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Belarus Risks Prolonged Period of Slow Growth

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Economic growth slowed sharply in 2019, as exports fell and sectoral recovery dissipated, says the World Bank’s latest Economic Update for Belarus, released today. The World Bank has revised its growth forecast slightly downwards, based on expectations of a weak external environment, limited space for demand stimulus, and uncertainties surrounding the outcomes of Belarus-Russia economic integration and bilateral financial support.

“The expected period of slow growth could be shortened, however, if the foundations for accelerated recovery are put in place without delay,” said Alex Kremer, World Bank Country Manager for Belarus. “Some essential steps have already been taken, such as maintaining macroeconomic stability and lowering inflation. However, more actions are required in the areas of state-owned enterprise restructuring, financial sector reform, and better targeting of social protection.”

The Economic Update also summarizes findings from the recent Business Environment and Enterprise Performance Survey (BEEPS) for Belarus, conducted jointly by the World Bank and the European Bank for Reconstruction and Development in 2018. The survey focuses on businesses’ perception of factors that can be helpful or constraining for private firms.

“Improvements in the business environment, implemented since 2008, have helped the private sector to expand. Results of the survey confirm that private companies find the domestic business environment more favorable,” said Kiryl Haiduk, Belarus Country Economist at the World Bank. “However, access to finance is still perceived as a constraint. Experience shows that government credit schemes have limited impact, while more systemic measures that enable funds to be channeled from lenders to borrowers can help alleviate the credit constraints facing businesses.”

Since the Republic of Belarus joined the World Bank in 1992, lending commitments to the country have totaled $1.9 billion. In addition, the country has received grants in the total amount of $31 million, including to programs involving civil society partners. The active investment lending portfolio financed by the World Bank in Belarus includes nine operations in the total amount of $942.7 million.

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An EU Strategy for Energy System Integration: Explainer

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What is energy system integration?

Energy system integration refers to the planning and operating of the energy system “as a whole”, across multiple energy carriers, infrastructures, and consumption sectors. It creates stronger links between them with the objective of delivering low-carbon, reliable and resource-efficient energy services, at the least possible cost for society. Energy system integration is the pathway towards an effective, affordable and deep decarbonisation of the European economy.

The current energy system is still built on parallel and vertical energy value chains, which rigidly link specific energy resources with specific end-use sectors. This model of separate silos cannot deliver a climate neutral economy. It is technically and economically inefficient, and leads to substantial losses in the form of waste heat and low energy efficiency.

The Energy System Integration Strategy sets out a vision on how to accelerate the transition towards a more integrated energy system, in support of clean energy and a climate neutral economy while strengthening energy security, protecting health and the environment, and promoting growth and global industrial leadership.

The Strategy sets out 38 actions to implement the necessary reforms. These include the revision of existing energy legislation, financial support or research and deployment of new technologies and digital tools, guidance to Member States on fiscal measures and phasing out of fossil fuel subsidies, market governance reform and holistic infrastructure planning, and improved information to consumers.

What are the main elements of the strategy?

The strategy is built on three complementary and mutually reinforcing elements:

  • First, a more circular energy system, where no energy is wasted and where energy efficiency is the first consideration. An example is to facilitate the reuse of waste heat from industrial sites and data centres.
  • Secondly, the use of cleaner electricity produced from renewable sources. As renewables become cheaper, electricity will become cleaner. We need to extend the use of that clean electricity into more areas such as buildings, industry, and transport, which traditionally relied on fossil fuels.
  • Thirdly, the promotion of renewable and low-carbon fuels, including hydrogen, for sectors that are hard to decarbonise, such as heavy transport and industry. This will be done by: unlocking the potential of sustainable biomass and biofuels, renewable hydrogen, and synthetic fuels; enabling carbon capture, storage and use; clarifying the definition of different renewable and low-carbon fuels and supporting their development; and promoting innovative projects.

Finally, the strategy will be pro-consumer, providing clear and easily accessible information on the cleanest solutions and climate-friendly choices in the market, enabling and encouraging smarter and more sustainable energy use. It will rely on an increased use of digitalisation to connect consumers, producers and energy system operators with each other. This will also contribute to the fight against energy poverty.

The strategy lays down concrete policy proposals that the Commission will present over the coming months and years to deliver on these objectives.

Does this strategy help to reach the goals of the European Green Deal?

Yes. Energy production and consumption account for 75% of our greenhouse gas emissions. The energy system is therefore crucial to delivering on the European Green Deal’s objective of reaching climate neutrality by 2050. The energy system also underpins our economy and our daily lives. It provides jobs and livelihoods and strengthens European competitiveness and innovation.

Energy sector integration enables to combine decarbonised and renewable energy supply with efficient demand side technologies such as electric motors, heat pumps and fuel cells. Deep greenhouse gas emission reductions can only be reached through a combination of energy efficiency and very high shares of renewable energy. And both energy efficiency and renewables penetration can be facilitated by a more integrated energy system.

A new inter-connected system will be more efficient and “circular”, capturing and re-using waste energy. It will be cleaner, with increased use of heat and electricity produced from renewable sources applied in efficient demand side applications in industry, transport and heating. And for those sectors where electrification is difficult, the strategy proposes steps to promote cleaner fuels, including sustainable biofuels and biogas, and renewable hydrogen.

All this will contribute to combatting climate change and reach the goals of the European Green Deal while keeping the costs of the energy transition under control, thus contributing to a fair and just transition.

Will the strategy help Europe’s economic recovery from the Covid-19 crisis?

Yes. The strategy will be another building block of the economic recovery in the aftermath of the COVID-19 crisis. The transition to a more integrated energy system is of crucial importance for Europe, now more than ever. The Commission’s Next Generation EU recovery plan presented on 27 May 2020 highlights the need to better integrate the energy system, as part of its efforts to unlock investment in key clean technologies and value chains. By relying on greater use of clean and innovative processes and tools, the path towards system integration will also trigger new investments, jobs and growth, and strengthen EU industrial leadership at a global level, contributing to the economic recovery.

Does the strategy continue to support fossil fuels such as gas and coal?

On the contrary, the strategy is a roadmap to accelerate the phasing out of fossil fuels through 3 levels:

  • Energy efficiency and circularity, and the use of local renewable resources;
  • Electrification wherever possible, to replace the uses of gas, coal and oil by the direct use of electricity produced from renewables;
  • Renewables and new fuels based on renewables to replace fossil fuels in processes that cannot be converted to electricity;

As regards to gas, the strategy proposes a pathway to replace natural gas with sustainable renewable gas and new synthetic gases based on renewable sources such as hydrogen and synthetic methane.

Does the strategy contribute to the goal of a just transition?

The objective of the strategy is to reach our climate objectives at the lowest possible cost for consumers and public budgets. The strategy also proposes to reinforce the role of consumers in driving the transition to a decarbonised, decentralised energy system. Providing clear and easily accessible information will enable citizens to make climate-friendly choices, change energy consumption patterns and be informed about the best technology options available to them.

The strategy also takes advantage of the rapidly decreasing costs of renewable energy across the EU, which results in lower prices for the consumers, increased energy security, and a more inclusive energy system. In addition, this strategy aims at strengthening the competitiveness of the European economy by promoting growth and technological innovation across the whole EU.

Does the strategy respect the ‘energy-efficiency-first’ principle?

Yes. The energy-efficiency-first principle is at the core of energy system integration. Energy efficiency reduces the overall investment needs and costs associated with energy production, infrastructure and use. It also reduces the related land and materials use, and the associated pollution and biodiversity losses.

Energy system integration can help the EU achieve greater energy efficiency through a more circular use of available resources and by switching to more efficient energy technologies. For example, electric vehicles are much more energy efficient than combustion engines. Applying this energy-efficiency-first principle consistently across the whole energy system will be done by giving priority to demand-side solutions whenever they are more cost effective than investments in energy supply infrastructure in meeting policy objectives.

Other measures will ensure that customers’ decisions to save, switch or share energy properly reflect the life cycle energy use and footprint of the different energy carriers, including extraction, production and reuse or recycling of raw materials, conversion, transformation, transportation and storage of energy, and the growing share of renewables in electricity supply.

How does the strategy support EU leadership in clean energy technology?

The strategy aims to ensure that the EU fully exploits its head-start and expertise in renewable and smart energy technologies. Specific sectors and value chains that are expected to have a central importance and where the EU is well positioned for global leadership include:

  • district heating
  • smart grids and appliances
  • digital tools to support the integration of electric vehicles
  • hydrogen supply and demand side equipment.

How does the strategy affect the EU’s security of energy supply?

The EU is currently importing 58% of its energy needs, mostly in the form of oil and gas. With the clean energy transition, the EU will decrease its dependence on fossil fuels and fossil fuel imports. The Energy system integration strategy will facilitate this process. The EU will consume less energy overall, increasingly rely on domestic renewable resources and gradually diversify its energy imports towards cleaner energy carriers, such as renewable hydrogen. These energy savings, diversification and domestic production will help to build a more resilient European economy.

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Commission sets out plans for the energy system of the future and clean hydrogen

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To become climate-neutral by 2050, Europe needs to transform its energy system, which accounts for 75% of the EU’s greenhouse gas emissions.  The EU strategies for energy system integration and hydrogen, adopted today, will pave the way towards a more efficient and interconnected energy sector, driven by the twin goals of a cleaner planet and a stronger economy.

The two strategies present a new clean energy investment agenda, in line with the Commission’s Next Generation EU recovery package and the European Green Deal. The planned investments have the potential to stimulate the economic recovery from the coronavirus crisis. They create European jobs and boost our leadership and competitiveness in strategic industries, which are crucial to Europe’s resilience.

Energy System Integration

The EU Strategy for Energy System Integration will provide the framework for the green energy transition. The current model where energy consumption in transport, industry, gas and buildings is happening in ‘silos’ – each with separate value chains, rules, infrastructure, planning and operations – cannot deliver climate neutrality by 2050 in a cost efficient way; the changing costs of innovative solutions have to be integrated in the way we operate our energy system. New links between sectors must be created and technological progress exploited.

Energy system integration means that the system is planned and operated as a whole, linking different energy carriers, infrastructures, and consumption sectors. This connected and flexible system will be more efficient, and reduce costs for society. For example, this means a system where the electricity that fuels Europe’s cars could come from the solar panels on our roofs, while our buildings are kept warm with heat from a nearby factory, and the factory is fuelled by clean hydrogen produced from off-shore wind energy.

There are three main pillars to this strategy:

  • First, a more ‘circular’ energy system, with energy efficiency at its core. The strategy will identify concrete actions to apply the ‘energy efficiency first’ principle in practice and to use local energy sources more effectively in our buildings or communities. There is significant potential in the reuse of waste heat from industrial sites, data centres, or other sources, and energy produced from bio-waste or in wastewater treatment plants. The Renovation Wave will be an important part of these reforms.
  • Second, a greater direct electrification of end-use sectors. As the power sector has the highest share of renewables, we should increasingly use electricity where possible: for example for heat pumps in buildings, electric vehicles in transport or electric furnaces in certain industries. A network of one million electric vehicle charging points will be among the visible results, along with the expansion of solar and wind power.
  • For those sectors where electrification is difficult, the strategy promotes clean fuels, including renewable hydrogen and sustainable biofuels and biogas. The Commission will propose a new classification and certification system for renewable and low-carbon fuels.

The strategy sets out 38 actions to create a more integrated energy system. These include the revision of existing legislation, financial support, research and deployment of new technologies and digital tools, guidance to Member States on fiscal measures and phasing out of fossil fuel subsidies, market governance reform and infrastructure planning, and improved information to consumers. The analysis of the existing barriers in these areas will inform our concrete proposals, for instance the revision of the TEN-E regulation by the end of 2020 or the revision of the energy taxation directive and the gas market regulatory framework in 2021.

Hydrogen strategy

In an integrated energy system, hydrogen can support the decarbonisation of industry, transport, power generation and buildings across Europe. The EU Hydrogen Strategy addresses how to transform this potential into reality, through investments, regulation, market creation and research and innovation.

Hydrogen can power sectors that are not suitable for electrification and provide storage to balance variable renewable energy flows, but this can only be achieved with coordinated action between the public and private sector, at EU level. The priority is to develop renewable hydrogen, produced using mainly wind and solar energy. However, in the short and medium term other forms of low-carbon hydrogen are needed to rapidly reduce emissions and support the development of a viable market.

This gradual transition will require a phased approach:

  • From 2020 to 2024, we will support the installation of at least 6 gigawatts of renewable hydrogen electrolysers in the EU, and the production of up to one million tonnes of renewable hydrogen.
  • From 2025 to 2030, hydrogen needs to become an intrinsic part of our integrated energy system, with at least 40 gigawatts of renewable hydrogen electrolysers and the production of up to ten million tonnes of renewable hydrogen in the EU.
  • From 2030 to 2050, renewable hydrogen technologies should reach maturity and be deployed at large scale across all hard-to-decarbonise sectors.

To help deliver on this Strategy, the Commission is launching today the European Clean Hydrogen Alliance with industry leaders, civil society, national and regional ministers and the European Investment Bank. The Alliance will build up an investment pipeline for scaled-up production and will support demand for clean hydrogen in the EU.

To target support at the cleanest available technologies, the Commission will work to introduce common standards, terminology and certification, based on life-cycle carbon emissions, anchored in existing climate and energy legislation, and in line with the EU taxonomy for sustainable investments. The Commission will propose policy and regulatory measures to create investor certainty, facilitate the uptake of hydrogen, promote the necessary infrastructure and logistical networks, adapt infrastructure planning tools, and support investments, in particular through the Next Generation EU recovery plan.

Quotes from members of the College of Commissioners

Executive Vice-President for the Green Deal, Frans Timmermans, said: “The strategies adopted today will bolster the European Green Deal and the green recovery, and put us firmly on the path of decarbonising our economy by 2050. The new hydrogen economy can be a growth engine to help overcome the economic damage caused by COVID-19. In developing and deploying a clean hydrogen value chain, Europe will become a global frontrunner and retain its leadership in clean tech.”  

Commissioner for Energy Kadri Simson, said: “With 75% of the EU’s greenhouse gas emissions coming from energy, we need a paradigm shift to reach our 2030 and 2050 targets. The EU’s energy system has to become better integrated, more flexible and able to accommodate the cleanest and most cost-effective solutions. Hydrogen will play a key role in this, as falling renewable energy prices and continuous innovation make it a viable solution for a climate-neutral economy.”

Commissioner for Internal Market, Thierry Breton, said: “The European Clean Hydrogen Alliance launched today will channel investments into hydrogen production. It will develop a pipeline of concrete projects to support the decarbonisation efforts of European energy intensive industries such as steel and chemicals. The Alliance is strategically important for our Green Deal ambitions and the resilience of our industry.” 

Background

The European Green Deal is the new growth strategy of the EU, a roadmap to make our economy sustainable by turning climate and environmental challenges into opportunities across all policy areas and making the transition just and inclusive for all. A better-integrated energy system is essential in order to move to climate neutrality by 2050, while also creating jobs, ensuring a fair transition and strengthening innovation in the EU and industrial leadership at a global level. The sector can make a key contribution to Europe’s economic recovery from the coronavirus crisis, as outlined in the Next Generation EU recovery package presented by the Commission on 27 May 2020.

Today’s energy system is still built on several parallel, vertical energy value chains, which rigidly link specific energy resources with specific end-use sectors, wasting a significant amount of energy. For instance, petroleum products are predominant in the transport sector and as feedstock for industry. Coal and natural gas are mainly used to produce electricity and heating. Electricity and gas networks are planned and managed independently from each other. Market rules are also largely specific to different sectors. This model of separate silos cannot deliver a climate neutral economy. It is technically and economically inefficient, and leads to substantial losses in the form of waste heat and low energy efficiency.

One way to deliver sector integration is by deploying renewable hydrogen. It can be used as a feedstock, a fuel or an energy carrier and storage, and has many possible applications across industry, transport, power and buildings sectors. Most importantly, it emits no CO2 and almost no air pollution when used. It therefore offers a solution to decarbonise industrial processes and economic sectors where reducing carbon emissions is both urgent and hard to achieve. All this makes hydrogen essential to support the EU’s commitment to reach carbon neutrality by 2050 and for the global effort to implement the Paris Agreement.

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The effect of COVID-19 and the 4IR on integration within global value chains

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The Global Manufacturing and Industrialisation (GMIS) Digital Series 2020 kicked-off with a high-level panel webinar addressing “glocalization: localizing production and capacity building for survival and success”. The focus was on the effect of COVID-19 and the Fourth Industrial Revolution (4IR) on integration within global value chains, the implications for micro, small and medium enterprises and the labour force, particularly in developing countries. The session featured UNIDO’s Cecilia Ugaz Estrada, Bright Simons, President, mPedigree, and Yi Xiaozhun, Deputy Director General of the World Trade Organization.

Yi stated that world merchandise trade may fall by 13 per cent due to the pandemic, and that the current disruption differs from that of the 2008 crisis. “I don’t believe that these changes are likely to stay with us forever,” he said. “Going forward, the structure of the supply chain will depend on whether the experience accelerates two trends that have been underway for several years. One trend is China moving up the value chain due to its industrial strategies or rising labour costs. Another important trend is increasing adoption of labour-saving technologies in modern manufacturing, such as industrial robots..

Ugaz Estrada stressed that closing borders would reduce the potential for trade integration and warned of the potential erosion of comparative advantage in many developing countries. “I think developing countries have a real opportunity to be able to expand their markets by exporting to and importing from their neighbours…there remains the possibility of expanding markets by using trends of regionalization,” she said.

Ugaz Estrada also pinpointed a number of factors which would be key to SMEs in developing countries being able to absorb advanced manufacturing technologies in the current challenging environment. These include upgrading digital infrastructure; creating preparedness strategies; digital upskilling and training; empowering women; and creating strong multi-stakeholder partnerships.

“It’s a moral imperative for international corporations to really provide a proper learning process for participation in the value chain; it’s a sine qua non condition. At UNIDO we are in the business of trying to help countries – the governments in particular -to be able to provide this learning infrastructure,” she said, citing UNIDO’s Centre for Mechatronics and Automation Technology in Uruguay as an example.

Simons stressed the dampening effects of COVID-19 on regional integration, connectivity and trade, as well as possible border closures.

“The barriers that COVID-19 has imposed affects regional trade, as much as it affects global trade,” he said. “So if you are following the discussion around the Continental Free Trade Agreement, which now has now been imperiled because of COVID-19, given that it is the avowed aim of all African governments to forward the continental integration agenda, it will be quite surprising if they will be able to achieve that by closing borders,” said Simons. 

He mentioned that SMEs in Africa had often been constrained in exporting by stringent standards and certification requirements, but that technologies are emerging that are helping to streamline these processes.

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