Five years ago, one of the first actions of the newly appointed EU energy commissioner Andris Piebalgs was to question the conundrum that is European energy competition. He stated that his choice was to either make existing legislation work or write new legislation. Piebalgs chose the former, did the latter, but as his five-year term in office ended last month Europe’s energy market had arguably started to become less, not more, competitive amid worrying signs that protectionism is returning.
In hindsight, Piebalgs should have taken the third option; do nothing. Competition has become anathema to Europe’s energy sector and the five-yearly pro-competition mantras from the newly appointed energy commissioners have become largely irrelevant. Europe is seemingly structurally incapable of becoming more competitive, and the European Commission has neither the muscle, policy and nor, it seems, the enthusiasm, to restructure European energy as a dynamic competitive market.
This failure to advance competition should not be seen as failure per se, but as a recognition that the EU’s enlargement from 15 to 27 member states has moved the bloc beyond a manageable critical mass. The political desire within some of the federalist-leaning member states to create an economic region to challenge the political and economic might of the US, China and, increasingly, India, has been poorly thought through. The intentions may have been well meaning but the reality is that the EU has unintentionally created the very product that its enlargement programme sought to avoid; an economic bloc divided between the rich developed (EU15) and poorer less developed (EU12) nations. Had the EU been true to its origins as a ‘common market’ this enlargement would arguably be more successful and manageable, but with the Lisbon Treaty coming into force on 1 December, and with the election or, more accurately, selection of a EU president the brewing federalist pressure for a more united EU could prove to be the spark that leads to a more divisive and unmanageable economic region. And this divisiveness is already apparent in the region’s energy market.
In November, European Commission president Jose Manuel Barroso announced his new team of commissioners for the next five-year term. Perhaps not surprisingly, Piebalgs has vacated the energy portfolio with Germany's Guenther Oettinger being appointed by Barroso, who believes a more powerful energy commissioner is required to negotiate with Europe's energy partners, notably Russia, to prevent any new gas crises. But there is probably a more potent secondary reason why the energy portfolio has gone to Germany; last year the German government, in conjunction with France, torpedoed Barroso’s ownership unbundling proposal that was central to Piebalgs’ third energy package. It seems that Barroso has reluctantly realised it is better for him to work with, not against, Germany on energy policy, although a German-led energy policy is unlikely to resonate well with some of the free market pro-competition member states such as the UK and many of the EU-12 accession member states.
And potentially increasing the political power of the Franco-German alliance over Europe’s energy market in the coming decade will be the appointment of France's Michel Barnier as Single Market Commissioner. Welcoming his appointment, French president Nicolas Sarkozy suggested it heralds the victory of the European model, which Sarkozy sees as being a more federal EU. And given France’s opposition to reciprocal competition and its support of protectionist policies of those sectors, including energy, that it considers to be in the ‘national interest’ to ringfence it is conceivable the French view of a single market will lead to member states’ losing more control of their energy assets to faceless Brussels’ eurocrats.
Barroso has also created a Climate Change Commissioner to oversee implementation of the EU’s CO2 emission targets and to negotiate a binding global climate treaty to succeed the Kyoto Protocol. The appointment has gone to Denmark’s Connie Hedegaard, who was closely involved with the preparations for December’s Copenhagen summit, and of concern will be how her appointment impacts EU energy policy, which has been strongly climate-led in recent years. Europe needs to sharply refocus on supply security and it would have been in the best interests of EU energy and climate policy to combine the two portfolios in order to reduce potential commissioner conflicts and enable the development of a policy that advances a balanced security/sustainability approach.
Former Belgian prime minister Herman van Rompuy, the new EU president and closet federalist, has been likened in parts of the British media to a political pygmy. But perhaps a more apt description of van Rompuy would be a political puppet, as he has no political recognition outside of Belgium and was arguably selected to read the scripts provided by Paris and Berlin, which between then wield the real power across all market sectors, and particularly in the energy sector. And market competition will be the likely loser.
The failure to advance energy market competition during the past five years can largely be traced back to Franco-German protectionism and is most apparent in the diluted third energy package, which saw the European Commission’s ownership unbundling proposal relegated to near farce. Rather than stand up to Paris and Berlin, the Commission meekly surrendered the policy initiative and allowed unbundling alternatives proposed by France and Germany to be included in the final policy proposal. If ever there was a case of what France and Germany want they get, this was it, and while both nations pay lip service to competition the only competition they wholeheartedly endorse is that which empowers their utility companies while restricting reciprocal access to their domestic markets. And it is telling that van Romuy was put forward for president as the Franco-German EU puppet – a nondescript politician that will not overshadow the political machinations of his masters.
The coming decade, and particularly the first two and a half year term of van Rompuy’s presidency, will be the true litmus test for the EU’s political relevance and credibility. With the bloc effectively out of recession it requires a robust strategic transition plan to a low carbon economy that does not create a two-track EU. Playing a pivotal role in this will be the new president and his relationship with the Commission, the EU’s executive arm. There are justifiable concerns that the Commission has become big on headlines and small on substance when it comes to energy policy, which in turn has raised questions over its relevance in originating policy. As such the new five-year Commission should think carefully about its policy objectives and the kind of European energy market it wants to create, and it should resist the legacy challenge of promising too much.
Ultimately, if there is to be any confidence in the new Commission it will have to prove it can deliver on its promises, and for this reason alone it is time to drop its competition mantra. Competition, as a policy priority, is history and the Commission has to move on.
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