from Russia, for Russia the exports to Europe account for even 80 % of the total energy exports - and provide for around 50 % of the Federation's budget.

In the European debate, driving an ambitious climate and energy policy and improving energy security are sometimes presented as mutually exclusive choices. This is a false dichotomy, for the same practical measures can bring us closer to achieving both policy goals.

The best way to reduce dependence on fossil fuels from a third country would be first, to increase the diversity of our national energy mixes; second, to improve energy efficiency and third, to put the finishing touches to the Internal Energy Market.

Diversity is cost-efficient. Diverse energy mixes are more secure and competitive. We should not rule out any carbon-free options when developing our national energy mixes. Both nuclear power and domestic renewable energy sources - mainly biomass - are crucial as we aim to reduce both our emissions and our dependence on imported oil and coal. Gas, imported from Russia, equals around 10 % of our total energy consumption. And we are building several LNG terminals to diversify also our gas supply.

Energy efficiency will need to be improved at all stages of the energy chain: during generation, transformation, distribution and final consumption. Since EU Member States have very different starting levels in terms of energy efficiency, the EU level goal should not be binding on the country level.

Within Europe, discussion of energy self-sufficiency is coming more popular. While this is understandable, we should avoid getting carried away. For many Member States, national self-sufficiency in energy is not an economically relevant option. On the other hand, a functioning Internal Energy Market would benefit all of us and lead to lower energy prices in the long run. Although the internal market is making progress with respect to electricity, not all national electricity markets are yet working in line with EU laws. What is more, insufficient progress has been made with respect to gas.

An Internal Energy Market needs infrastructure in addition to legislation. Interconnectors are required in many corners of Europe, including Finland. Here, some public funding will obviously be needed.

Internal Energy Market is the most important element of the Energy Union mentioned in the next European Commission's priorities. This is a project that deserves all our support.

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And finally,

We can maintain our prosperity at the same time as we control climate change. Environmental challenges and resource scarcity need not be only an extra cost for our industry. They can also be drivers for innovation. There are lucrative business opportunities opening if we set our policies right.

Europe has lost substantial manufacturing capacity to emerging economies. Most of this work is not about to return. We need something new instead. We should aim to perform the most value-adding tasks in global value chains and networks. Many such tasks are related to the innovations that will reduce or eliminate pollution and to make efficient use of our resources. This is about Green Growth, Cleantech and Bioeconomy.

As many of you well know, Cleantech is not a small niche anymore. In 2012 the global Cleantech market was estimated at € 2 000 billion and has been growing annually around 11,7 % since 2007. In Finland, cleantech business currently employs around 50,000 people. 40,000 new jobs are expected to be created by 2020.

The impetus for Green Growth is partly market-led, and is partly being created by policy and regulatory changes. This is an area in which Europe still has a head start, because we have taken climate change seriously. But what are we going to do with our lead? Can we adjust our climate and energy policy to more cost-effective and flexible direction?

Creative destruction is never an easy process. It is hard for companies, for politicians and clearly for those whose jobs are disappearing or moving overseas. Some industries have simply been wiped out, without any creation. As we engage in an ambitious climate policy, we must do what we can to avoid carbon leakage – industry moving to third countries with laxer constraints on emissions. However, halting the continuous change of global economy is not an option. In the long run, the early movers will profit most.

To support Green Growth, politicians must ensure that we get the framework right for successful Cleantech innovations. We need to use the available EU policy tools and create a fully functioning Single Market for products and services related to issues such as energy technology, energy efficiency, renewable energy, 2nd and 3rd generation biofuels, CCS and smart transportation. It will benefit us little if only one or two European countries get it right - national markets are often simply too small.

We also need to look beyond the EU. Not only to the other advanced economies but also towards the developing countries which need more and more low-energy and resource-saving solutions. Cost-efficient European policies will lead to globally competitive solutions. We need market access for these solutions. Therefore the next European Commission should play an active role in liberalising global trade in Cleantech products.

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Dear friends,

European integration began with the Coal and Steel Community and Euratom. Energy has been at the core of the European project from the outset.

But while we have focused on other issues – the internal market, foreign and security policy, the Euro - we have not made as much progress on energy as we might. These past failings are now returning to haunt us.

Climate change, Russia's new foreign policy doctrine and Europe's need for industrial resurgence all mean that we need to make climate and energy policy one of our priorities over the coming years. We need to realise an Energy Union.

I hope that, today, I have given you fuel for thought on three aspects of this work.

First, our climate and energy policy framework needs to focus on reducing emissions and be both ambitious and cost-effective.

Second, our energy security should not only be viewed nationally, but also at European level. Diversity, energy efficiency and Internal Energy Market are key issues in this respect.

And third, we have major opportunities for Green Growth if we set the policy framework correctly at European and global level. We can both reduce emissions and thrive economically.

For those of you who know me it may not come as big surprise when I summarise all of this by saying that, in the area of energy policy too:

We need both more Europe and more market and less nationalism and less political micromanagement.

Thank you for your attention.