How can Europe lead on the necessary transition to a carbon-constrained economic future when the policy measures needed might undermine the competitiveness of European industries? This was the subject of a major conference “Towards a global low carbon economy” organised as the closing event of the EU Commission’s high-level group on competitiveness, energy and the environment on 27 November.

What I learned from the conference is that the spectre of the emerging economic tigers (China in particular) is indeed looming over the European industry and that its leaders are seriously confused and internally divided as to how to respond to the new global challenges. That being said, the debate itself also showed a sophistication in the arguments which was not there when climate/energy issues started a few years ago to overshadow the famous Lisbon agenda (“to make the EU the most competitive economy by 2010″).

Commission Vice-President Verheugen kicked off the conference by underlining some of the key messages of the high-level group’s final reports: there is no solution without the industry as 80% of the investments needed for a low-carbon economy will have to come from business; the solutions need to be cost-effective and we should not undermine the competitive position of our industry and especially of our energy-intensive industries.

In the debate, competition commissioner Kroes claimed that there is no contradiction between energy liberalisation and the fight against climate change. “You just need to get the price right” was Mrs Kroes obvious but also a bit dogmatic recommendation.

Business Europe leader Antoine de Sellière observed that the industry had gone through a change of mindset. “It now understands the urgency of the threat”, he said, a claim that I fail to understand when I see his organisation clinging on to the illusionary “energy efficiency” credo, doing the lobbying of the (French) nuclear sector for a nuclear renaissance (and yes, I think nuclear will have to be part of the global solution) and trying to undermine the credibility of the renewables solution (and also here I share their concerns but less so because of ideological reasons).

Dow Chemical’s Theo Walthie underlined the efforts of his sector to reduce the energy intensity of its production and even went a step further stating that more growth of the sector would be good for climate change: “the more we produce, the more society will reduce its environmental footprint”. Although I believe the chemical industry will play a big role in the ecological economy of the future, this kind of loose generalities will not give it the credibility it seeks.

Environmental NGO leader Mikael Karlsson on the other hand sang the “polluter has to pay” song, and recommended to phase out fossil fuel subsidies. He also had a message for the entrepreneurs in the room: “the business idea of the 21st century is solar”, something which people like Hazel Henderson (“The politics of the solar age“) already understood back in 1981. But then again, big interests sometimes prevent the obvious and then call this the “invisible hand of the market”.

An interesting difference of opinion came to light between industry leaders on the future of the European emissions trading scheme (ETS). Several business delegates recognised the need for mandatory auctioning whereas others still wanted to protect their industries and their windfall profits. It is generally believed that the Commission will put auctioning forward in its upcoming revision of the system.

One important element which turned up regularly in the debate was the need for global sectoral agreements (agreements across industry sectors with benchmarking and standards of how to reduce emissions), but little details were given on how to implement this. For a good introduction to this global sectoral agreements solution, read the Pew Center’s excellent introduction.

In the second session Lakshmi Mittal of Arcelor-Mittal impressed with a strong defense of the steel sector and a warning to match carbon-restraint policies with trade policies in order to prevent delocalisation of heavy energy-intensive industries to China and India. Energy commissioner Piebalgs mentioned ETS, energy efficiency and additional regulation as the three keys to the low carbon economy.

For Vattenfall’s CEO Lars Josefsson, new coal power plants with CCS (and therefore heavy subsidies for carbon capture and storage) are an absolute necessity. I myself have my doubts about investing a lot of taxpayer’s money as long as there is not more transparency on the coal reserves (see my earlier post on this in May “Hopes for green coal futures in ashes?“).

Green MEP Claude Turmes hammered on the need for resource efficiency and said he had great expectations for the G8+5 meeting next year under Japanese leadership. Turmes also rightly stated that Europe “does not really have a problem of technology innovation but of organisational innovation” and put his hope in the lead market initiative the Commission is to present in 2008.

All in all, the conference demonstrated that the debate on climate/energy security has come a long way and the Commission’s high-level group certainly can take some credit for it. However, the ideological chains of an old-fashioned competitiveness understanding are still weighing heavily on some business sectors and their political champions. If the climate/energy crisis shows one thing, it is that our global economy is bound to a broader ecological system which provides it with the necessary natural capital (energy and material resources and “free ecological services). On such  a “Spaceship Earth economy” the breakdown of these ecological services can only by solved by global cooperation and not by nation-centered competitiveness. An excellent study (“Changing climates“) on how the interdependencies on energy and climate security underpin the need for more international cooperation was last week presented by the UK’s Chatham House.

This does not mean that we do not have to protect our industries and more importantly our jobs. But on how to do this, we should be thinking a bit more out of the box instead of reverting to 20th century neo-liberal “market-only” remedies which have no more policy relevance in our endangered globalised society.