OPINION OF THE COMMITTEE ON INTERNATIONAL TRADE

for the Committee on Economic and Monetary Affairs

on macro-economic impact of the increase in the price of energy

(2006/2247(INI))

Draftsperson: Godelieve Quisthoudt-Rowohl

SUGGESTIONS

The Committee on International Trade calls on the Committee on Economic and Monetary Affairs, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.   Recalls that competition on the worldwide market in oil and gas is increasing, especially through the growing demand from major emerging countries; calls on the Commission to give a high priority to the introduction of greater security of supply; stresses the mutually supportive roles that adequate market regulation and energy diplomacy should play in creating a stable framework for the supply of energy; insists on the importance of diversification of sources, suppliers and transit routes, as well as the enhancement of EU energy self-sufficiency;

2.   Welcomes the Commission's Energy Efficiency Action Plan, as a key contribution to saving energy and hence reducing energy dependency;

3.   Emphasises that higher energy prices will be a constant feature in the future as the world reaches the point of maximum oil production (peak oil), after which oil supplies will begin their inevitable long-term decline;

4.   Believes that the impact of peak oil will have major consequences for international trade flows, as it becomes increasingly less economic to rely on goods which require long distance transportation, particularly by air;

5.   Calls on the Commission to investigate measures to reduce the impact of peak oil on the citizens of the EU, including analysis of policy proposals such as an Oil Depletion Protocol, which would help ease the transition towards a non-fossil fuel future;

6.   Welcomes the Commission's intention to use bilateral and multilateral trade policy to promote the use of energy-efficient technologies to reduce the growth in worldwide energy demand and believes that a global system for trading CO2 emission permits would also contribute to this objective, as would measures to provide further incentives for efficient use of fuel by the airline industry;

7.   Draws attention to the fact that oil is important not only for transport but also for most manufacturing industry; therefore considers that, at each stage of the production chain, all possible steps should be taken to ensure the most efficient possible use of fossil fuels so as to minimise the environmental impact and reduce pressure on scarce resources;

8.   Calls on the EU Member States to formulate a joint energy strategy in order to assist the emergence of a stable and sound world energy market and offer the best prospect of putting an end to the alarming developments in relation to energy supply methods at world level;

9.   Stresses that, far from impeding economic development, the Kyoto Protocol anticipates the need for changes in investment strategies as an inevitable result of the increasing cost of fossil fuels; notes that, moreover, it provides an international framework within which the exchange of new production methods, new technologies and best practice, particularly in emerging and less-developed countries, should be encouraged;

10. Stresses that emerging and developing economies are particularly adversely affected by the oil price increase, due to the high energy intensity and low energy efficiency of their economies, and stresses the importance of the sustainable development agenda in the EU's foreign, trade and development policy;

11. Considers that energy-efficient and environmentally-friendly technology can offer European firms a significant competitive advantage; stresses that, in order to maintain this advantage, adequate funds need to be invested in research and development while European standards need to be promoted in international fora; calls on the Commission to promote trading partners' awareness of this scope for mutual benefit;

12. Emphasises the need for energy efficiency policies and actions to be properly addressed by the Structural and Cohesion Funds and the Competitiveness and Innovation Framework Programme; welcomes the Energy Efficiency Action Plan's proposal to leverage private financing via these instruments;

13. Welcomes the role played by the EU Emissions Trading Scheme in providing incentives to reduce energy consumption; calls for this scheme to be extended to include the aviation sector; and calls for the Commission to play its part in building a global emissions trading scheme;

14. Recognises that sustained higher energy prices will put pressure on production processes which rely on raw materials from a variety of geographically far-flung locations; calls on the Commission to provide a full analysis of the implications of higher energy prices and peak oil for trade flows as part of its work on trade and competitiveness;

15. Stresses that the uncontrolled increase in energy prices is affecting the less affluent, destabilising household incomes and undermining social cohesion, particularly in those countries with specific geographical, regional or climatological characteristics, such as mountain and island areas;

16. Stresses the importance of fostering a well-functioning world market in oil and gas, in particular through WTO rules and guidelines; considers that such an approach would make it possible to make an important contribution to energy efficiency and thus reduce upward pressure on energy prices;

17. Is concerned about the ongoing negotiations on the liberalisation of energy services in the framework of GATS which, in the name of greater energy security, attempt to reduce governments' right to regulate and to pursue priorities such as reducing reliance on imported energy and shifting to sustainable sources; is convinced that democratic control over energy policy has become a global imperative for addressing unparalleled threats to security, the economy, society and the environment; therefore calls on the Commission to refrain from making any requests and any offer to other countries to liberalise energy service sectors;

18. Stresses the necessity for more active involvement of the World Trade Organisation in energy matters and the need to work towards an agreement between the European Union and the members of the Organisation of Petroleum Exporting Countries with a view to keeping under control the increase in energy prices;

19. Insists that security of energy supply must become an integral part of the EU's common foreign and security policy; stresses the importance of cross-border cooperation in the field of energy and calls on the Commission to develop energy policy cooperation within the European neighbourhood policy;

20. Calls for the establishment of a genuine Euro-Mediterranean energy market to be accorded a central role; notes with interest the desire expressed by the Commission, on the occasion of the conference on external energy policy held on 20 and 21 November 2006, to ensure North Africa and the Middle East occupy an important position in its external energy policy, and hopes that these statements are followed up by concrete action;

21. Considers the European Union initiative for the creation of an international mechanism to prevent profiteering on the petroleum exchanges to be a useful measure;

22. Stresses the importance of including, in European Union agreements with energy-producing third countries, provisions concerning measures to control the excessive and unjustified increase in the price of energy raw materials.

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12.12.2006

OPINION OF THE COMMITTEE ON INDUSTRY, RESEARCH AND ENERGY(*)

for the Committee on Economic and Monetary Affairs

on the macro-economic impact of the increase in the price of energy

(2006/2247(INI))

Draftsman(*): Giles Chichester

(*) Enhanced cooperation between committees - Rule 47 of the Rules of Procedure

SUGGESTIONS

The Committee on Industry, Research and Energy calls on the Committee on Economic and Monetary Affairs, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.   Notes that oil prices increased by more than 370% between 2001 and 2006, not because of a shortage of oil, but because of increased uncertainty about expected supply risks due to high geo-political tensions, the possibility of terrorist attacks and natural disasters in oil producing regions, as well as growing demand from developing countries like China and India; notes further that daily world crude oil consumption has risen to approximately 85 million barrels in 2006, that the global spare production capacity is only approximately 1.5 million barrels per day, almost all of which is in Saudi Arabia, and that markets have been concerned that the spare production capacity would be insufficient and inadequate to cover potential supply disruptions and geopolitical risks;

2.   Believes that these perceptions have also been reinforced by fears over future resource adequacy, with some analysts predicting an imminent physical resource constraint while others, mainly within the oil industry, present a reassuring picture of oil reserves; points out that perceptions over future scarcity affect long-term market prices;

3.   Notes that it is becoming more and more difficult to find new oil sources and that each new barrel is more expensive in terms of exploration and production; further notes that huge investments in the oil sector are needed to enhance capacities for production and refining in order to cope with increased demand;

4.   Notes that, due to the rapid rise in the demand for oil in third countries, particularly in non-OECD countries, there will be increased demand from third countries competing for the oil needed by EU Member States;

5.   Stresses the importance of oil to the EU economy and considers the levels of dependence on oil and imported oil to be of great concern, particularly in view of the Member States' efforts to reduce dependency since the mid-1970s and the apparently unavoidable rise in consumption in the transport sector; notes further that transport is almost fully dependent on oil (98%) and uses 70% of the oil consumed in the EU and that its consumption will continue to increase in the future;

6.   Notes that European sources of oil still exist; believes that maximising the exploitation of indigenous sources should be seen as an important (albeit temporary) means of countering the declining volume of oil imported into Europe;

7.   Emphasises that structural high oil prices have an overall recessionary effect in EU Member States which are highly dependent on oil; recalls that this trend will trigger upward pressure on interest rates, which in turn will jeopardise the achievements of the Lisbon Strategy; therefore stresses that the negative macroeconomic impact of oil price increases makes it all the more urgent to switch to alternative energy sources and to develop energy-saving technologies and renewable sources of energy;

8.   Considers that any measures taken by the EU to reduce its dependence on oil imports must address climate change; emphasises in this context that the Stern Review Report on the Economics of Climate Change reasserts that the EU's "energy package" will be a key element in combating climate change and further emphasises that massive economic advantages can be obtained by the EU if it takes the lead in combating climate change;

9.   Emphasises that improving the EU's energy security and reducing its vulnerability to high oil prices and supply disruptions requires calls for particular attention to be paid to expanding and diversifying oil supplies, improving efficiency, increasing the share of renewable energy sources, especially in the transport and heating sectors, and researching and developing alternative fuels and technologies;

10. Calls for a comprehensive EU strategy to phase out fossil fuels in the transport sector, which would lead to a progressive reduction in EU dependency on oil and the progressive use of clean energies for transport;

11. Believes that transport fuel supplies could be expanded by facilitating the production of unconventional oil and liquid fuels based on natural gas or coal where this is economically reasonable; supports the development and production of alternative fuels, such as biofuels, hydrogen/fuel cell vehicles and hybrid vehicles; also supports efforts to find innovative solutions for the management of transport systems in general, including measures on vehicle energy efficiency;

12. Is concerned that the demand for oil is rising not only in the energy sector but also in other sectors, such as the petrochemical sector; believes that oil should not be used for power generation;

13. Suggests that the weekly publication (based on public-domain data, as in the USA) of European stocks of oil and oil products, and of imports and exports, all broken down by type of product (crude oil, petrol, diesel, heating oil and others), would give a better picture of the pressures on the world market, show up the level of European consumption, reduce the tendency of market operators to gravitate towards American stocks, and thereby help reduce the volatility of the oil price.

Background materials

Percentage of Consumption by Fuel

Source: IEA, Key World Energy Statistics 2006 Edition/Eurostat

Import Dependency by Fuel Type

Source: Eurostat 2003

World Oil Producers and Importers

Source: IEA, Key World Energy Statistics 2006 Edition

World Oil Reserves

Source: BP Statistical Review of World Energy June 2006             (© BP 2006)

OPEC Spare Production Capacity

           Source: IEA, Total estimate

Annual Changes in World Oil Demand

           Source: IEA, September 2006

Oil prices are high not because of shortage,

but because of a fear of shortage

           Source: IEA, September 2006

The Global Oil Market in 2005

Inter-regional crude oil flows: 35 Mb/d

(Mb/d: Millions of barrels per day)

           Source: IEA, Total 2006

Demand will be focused on transportation and

petrochemicals because of high oil prices

           Source: IEA, World Energy Outlook 2005

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