Meeting report. High Level Group on the Competitiveness of the European Chemicals Industry

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1 Meeting report High Level Group on the Competitiveness of the European Chemicals Industry Tuesday 18 December 2007 Main topics: Research, Innovation and Human Resources 1. Introduction The second meeting of the High Level Group (attendance list attached) on the Competitiveness of the European Chemicals Industry took place on 18 December 2007 under the chairmanship of European Commission Vice-President Verheugen and Commissioner Poto nik (responsible for Science and Research). This meeting concluded the discussions on the topic of Research, Innovation and Human Resources, and adopted the mandate for the 2 nd Ad-Hoc Group on Energy, Feedstock and Logistics. 2. Discussion draft mandate Energy, Feedstock and Logistics In his opening speech Vice-President Verheugen introduced the mandate of the Ad-hoc Group on Energy, Feedstock and Logistics, which will be the second topic for discussion in the HLG, scheduled for the first half of The Ad-hoc group on Energy, Feedstock and Logistics will assess the impacts of high energy and feedstock prices on the industry and its future. Energy availability and competitive energy prices are essential for the chemicals industry, with oil and gas being not only important energy sources, but also an important feedstock. Issues of structural change, for instance in the EU's base chemicals industry, with its high raw materials costs compared to certain competitors, will be discussed. The Ad-hoc Group will furthermore assess available options to maintain the competitiveness of the European chemicals industry, including the scope for increased energy-efficiency, and the availability, cost, and potential of alternative feedstock. It will also look at the impact of regionally differentiated climate change policies on competitiveness. Finally, it will discuss infrastructure requirements (pipelines, intermodal transport facilities, etc.), with infrastructure and logistics (transport) being a vital factor in securing future competitiveness. The draft mandate, which had already been discussed by the Sherpa sub-group on 30 November 2007, received broad agreement. The fact that feedstock and raw materials supply for the industry receive adequate attention in the mandate was particularly welcomed by some members. It was commented that a pro-active, self-confident and future-oriented perspective should be taken rather than a defensive and protectionist one, reliant on subsidies and special treatment, reflecting the views of yesterday. This perspective would also include issues like sustainable development, the need to save energy and promote energy efficiency, etc. It was agreed to integrate language to this effect into the mandate. The HLG agreed that the Ad-Hoc Group should take into account the outcome of the work and the conclusions of the HLG on Competitiveness, Energy and Environment. 1

2 Vice-President Verheugen briefed the participants on the outcome of the second meeting of the Commission s energy package steering group. The meeting of 23 rd January 2008 will define how the agreed targets (a reduction of CO 2 emissions by 20% and a 20% share of renewables by 2020) are to be achieved. The proposal of finding specific arrangements for energy intensive industries, such as the chemicals industry, to sustain competitiveness and to stay in Europe, while at the same time making a contribution to the environmental targets, has found broad support within the steering group. One of the comments pointed at the importance of logistics as a critical topic in the mandate. A plea was made to emphasize the issue of pipelines, also connecting remote locations, in the mandate. Good quality infrastructural connections need to be ensured to further integrate especially the Central and Eastern European regions. With reference to the work of the European Chemical Regions Network (ECRN), which represents around 20 chemicals regions, it was pointed out that improved infrastructural links to Poland and the Czech Republic are an important first step. Vice-President Verheugen endorsed these comments and agreed with the point that the HLG should take into account the specific challenges in terms of competitiveness for locations in the New Member States and the Eastern part of Germany. In relation to climate change policy, it was mentioned that trade matters, and in particular imports of chemicals from regions without a climate change policy comparable to that of the EU should be addressed by the Ad-Hoc Group, together with the expected impact on trade flows in chemicals. Vice-President Verheugen clarified that making specific trade measures part of this mandate would prejudge the discussion of the next Ad-hoc Group dealing specifically with trade. With the agreed changes, the HLG adopted the mandate for the Ad-Hoc Group. 3. Update of the Work Programme The slightly revised work programme was accepted without further comments (see updated HLG work programme). 4. Discussion on the report of the Ad-hoc Group on Research, Innovation and Human Resources Vice-President Verheugen highlighted in his introductory statement why the topic Research, Innovation and Human Resources had been chosen as one of the key issues for discussion in the High Level Group. Sustained competitiveness of the European chemicals industry requires discovering and commercialising new, innovative and more sustainable products, processes and services. Human resources and innovation are in a close relation; innovation needs talent. Innovation is also closely linked to science, i.e. chemistry and the life sciences. Europe s chemical industry has an enormous potential for innovation. While individual companies in many ways are best in their class, the main challenge is to spread best practices. More companies, and in particular more of the smaller companies, have to increase their efforts to become more innovative. Appropriate support mechanisms are needed to create more startups. Commissioner Poto nik highlighted that it was the aim of the HLG to discuss the conclusions and recommendations of the summary document on the outcome of the Ad-hoc Group s work, with the objective of their endorsement and where necessary amendment. 2

3 Commissioner Poto nik reminded the HLG of the following points: The aim of the Lisbon Strategy is to improve competitiveness while taking into account sustainability. Reconciling economic, environmental and social objectives requires moving from a traditional resource-based economy to a knowledge-based society, where education, research and innovation are the driving forces of competitiveness. In that respect, two key points are important for the HLG's discussion: To improve our ability to create knowledge through more and better research, requiring higher R&D spending, better research training and world class facilities. To become much better in commercialising knowledge by creating a supportive environment, with industry, research organisations and policymakers engaging in effective collaboration. The chemicals industry can and should play a key role in addressing major societal and environmental challenges, including climate change, the depletion of natural resources, renewable energy production and ageing. The chemicals industry is an irreplaceable provider of innovations to many other industries with 70% of sales to other business domains and only 30% to final consumers. Higher R&D investment in the chemicals industry is not only beneficial to the sector itself, but could have strong positive effects for entire value chains, in particular downstream users. The establishment of the European Technology Platforms (ETP), involving industry, academia and other stakeholders, has been one of the ways to stimulate the dissemination and commercialisation of research findings in Europe. The Technology Platform on Sustainable Chemistry (SusChem) has been very productive and successful so far. Yet, although the EU remains the world s largest chemicals producer, R&D spending in Europe is decreasing, while the opposite is happening in many emerging economies, particularly China. Start-ups in the EU chemicals sector are few. Moreover, in various parts of Europe it is difficult to find qualified chemical engineers and chemists. These issues highlight the importance of the work of the Ad-hoc Group on Research, Innovation and Human Resources. The mandate of the Ad-hoc Group contained three main aims: To provide information on the type of innovation needed to achieve competitiveness and sustainability. To determine to what extent current key innovations, such as developments in nanomaterials and biochemistry, address these demands and how they will shape the industry in the next decade. To examine how Europe is placed in comparison to other regions in the world, including emerging countries. Commissioner Poto nik recalled the two main conclusions of the summary document: (i) that more innovation is vital to secure the future of the chemicals industry, and (ii) that more innovation needs greater private commitment and a favourable policy framework. The recommendations as formulated by the Ad-hoc Group contain four main messages: Networks of innovation must be strengthened. Research intensity in the chemicals sector must be increased, while diffusing innovation along its value chains. The private sector plays an important role in this respect, while the public sector should support these efforts by improving the focus and efficiency of its research expenditure and research infrastructures. The availability of qualified human resources is essential for the development of a knowledge-based chemicals industry. There is a need to improve information and communication among all stakeholders, essential in building trust and facilitating innovation. 3

4 In the ensuing discussion, the following points were made: Clusters The chemicals industry and science provide an enabling basis for a broad range of wider industrial sectors. New materials and innovations in other industries are only achievable with the help from the chemicals industry. Therefore, clustering and strengthening of value chains is of utmost importance, bringing together all relevant partners including academia, SMEs and large global companies. A number of such clusters have already developed. Strong examples include clusters that focus on photovoltaic cells and organic light emitting diodes (OLEDs), in which the chemicals industry actively teams up with producers of end products as well as endusers (user- or consumer-driven innovation). Several HLG members pointed out that the cluster approach is in line with developments in their countries, such as Germany, the UK and Spain, the latter putting a strategic focus on SMEs and chemicals clusters. A similar argument holds for Belgium where industry and public authorities closely cooperate in developing clusters in Flanders by facilitating cross-sectoral collaboration and interregional cooperation, with support from INTERREG. An important example is the Flemish-Dutch cross-border chemicals cluster. This type of cooperation could be taken up elsewhere as well. For the success of clusters, it is not necessarily required that they are located close to research institutes or universities. Nevertheless, research strongholds need to be well connected to the chemicals industry, requiring the right incentives at all levels, from the local to the European level. An active management of the development of clusters can be very useful in creating new markets and products. What is essential though is apt communication up and down the supply chain and across different regions. Commissioner Poto nik concluded that there was broad support and unanimity in the High Level Group on the importance of clusters and their future policy relevance. Differences between old and new Member States There is still an important difference between the old EU-15 and the 'new' EU-10 Member States, with the EU-15 predominantly facing high labour costs and being 'high-tech', and the new Member States offering lower labour costs, but being 'low-tech'. This difference has to be reflected in further actions. More analysis is underway, for instance in Poland, and is key to a better understanding of the current situation and finding policy solutions. Extending the coverage of this analysis by, for example, including also the Czech Republic, Slovakia and Hungary would make it possible to get a more complete picture. Commissioner Poto nik confirmed that the situation in Europe is not uniform, and that large differences between countries exist, also for example in R&D spending. The distinguishing criterion in support of R&D by DG Research is strictly based on excellence. However, the new Structural Funds arrangements offer more and better opportunities to emphasize R&D and innovation at the industry project level. Particularly for new Member States innovative products and ways to achieve these are needed. In view of the differences between Member States, a specific amendment to the recommendations was agreed as follows: The results achieved by EU, national and regional innovation networks should be examined and possible areas of improvement should be identified for example by greater promotion of best practices, taking into account industrial and regional differences across Europe. The HLG also agreed that one of the main priorities should be to further enhance the creation of a favourable environment for the commercialisation and market uptake of new technologies. One of the ways to do so is to extend the work of the technology platform SusChem to innovation-related issues, also through the fostering of regional/national Platforms in the Member States, in particular for a better involvement of SMEs. Some members of the HLG stressed again the importance of (i) an improved sharing of good practices, (ii) the promotion and support of lighthouse projects, and (iii) the introduction of 4

5 financial instruments providing support and covering risks, especially for SMEs. In order to reap the benefits of an improved innovation environment, the acceptance of new innovative solutions and new technologies by the public is essential. The search for new technologies and their implementation involve new methods and can potentially create new or different risks. Communication strategies and transparency are therefore crucial for acceptance in the short and longer term. The European Consumers Organisation representative emphasized that the chemicals industry needs to engage in a more effective and early dialogue with the public. More innovation is key but responding to consumer needs including health and environmental concerns as a driving force for sustainable innovation has not been addressed so far in the report. Education Innovation and education are inextricably linked, with talent being the most important feedstock for the chemicals industry. One of the aims should be to make young people aware of the usefulness and interesting features of the chemicals industry. Whereas children are naturally interested in science and technology, when it comes to making choices they often do not opt for a scientific or technical career. Industry is already taking action, but more should be done in conjunction with governments and NGOs in order to ensure the interest and availability of young talent. The first meeting of the HLG discussed already the significance of qualifications for the chemicals industry, which was confirmed as being important. Over the coming years a considerable loss of qualified staff due to ageing will be experienced. Industry will have to be prepared for the replacement demand. The reference to academic training in the report should be extended to adapting to new subjects and professions, and should include also production staff. With regard to training and education in chemistry at school, it was pointed out that under the EU Comenius programme, projects in different countries have been developed that deal with these changing conditions. The HLG suggested extending this programme to all Member States. Further steps by the European Commission and Member States to address these issues as a contribution to maintain the basis for the availability of the necessary qualifications to the chemicals industry would be welcomed. Regulation Many HLG members regarded regulation and its influence on innovation as an important topic. It was felt that the summary report did not take full account of the work of the Ad-hoc Group. This in particular holds for the described positive effects associated with regulation. Some members of the HLG indicated that one should be cautious with more regulation and overly prescriptive regulation. It should be recognised that most of the EU chemical companies operate in a global market place. In dealing with the important topic of greening and sustainability at large, this should be born in mind. It should be better signalled that there is a need for better regulation and lower regulatory barriers in order to allow firms to benefit from Europe s internal market, while aiming at a stable and predictable environment that is conducive to innovation. It was noted that the Sherpa group recognised that there was a very high quality analysis of the topic 'regulation' in the Ad-hoc Group report, to which several HLG members referred. The HLG recognised that the issue of better regulation is very sensitive, as the industry hints at regulation with a negative impact while other stakeholders believe that regulation can be positive for innovation. At the same time, the Commission has already embarked on a renewed better regulation policy. Both issues are reflected in the summary report, specifically in the paragraph entitled Improve information and communication. It was proposed to add the word regulation in the heading, as follows: Improve information, regulation and communication, which was, however, not supported by all members. It was recalled that the issue of regulation can still be taken up as a specific topic in the work of the HLG at a later stage, if so desired. Commissioner Poto nik recalled that various initiatives have been launched by the Commission with the aim of simplifying regulation. 5

6 Assessment of the Ad-hoc Group report and the summary document The HLG agreed that the summary document and the full report of the Ad-hoc Group correctly emphasize the importance of innovation for the future of the EU chemicals industry. Europe cannot count on cheap labour or abundant stocks of raw materials; innovation is the key factor in securing competitiveness. An increase in the share of private expenditure in total R&D spending can only be realised if business in Europe continues to be healthy and competitive. Spending money on R&D per se is not a sufficient condition as investments and commercialisation make the difference. The chemicals industry is a global industry and companies have to make choices. It is therefore not just about the right R&D climate but also the right investment climate. Industry recognises that technology is a key differentiator for competitiveness. Industry aims at increasing the effectiveness of R&D as competition stiffens. Industry and governments can do more to improve the investment climate. Better regulation as foreseen by the Commission agenda - should aim at making compliance with regulation easier. The HLG agreed with the calls of the summary document for greater private commitment and a favourable policy framework. In addition, clear and speedy decisions are needed. For that reason the recommendations should be implemented as soon as possible. Immediate actions refer to (i) further extending the current SusChem approach, and (ii) a proposed deep and constructive debate managed by the Commission with the cooperation of Member States, academia and industry to discuss new qualification profiles and requirements. This would allow showing results of the HLG on the topic of research, innovation and human resources already before the end of the HLG on Competitiveness of the European chemicals industry. 5. Approval of the Ad-hoc Group report on Research, Innovation and Human Resources The HLG endorsed the report produced by the Ad-hoc Group and gave its support for the recommendations of the summary paper and the report. 6. Closure and date of next meeting Commissioner Poto nik closed the meeting and thanked all participants for their valuable contributions. The dates for the upcoming meetings are: Meetings of the Ad-hoc Group on Energy, Feedstock and Logistics: 15 January 2008 (one day meeting) 7 and 8 February 2008 (two day meeting) 29 February 2008 (one day meeting) Sherpa Sub-group meeting on Energy, Feedstock and Logistics: 2 April 2008 Next HLG meeting on Energy, Feedstock and Logistics: 18 April 2008 (afternoon). 6

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