In June, Europe’s electorate will vote in the next European Parliament, with a newly
appointed Commission to follow in November. Over the term of the current Parliament and Commission, energy and climate change have been high profile policy issues, but can Europe’s policy makers rightfully claim that today’s EU energy and climate model is an improvement over the one inherited in 2004?
There are three major policy objectives against which Europe’s energy market progress should be measured – competition, security and sustainability.
Since 1992 the European Commission has been planning to liberalise the EU gas and electricity markets, and in April the Commission sensed that substantial progress had been made after the European Parliament and member states reached a compromise on a number of issues in the proposed third energy package.
The key compromise was on the contentious proposal to legislate for ownership unbundling, which had the effect of polarising the EU bloc with the UK–led free market proponents endorsing unbundling and the Franco–German led opponents resisting on the argument it would weaken supply security.
Opponents of unbundling won the policy argument, with the compromise agreement meaning that Europe’s energy behemoths will not be forced to sell their gas and electricity transmission networks. In return these utilities must submit to more rigorous oversight to ensure that the two sides of the business (supply and distribution) are being managed separately, and must also install more accurate meters to enable greater customer freedom to switch supplier. The compromise package also strengthens the powers of the national regulators, and allows for the creation of a central EU agency to co-ordinate member state regulators.
As usual, the Commission presented a positive spin to the media on its failure to gain EU-wide agreement on its ownership unbundling proposal, with Ferran Tarradellas, spokesman for the EU energy commissioner, commenting: ‘It is essential for all other energy policies – security of supply, the fight against climate change, the development of renewable energy. For all these, we need a competitive market.’
Tarradellas is right on the value of competition for wider energy policy objectives, but wrong to assume that the compromise agreement will promote more competition. If supply security is to be enhanced, for example, there needs to
be increased reciprocity of competition among member states. Yet without forcing the sale of utility assets there is unlikely to be any further competition reciprocity. In fact the opposite will be more likely with the fully vertically integrated utility groups (E.ON, RWE, EDF etc) able to keep mopping up EU energy assets and further enhance their dominance of Europe’s energy market.
The greatest perceived threat to Europe’s energy independence is Russia, and in particular the state-owned Gazprom. Throughout the current Commission’s term in office it has tried, without success, to negotiate an energy agreement with Moscow. The Commission has also attempted, again without success, to take charge of the EU’s external energy policy. Somewhat ironically, its failure to manage the EU’s external energy policy is due to its sanction of dominant ‘EU champion’ utility groups, with Gazprom more interested in conducting bilateral deals with specific EU utility groups than with the EU as a single bloc.
Europe’s energy insecurity is illustrated by its growing dependence on gas imports from Russia and the potential fragility of this arrangement, with another brief supply dispute between Moscow and Kiev in January having a major impact on pricing sentiment. With Moscow unprepared to adopt a reciprocal energy treaty with the EU the Commission should have increased its efforts to diversify Europe’s energy mix and reduce the share of gas.
Somewhat belatedly, towards the end of its term in office, the Commission has adopted a warmer approach toward nuclear generation and has increased its funding for research into carbon capture and storage (CCS) technology. But with new nuclear build and CCS requiring at least another decade before these technologies have a positive impact on supply security, Europe will continue to grow increasingly dependent on Russia for its energy needs. This in turn will further strengthen Russia’s hand in future energy discussions.
Central to Europe’s current energy policy is renewable energy and, with its challenging target of 20% of all energy consumed to come from renewable sources by 2020, there is an appreciable risk that a renewable-centric approach will further undermine Europe’s supply security, particularly if the vast majority of new renewable capacity is based on intermittent generation sources, such as wind.
Driving this renewable push is the Commission’s desire that the EU be a climate innovator, not a laggard. In the absence of the US from the global climate policy forums during the Bush presidency the Commission has pushed forward with cap and trade schemes and ambitious medium term emission reduction targets. And with the arrival of new pro-climate president Obama the Commission has again sought to communicate its climate credentials by supporting a 40% emission cut by 2020 relative to 1990 levels at April’s UN climate talks in Bonn.
Some believe the Commission has become ‘climate-blinkered’ through its support of ever more challenging medium-term emission cuts, and express growing concerns that these targets will indirectly compromise Europe’s medium-term security. The US, by comparison, takes the view that a long-term emissions cut of 80% by 2050 is the important target with the importance of the interim 2020 target being to reduce emissions to 1990 levels and provide an economically robust platform for more aggressive cuts between 2020 and 2050.
Having had the opportunity to assess Europe’s energy and climate policy before assuming the US presidency, the new Obama administration has adopted a platform that it believes takes the strengths (ie carbon markets) and discards the weaknesses (ie aspirational and probably unachievable challenging interim emission targets) of Europe’s energy/climate policy.
But will the incoming EU Parliament and Commission have the courage to take a similar fresh approach to policy?
No doubt the new European Parliament and Commission will bring some fresh thinking to energy policy, yet as with the outgoing Commission the policy choice faced will likely be straightforward; either make the existing policy work or produce another (fourth) energy package. Tempting as it may be to make further policy changes, the next Commission should resist and focus instead on making existing policies work.
For all its undoubted commitment, movement towards a competitive, secure and sustainable EU energy market has continued to be painfully slow under this Commission. Europe’s energy market largely remains a work in progress.
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