TTIP Impacts on European Energy Markets and Manufacturing Industries Presentation for EP/ITRE Committee 21st January 2015 Koen Rademaekers Stephan Slingerland Triple E Consulting – January 2014

This Presentation EU – US Trade Relations and TTIP Potential impacts on the energy sector Potential impacts on the manufacturing sector Conclusions and recommendations

EU – US Trade Relations

EU – US Trade A positive trade balance for the EU Direction of trade (bln €) Goods (2013) Services (2012) Investment (2012) EU to US 282 163 1,655 US to EU 196 149 1,536 Trade balance EU + 92 + 14 + €119 Evt. nog toevoegen met specificatie naar sector, goederen en diensten? Source: Eurostat A positive trade balance for the EU

TTIP Negotiation Process Ongoing since 2013 Seven rounds so far 23 topics Negotiation areas Market access Services and investment Regulatory issues Sectoral annexes

Potential Impacts on the Energy Sector

EU – US Energy Commodities Trade EU-27 - US trade by SITC (2013) per ton (Source: Eurostat) Commodity EU Imports EU Exports Coal 103,285,142 8 Briquettes, Lignite and Peat 1,231 24,314 Coke and Semi coke 199,066 6,874 Petroleum oil and oils obtained from bituminous minerals, other than crude (refined) 17,905,931 22,054,330 Petroleum oil and oils obtained from bituminous minerals, crude (cf. ban on US crude oil exports) 4,843 3,173,598 Waste oils 16,145 4 Residual petroleum products 5,954,695 466,022 Liquified propane and butane 1,484,660 1,819 Natural Gas, whether or not liquefied 497,697 33 Petroleum gases and other gaseous hydrocarbons 4,917 32,552 It is clear where the trade is: coal, (and to a lesser extent) petroleum oil, petroleum products and LNG Only in the case of petroleum oil, the US imports more. Standard International Trade Classification (SITC) is a classification of goods used to classify the exports and imports of a country to enable comparing different countries and years. The classification system is maintained by the US It is clear where the trade is...

Tariff and Non-Tariff Barriers for Energy Source: WTO Tariff data Fuel type Non-tariff measure EU tariff (0%) US tariff (%) Oil (US) Export ban - License Required > 0.2% Natural gas Refined fuels (gasoline, diesel) (EU) Fuel quality directive (FQD) > 0.4 Coal (EU/US) Climate policy Solar cells (tech) (EU/US) Local content requirement Wind energy (tech) 2.7 1.25 Tariffs are low, but significant non-tariff barriers exist Non-tariff-measures (NTMs): technical barriers to trade (different regulations (for ex climate policy), certification and standards), customs procedures or labelling requirements (for ex. Ecodesign). Tariffs are low, but significant non-tariff barriers exist

Impact on Energy Trade Limited TTIP impacts on energy trade expected Coal is already without tariffs Export bans to be affected by TTIP? Other barriers (climate policies, FQD) not directly affected LNG trade to increase, but more interesting markets in Asia Limited TTIP impacts on energy trade expected

Impact on Energy Security ... If export bans are removed... ... If LNG trade to Europe will become attractive... ... If a crisis mechanism is agreed on (separately)... Then TTIP could have a positive impact on energy security in the EU

Impact on Renewables Through the removal of local content requirements (LCR) .... trade in renewable energy technologies is likely to increase We expect possibilities for harmonisation without lowering env. standards (for ex Ecodesign)

Potential Impacts on the Manufacturing Sector

Tariff Measures Trade weighted average tariff rates (%) (2007) Source: CEPR. 2013 Tariff barriers are generally low, with some exceptions

Non-Tariff Measures Ad valorem equivalents of NTM in the U.S. and EU (%) (2007) Its ad valorem non tariff measures, meaning the fictive additional costs for example regulatory differences. The value is in percent.  80% REF CEPR Source: CEPR, 2013 Almost 80% of the benefits of the TTIP are expected to come from the removal of NTMs

Overall impacts Depend on scenario All scenarios show (limited) positive impacts on GDP TTIP might lead to positive spill-overs in increased trade with third countries and adoption of standards Small changes in emissions only The CEPR report has made two projections for the manufacturing industry: 1. An ambitious comprehensive trade liberalisation scenario with the removal of 25% of NTM costs and 100% of the tariffs. 2. A less ambitious scenario including 10% NTM removal and 98% tariff reduction. GDP changes EU 68 -119 bln euros, US 50 – 95 billion euros in 2027 (current EU GDP, 2013: 14.000 billion euro: TTIP provokes 0,5 to 0,85% change) Emissions figure result of increases and decreases: increase in EU, US, China, decreases in India, ASEAN, Mercosur

Impacts on specific sectors Changes in EU output by 2027 (%) Source: CEPR 2013 EU Metals and Electrical machinery are likely to decrease outputs

TTIP benefits will not be equal for all Member States Changes in Real Per Capita Income of Selected Countries (%) Source: Felbermayr et al. 2014 Core EU countries do not profit more than perifery

Labour market impacts Depend on specific provisions or on additional agreements Competitiveness: Lower US labour and energy costs stand against skills, energy efficiency, innovation Relatively low movement of workers across sectors due to TTIP Overall labour market impacts expected to be low These dissimilarities affect the US by providing them with cheaper labour costs, but it is not likely that the EU will need to lower its standards because of the TTIP. There are precedencents from other FTAs, such as the 1994 North American Free Trade Agreement (NAFTA) that justify this conclusion. The NAFTA deal did not in itself include any provisions on labour rights . Instead, another contract was signed - the North American Agreement on Labour Cooperation (NAALC), which included 11 working right principles, such as minimum wages, child labour, and occupational safety and health. However, this agreement was implemented at the national level , meaning that even if the US has lower protection in terms of working rights, there is no need to believe that the EU would need to adopt any legislation.

Impacts on Innovation In particular companies with high R&D costs can profit from access to larger markets Intellectual Property Rights and in particular Geographical Indicators could be at risk Contribution of TTIP to longer-term re-industrialisation and greening of industry is unclear There are likely to be some benefits for innovation, but relation of TTIP to EU long-term policy goals is unclear

Policy Recommendations

Main Conclusions Energy Security of supply, trade and energy prices might be less affected than claimed Renewables might benefit from TTIP via removal of Local Content Requirements Manufacturing industry A small positive impact for most EU manufacturing industries is expected, with large uncertainties Innovation might be stimulated Labour market effects likely to be limited

Recommendations Monitor Monitor closely if benefits of TTIP outweigh drawbacks of watering down on EU legislation (e.g. REACH, FQD) Follow-up on the implications of ISDS in relation to TTIP Discuss Further discuss the relationship between TTIP and longer-term EU objectives regarding greening of industry Analyse Re-estimate TTIP projections once draft texts have become public

Thank you for your attention Triple E Consulting – January 2013

ISDS Mechanism Investor-state dispute settlement (ISDS) mechanism in the TTIP is currently under debate – however very controversial ISDS was introduced in the Treaty of Lisbon and currently used under the provisions of the Energy Charter Treaty (ECT) (with 80% of the EU cases) If included in TTIP, environmental policies might be disputed by international energy companies where they have made investments The Investor State Dispute Settlement (ISDS) is a controversial procedure that allows foreign investors to take foreign governments to a special arbitration court if they feel this government has acted to undermine their investments in the particular country.