BFIEC: Decarbonization in the EU must be economically effective, it is necessary to preserve the competitiveness of enterprises

George Velev

The industry operates under ever-tightening regimes in the European Union and increasingly stringent decarbonisation targets. “We're just getting set to 55% and that percentage has started to go up. Suddenly, it will probably turn out that by 2040 we will have to have reduced greenhouse gas emissions by 90%. In this context, decarbonization must be economically efficient and ensure the preservation of the competitiveness of energy-intensive industry. This was explained by Ivaylo Naydenov, executive director of the Bulgarian Federation of Industrial and Energy Consumers. He took part in this year's international nuclear conference "Bulgarian nuclear power - national, regional and global energy security", organized by Bulatom.

According to him, this moment for decarbonization does not apply only to Bulgaria, but also to the whole of Europe, because the characteristic of energy-intensive industry is that energy costs make up a large share of the production cost. "At the same time, since the main part of the production is sold at exchange prices, this cost cannot be passed on to the end user. This share varies from 20% in ferrous metallurgy to 80-90% in other industries. In addition, decarbonization requires significant investments in various technologies, electrification of processes, where it is possible to replace the fuel base and deal with process emissions," Naydenov added.

European competitiveness

According to him, many of these processes also have quite heavy operating costs, especially when newer technologies are required, such as carbon dioxide capture and storage or the production of hydrogen, say, by electrolysis from a nuclear source or from renewable energy sources. Currently, still gray hydrogen is still cheaper compared to green alternatives. "We also have exogenous factors that affect the competitiveness of European industry. This is the United States Inflation Reduction Act. It can be seen that many productions have started to move there, for now from Western Europe. Bulgarian industry is still holding, but this is not guaranteed, as a large part of the Bulgarian energy-intensive industry is owned by large international corporations. With zero investment, they can move production to other countries," Naydenov recalled. He added that at the same time it is visible how in China it is clear that there is very heavy government support for energy-intensive industries such as steel, cement and other various productions of all heavy industries.

BFIEC recalled that with our neighbors from Turkey and Serbia, they do not have to pay prices for carbon emissions, which automatically makes their production more competitive.

"This is happening in two directions. First, energy is cheaper, not just electricity, but all energy. And secondly, the plants themselves, when they emit emissions from combustion plants, do not pay for these emissions. These emissions are currently around 77 euros per ton, Naydenov recalled.

According to him, some of the necessary technologies are at a lower level of technological development and need support to be implemented. They also need some type of state aid, not only for investment costs, but subsequently also for operating costs, Naydenov believes. "We have produced the steel, the fertilizer, the cement, but they are sitting in the warehouse because they are not for sale. And this is where the state aid regimes in the European Union come into force. And all this is developing in the context of the 15th consecutive month of decline in industrial production in Bulgaria. This is due to both mining and the decline in electricity production, but also the processing industry has seen a significant decline," the specialist stated.

Bulgaria ranks sixth in the production of non-ferrous metals in the EU, with a third of this production coming from local concentrates. Also for 2021, 160,000 tons of non-ferrous metal scrap has been processed. "Bulgaria is also home to the largest plant for synthetic soda ash in Europe, thus providing a resource base for the good development of the glass industry," Naydenov added. "What's going on in Europe? From the beginning of 2023 to the end of May this year, 49 billion euros of state aid has been approved to support industry and decarbonization. This shows us that the industrialized countries in Europe are taking all possible measures to preserve their own industry. In addition, until 2030, almost 70 billion euros of additional aid is planned to combat the so-called carbon leakage," Naydenov added.

Investments, financing and manpower

"That is, we have, on the one hand, about 120 billion euros of state aid in the EU for industry, and there is nothing in Bulgaria." And this is not because the Bulgarian state is bad. We simply do not have such a financial resource. For this reason, fragmentation of the European market is created. We have negative consequences on the competitiveness of the Bulgarian industry, because the same industries are placed under different competitive conditions", Naydenov was categorical.

"At the moment, if I am an investor and I have to choose Bulgaria or Serbia, all other things being equal, I will choose Serbia. Simply because the location is more or less the same, but in Serbia I don't have these costs for carbon emissions," he gave an example.

"We can use breakthrough nuclear power where we have high-temperature processes and eliminate some of the emissions. That is, if we use nuclear energy and produce hydrogen through electrolysis or another method, we will avoid these process emissions," the specialist believes.

After all, the price of energy is decisive, as it is the most important thing for our competitiveness. Big business can also get involved in projects to build nuclear power, including not only as a supplier of components, but also of basic materials.

It is the industry that supplies basic materials and raw materials that has somehow been forgotten at the European level. So, support is needed for large enterprises. In this way, the entire ecosystem of small and medium-sized enterprises around them will be supported because there will be work for the companies, Naydenov explained, referring to the European Act on Industry, which was recently adopted. The energy-intensive industry must be supported at the central level by the EU, these state aids must be given at the EU level, because we cannot rely on the budgets of the individual member states. If this happens, Europe will be "not two-speed, but five-speed", because each member country has different financial possibilities to support its enterprises. Naydenov also touched on the issue of personnel, because it is of key importance to create a qualified workforce, without which the business cannot exist.