MADRID (ICIS)–The Spanish chemical industry
has resisted the onslaught caused by the energy
crisis in Europe, with producers benefiting
from the ‘Iberian exception’ which has lowered
their input costs, according to an industry
executive at the country’s main trade union
CCOO.
Alfredo Villafranca, lead for industrial policy
for the Madrid region at CCOO, said EU
post-pandemic recovery funds have been utilised
by the authorities and companies alike as an
opportunity to re-industrialise the Spanish
economy.
The US Inflation Reduction Act (IRA) which was
passed in August has caused concern among some
European chemical executives who are worried
that generous tax breaks will make the EU less
attractive for these type of investments.
According to Villafranca, these fears are
unfounded because the EU has been planting
green economy seeds for decades and they will
ultimately pay off, while the US is basically
new to the show.
IBERIAN EXCEPTION
WORKING
In June 2022, the Spanish and Portuguese
governments received EU
approval for a gas-to-power price cap which
changed the way the two countries calculated
electricity prices. This had been long resisted
by the utility companies which benefited from
charging electricity with the most expensive
feedstock entering the system at any given
time.
While the system makes little sense, the two
Iberian countries secured this exception given
that they have almost non-existent grid
connections with the rest of the EU.
The system worked and the rate of inflation in
Spain has fallen sharply since the system was
implemented. Despite its success, the EU will
not be extending it through the
rest of the 27-country bloc.
Outside of the EU, the UK – which has a
comparable system – may mull
the implementation of similar measures.
In December, the rate of inflation in Spain
stood at 5.5%, down sharply from rates of over
10% seen during the summer, and well below the
20-country eurozone, which averaged 9.2%.
Energy-intensive chemical companies have
benefited from the system as well as individual
consumers, said Villafranca. The measures not
only improved corporate balance sheets but they
also helped companies to avoid any significant
restructuring which would increase
unemployment.
“The Iberian exception has greatly helped lower
electricity prices, benefiting every single
consumer. The surprising thing with the measure
is that previous governments in Spain always
said the way electricity prices were calculated
could not be changed because it came from
Brussels,” said Villafranca.
“Until one government decided it had to do
something due to the financial pain a badly
calculated electricity price was putting on the
economy. Spain and Portugal’s coordinated
action brought the desired results, and the
system was changed: utility companies are still
doing great financially.”
CHEMICALS: COULD BE
WORSE
The Iberian exception has allowed Spain’s
energy-intensive chemical producers to benefit
from reduced electricity prices which are lower
than the rest of their direct EU competitors.
As a result, the Spanish chemical industry has
avoided a hit from the energy crisis.
Pharmaceuticals have been doing well for some
years now, and the industrial chemicals side is
now going through something of a revival
spurred on by the Green Deal and EU funds, said
Villafranca.
“An example is the two big petrochemicals
producers Repsol and Cepsa [Spain’s old majors]
and their investments in hydrogen or renewable
fuels. They have the financial muscle to do
what they must be doing, and that sets the tone
for smaller companies who will also benefit,”
said Villafranca.
According to Spain’s chemicals trade group,
sharply higher selling prices pushed total
industry sales to €91bn
in 2022, up 18% compared with 2021,
although the volume sold was almost flat as
growth in 2H 2022 was affected by the war in
Ukraine and its knock-on effect on energy.
For Villafranca, the most important indicator
is employment which has remained stable.
EU FUNDS: THIS TIME, ACTUALLY
USED
GDP growth in Spain last year was greater than
expectations with a 5.5% increase on 2021,
despite an increase in volatility and slump in
consumer confidence after the war broke out.
Around 1% of the growth seen came from EU
post-pandemic recovery funds, the so-called
Next Generation funds, according to Spanish
analysts.
Spain and Italy, where tourism was badly hit by
the pandemic in 2020 and 2021, are set to be
the largest recipients of the funds – in loans
but also, for the first time, in grants – to
usher in green and digital economies.
Of the €140bn Spain is set to receive from the
EU, €75bn will be grants. According to the
Spanish government, by December around €31bn of
the funds had already trickled down to projects
in the country.
“Historically, Spain has only used 39% of the
EU funds it had available, which is a poor
record. However, this time round both
institutions and companies have rushed to
present viable projects, and the money is
coming in,” said Villafranca.
“We will need to see how many of these projects
come to fruition in the end but, for now, Spain
has all pre-conditions to succeed in the new,
renewable energy economy: we have more sun and
wind than any other country in Europe,” said
Villafranca.
“Importantly, the industries propped up by the
EU funds will create qualified employment and a
potential seismic change in Spain’s services-
and tourism-based economy. This could radically
change the landscape and I hope that, as a
country, we seize this opportunity.”
IRA VS GREEN DEAL
The IRA put in place by the US is certainly the
largest climate change-related legislative
package to date. Although the US has arrived
late to the green party, analysts agree that
the tax breaks contemplated and the sectors
propped up will improve emissions in the
second-largest global producer of emissions.
Alarmed by the flurry of investments announced
since the bill was passed, some have urged the
EU to relax state rules which prohibit tax
breaks such as those in the IRA.
This has raised fears of intra-EU competition
where countries with less room to manoeuvre
with budgets will lose out to large,
financially safe countries.
Martinez does not share immediate concerns
about investments which could see investments
shift from the EU to the US because of the IRA.
He said the EU has for years been at the
forefront of the green economy, and the current
wave of investments in the US would not change
that.
“What the EU is currently doing may not be as
spectacular as the IRA-induced investments in
green projects, given those state-aid rules.
But I see it in another way as well – the
IRA-related wave of investments, will it last?”
said Martinez.
“As we have seen, climate change policy in the
US can be very politicised, and there is always
the potential a new Administration could
reverse course: this already happened in 2016
[when newly elected President Donald Trump
pulled out from the Paris Accord],” said
Villafranca.
“The EU may be right now investing smaller than
the US, but the seeds here have been planted
for decades now. The green economy will be the
economy in a few decades, but the EU’s actions
have been already working on the change to
decarbonise, and they will pay off.”
Interview article by Jonathan
Lopez
