But ... whether that is necessarily good news, you might ask. In recent weeks the newspapers have once again been full of reports that are worrying to say the least. More and more companies are experiencing the consequences of the government policies of recent years. Steering for CO2 reduction without the right instruments and sufficient visibility of a positive result, leads irrevocably to less and less investment in the Netherlands. The (Dutch) CO2 targets can be achieved through sustainability or relocation. Although the government says it is committed to the former, the latter seems increasingly likely.
Gas power plants and refineries under pressure
Last week, EP NL indicated that it is likely to close its gas-fired power plant - Rijnmond power station (800 MW) - in Rotterdam. Due to the growth of solar and wind energy, the number of running hours of gas-fired power plants is decreasing drastically. This means that the costs incurred to keep the plant operating safely must be recovered in an increasingly shorter period of time. EP NL no longer wants to speculate. This is because it is increasingly uncertain whether the level of the electricity price, at those times when the gas plant has to work, is sufficient to cover the costs and leads to any return. A consideration that the other owners of gas power plants are, of course, also currently making.
Another signal came from the Gunvor refinery in Rotterdam. Ostensibly a short message about a small refinery suspending production for economic reasons. But again, there is a much more complex story behind this. In recent years, we have seen more and more refineries being added in the Middle East and in Asia, especially China. The refineries in China primarily serve the local market. Those in the Middle East supply products around the world. This resource-rich region has increasingly come to the conclusion that they can export the raw material (oil and gas), but also process it themselves into well-traded products. In doing so, they are meeting an increasing need for these products as there is growing pressure on similar refineries in the West due to additional CO2 emissions.
This increase in competition puts additional pressure on refineries in Europe, and thus also in the Netherlands. Refineries in the Netherlands are already struggling due to the higher costs (read taxes and levies) in the Netherlands compared to neighboring countries. Gunvor's choice to shut down the refinery is an explainable one, but it also gives food for thought about the considerations made in the boardrooms of the other refineries. Here too, the same considerations are at play in an international playing field with major differences between them.
Instrument package is out of balance
News reports like this fit into a broader trend of late. Much of the industry has water on its lips and returns are under considerable pressure. Something that should not last too long for commercial enterprises, especially if they are international companies. They have the choice to make their investments in other locations (countries) as well. The pressure on investments in sustainability in the Netherlands is the direct result of government policy in recent years. Although already initiated earlier, the consequences are now becoming increasingly apparent.
The Netherlands had nicely balanced package of instruments from the energy and climate agreement. On the one hand, subsidies and tax breaks were used to stimulate investments. On the other hand, there was a national carbon tax to ensure that investments would actually be made. In short, a carrot and stick. It has since been tinkered with considerably and the package has become unbalanced. Among other things, with significant changes to the volume correction scheme, the SDE++ and indirect cost compensation, but maintaining or even increasing the levies and taxes, the package has been completely unbalanced.
We'll meet the climate goals ...
The climate goals, in my opinion, we will meet. But unfortunately not due to a sustainability drive from industry, but due to de-industrialization as a result of our climate policy. Something that may sound positive, but for various reasons is not. Not for the earning capacity of the Netherlands, not for our prosperity and employment, nor from a climate perspective. After all, this leads to the relocation of activities, and with it the additional emissions. Whoever then says it is good for building "the new sustainable industry" should ask themselves how big the willingness will be to invest in it. After all, the moment agreements made can apparently be changed unilaterally on a regular basis, the business case changes all the time.
Investment, in any form, benefits from a sound business case. This rests on a balanced trade-off between risks and returns. But revenues are coming under increasing pressure due to higher costs and lower margins. In addition, risks are increasing. Besides the "known" market risks, the so-called regulatory risks - or policy risks - are also increasingly difficult to assess in the Netherlands. And that in a country that always scored high in terms of political reliability.
...but hopefully for the right reasons
For strategic reasons alone - at this time with a lot of geopolitical turmoil - it may at least be wise to keep some type of companies in the Netherlands/Europe. To achieve the goals based on the right reasons (sustainability rather than relocation), the call to the cabinet should be stronger, in my opinion. Bringing the package back into balance and helping companies become more sustainable may be a less populist solution. But one that ensures that we keep on board the companies that ultimately need to make the energy transition happen.
The moment we stop making the products we make in the Netherlands and Europe here and start importing them, the of CO2 rises elsewhere (at least) as fast as it falls here. In recent years, with the relocation of many industrial activities to low-wage countries, we have already exported a good portion of our emissions. Let's not become completely dependent on imports, keep the knowledge (for strategic and economic reasons) here, and thus also invest in keeping industrial activities. Better to invest in a sustainable/sustainable industry in the Netherlands, than to achieve the goals based on a wrong elaboration of well-intentioned policies.
This column was written in a personal capacity by Hans van Cleef.
