The Energy Collective, 18 February 2015
Roman Kilisek
Last week, the European Commission held its first orientation debate on the Energy Union in the college of the Commission. “It was the first time that all commissioners together had an in-depth discussion on the issue. And I can tell you that there was very broad agreement on the main features of the future Energy Union, an Energy Union that puts citizens at its core,” the Vice-President for Energy Union Maroš Šefčovič said in his opening speech at the Energy Union Conference in Riga (Latvia).
Thanks to Alice Stollmeyer – an excellent source for the latest transpiring news on EU energy and climate policy in Brussels – who granted access on her website to an internal Commission discussion paper on the Energy Union (dated January 30) leaked to her, we are in a position to catch a glimpse of the preliminary outline of the future EU Energy Union. According to Ms. Stollmeyer, the EU Commission is expected to adopt this ‘Framework Strategy’ on February 25.
The discussion paper starts out explaining why the EU needs an Energy Union and lists a slew of ‘ills’ as they relate to energy procurement in the EU:
“We import 53% of our energy, which makes us the largest energy importer in the world, at a cost of 400 billion euro a year. Many Member States – especially those dependent on a single supplier or a single supply route – remain too vulnerable to supply shocks. 90% of our housing stock is energy inefficient. 94% percent of transport relies on oil products, of which 90% is imported. Collectively, we spend almost €110 bn per year – directly or indirectly – on energy subsidies, often not justified. Our energy infrastructure is ageing, and often not adjusted to the increased production from renewables. There is a need to attract investments, but the current market design and national policies offer insufficient predictability to potential investors. Our internal energy market is far from complete. Energy islands continue to exist and many markets, for instance in South-East Europe, are not properly connected to their neighbours. From 2012 to 2013 post-tax electricity prices for households increased on average 4.4%, while at the same time wholesale prices fell considerably. (…) For European companies, electricity prices are 40% above the US, and gas prices are even three to four times higher than in the US, which impacts the competitiveness of our industry, in particular our energy-intensive industries.”
This extensive list leads to only one conclusion; namely, that “Europe has no choice: if it continues on the present path, the unavoidable challenge of shifting to a low-carbon economy will be made harder by the economic, social and environmental costs of having fragmented national energy markets.” As a consequence, the “move away from a fragmented system characterized by uncoordinated policies based on narrow national interests, leading to national barriers and energy-isolated areas,” is inevitable.
So, what is “The Way Forward” in the Commission’s view? These are actually the most interesting paragraphs in the leaked discussion paper. The ‘energy security’ dimensions that need to be worked on read more like a ‘memorandum of understanding’ with respect to well-known, persistent but often latent issues, than a real actionable strategy. It begs the question of why something will get done this time, given these issues have persisted for at least a decade.
First, it should not come as a surprise that “energy security depends on solidarity and trust between the Member States.” The paper states that “[j]oint approaches in the field of energy can make all parts of the European Union stronger, for instance in case of supply shortages or disruptions.” In general as well as in theory, that makes perfect sense. However, it is not conducive to solidarity if Germany pays effectively lower prices for Russian natural gas – admittedly because of long-term supply contracts – than Eastern European countries.
Furthermore, the paper recognizes that European gas supply needs to be diversified – perhaps modeled along the lines of Northern Europe’s ‘multiple suppliers structure’: “Work on the Southern Gas Corridor must be intensified to enable Central Asian countries to export their gas to Europe. We will equally explore the full potential of liquefied gas, including as a back-up insurance.”
Leaving the project funding part aside, the fact that the Southeastern flank of Europe is very much in geopolitical flux is often underappreciated. Greece is attempting to – at the very least – emancipate itself from Brussels and the EU’s tentacles with regard to Greek post-financial crisis economic policy, which includes stringent labor-market reforms and austerity. Additionally, Turkey’s EU membership has hung in the balance, with Ankara left to ponder its “candidate country” status for over a decade.
Roman Kilisek
Last week, the European Commission held its first orientation debate on the Energy Union in the college of the Commission. “It was the first time that all commissioners together had an in-depth discussion on the issue. And I can tell you that there was very broad agreement on the main features of the future Energy Union, an Energy Union that puts citizens at its core,” the Vice-President for Energy Union Maroš Šefčovič said in his opening speech at the Energy Union Conference in Riga (Latvia).
Thanks to Alice Stollmeyer – an excellent source for the latest transpiring news on EU energy and climate policy in Brussels – who granted access on her website to an internal Commission discussion paper on the Energy Union (dated January 30) leaked to her, we are in a position to catch a glimpse of the preliminary outline of the future EU Energy Union. According to Ms. Stollmeyer, the EU Commission is expected to adopt this ‘Framework Strategy’ on February 25.
The discussion paper starts out explaining why the EU needs an Energy Union and lists a slew of ‘ills’ as they relate to energy procurement in the EU:
“We import 53% of our energy, which makes us the largest energy importer in the world, at a cost of 400 billion euro a year. Many Member States – especially those dependent on a single supplier or a single supply route – remain too vulnerable to supply shocks. 90% of our housing stock is energy inefficient. 94% percent of transport relies on oil products, of which 90% is imported. Collectively, we spend almost €110 bn per year – directly or indirectly – on energy subsidies, often not justified. Our energy infrastructure is ageing, and often not adjusted to the increased production from renewables. There is a need to attract investments, but the current market design and national policies offer insufficient predictability to potential investors. Our internal energy market is far from complete. Energy islands continue to exist and many markets, for instance in South-East Europe, are not properly connected to their neighbours. From 2012 to 2013 post-tax electricity prices for households increased on average 4.4%, while at the same time wholesale prices fell considerably. (…) For European companies, electricity prices are 40% above the US, and gas prices are even three to four times higher than in the US, which impacts the competitiveness of our industry, in particular our energy-intensive industries.”
This extensive list leads to only one conclusion; namely, that “Europe has no choice: if it continues on the present path, the unavoidable challenge of shifting to a low-carbon economy will be made harder by the economic, social and environmental costs of having fragmented national energy markets.” As a consequence, the “move away from a fragmented system characterized by uncoordinated policies based on narrow national interests, leading to national barriers and energy-isolated areas,” is inevitable.
So, what is “The Way Forward” in the Commission’s view? These are actually the most interesting paragraphs in the leaked discussion paper. The ‘energy security’ dimensions that need to be worked on read more like a ‘memorandum of understanding’ with respect to well-known, persistent but often latent issues, than a real actionable strategy. It begs the question of why something will get done this time, given these issues have persisted for at least a decade.
First, it should not come as a surprise that “energy security depends on solidarity and trust between the Member States.” The paper states that “[j]oint approaches in the field of energy can make all parts of the European Union stronger, for instance in case of supply shortages or disruptions.” In general as well as in theory, that makes perfect sense. However, it is not conducive to solidarity if Germany pays effectively lower prices for Russian natural gas – admittedly because of long-term supply contracts – than Eastern European countries.
Furthermore, the paper recognizes that European gas supply needs to be diversified – perhaps modeled along the lines of Northern Europe’s ‘multiple suppliers structure’: “Work on the Southern Gas Corridor must be intensified to enable Central Asian countries to export their gas to Europe. We will equally explore the full potential of liquefied gas, including as a back-up insurance.”
Leaving the project funding part aside, the fact that the Southeastern flank of Europe is very much in geopolitical flux is often underappreciated. Greece is attempting to – at the very least – emancipate itself from Brussels and the EU’s tentacles with regard to Greek post-financial crisis economic policy, which includes stringent labor-market reforms and austerity. Additionally, Turkey’s EU membership has hung in the balance, with Ankara left to ponder its “candidate country” status for over a decade.
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