Energy and Competitiveness

When energy prices are expected to rise over the next twenty years, it is essential that industrial innovation efforts and the supply of goods and service off erings be directed towards energy-efficient technologies. However, a more significant increase in energy prices in France than in other countries would be detrimental to the short-term competitiveness of French industry. The present Note outlines the terms of the trade-off France has to confront between reserving a significant part of its short-term competitiveness (its relatively low energy costs, particularly where electricity is concerned) and the necessary transformation of its mid-long-term comparative advantages (as the result of realistic energy pricing). Based on an original econometric study examining the export activities of French companies, we estimate that a 10% increase in electricity prices in France would reduce the value of exports by an average 1.9% and that the same increase in the price of gas would reduce it by 1.1%. The loss in competitiveness is notably more significant for larger exporters, particularly in those sectors that depend heavily on energy. This short-term negative effect should be balanced against the signalling effect of an increase in energy prices on mid-long-term specialisations in order for France not to get left behind in the "green" innovation race. Several lessons we can be drawn from this analysis.Firstly, the increase in energy prices should be announced in a credible way so that economic agents can include it in their calculations and revise their consumption and production choices as appropriate. In addition, in order to limit the negative effects of increasing energy costs on short-term competitiveness, we would recommend that: additional energy taxation be used to reduce the labour cost; proceeding with great caution with regards to the rate at which legacy nuclear facilities, the cost per kWh of which is particularly attractive, are decommissioned; a differentiated attribution of the public service charge according to energy intensity (as is the case in Germany); a convergence of approaches at European level with regards to network costs.