EU Energy Union: Fault Lines Emerge Between Pivotal Member States' Design Proposals
Ahead of the new European Commission’s highly anticipated publication of “proposals on a more closely-linked single energy market” in the first quarter of 2015 as part of a drive to loosen Europe’s energy dependence on Russia, leaked non-papers drawn up by governments of EU member states on the topic are being circulated in Brussels, according to a report by Reuters. Though non-papers have no ‘official status’ as to representing the position of the institution or member state responsible for drafting them and are often used to test the waters without instantly wading into a diplomatic row with another country over a contested issue, they still give a strong indication where the fault lines lie on a certain issue.
The idea to counter Gazprom’s position in the European gas market with an EU Energy Union goes back to former Polish Prime Minster Donald Tusk – currently elected president of the European Council – who urged Europe to create an energy union in the wake of the Ukraine crisis in April 2014: “Europe should confront Russia’s monopolistic position with a single European body charged with buying its gas.”
More or less in the same light, Jean-Claude Juncker’s new European Commission – EU President Juncker took over as head of the EU’s executive body at the beginning of November 2014 – outlined its priorities with regard to ‘Climate Action and Energy’ in a political agenda as follows – envisioning “A Resilient Energy Union with a Forward-Looking Climate Change Policy”:
“Current geopolitical events have forcefully reminded us that Europe relies too heavily on fuel and gas imports. I therefore want to reform and reorganise Europe’s energy policy into a new European Energy Union. We need to pool our resources, combine our infrastructures and unite our negotiating power vis-à-vis third countries. We need to diversify our energy sources, and reduce the high energy dependency of several of our Member States. I want to keep our European energy market open to our neighbours. However, if the price for energy from the East becomes too expensive, either in commercial or in political terms, Europe should be able to switch very swiftly to other supply channels. (…) And we need to strengthen the share of renewable energies on our continent. (…) I therefore want Europe’s Energy Union to become the world number one in renewable energies.”
This was followed by the IEA releasing its review of EU energy policies in a report, “Energy Policies of IEA Countries: European Union – 2014”, in December 2014. The IEA praised the EU for its progress in liberalizing energy markets and its low-carbon leadership, which is logically tied to climate change. Nevertheless, the new report also said that there remained much room for improvement with respect to the integration of Europeʼs energy market pointing to significant ‘energy network gaps’ in the Central-Eastern and Southern parts of the European Union due to often missing important and/or inadequate interconnections.
As a consequence, both “gas and electricity markets suffer from low cross-border capacity at many interconnections and from congestion,” the IEA reasoned. The IEA views deeper market integration as a prerequisite for the aspired genuine ‘Energy Union’ and as essential to manage costs related to the transition towards ‘cleaner’ energy sources. In this respect, IEA Executive Director Maria van der Hoeven noted: “As member states adopt different energy policy choices and decarbonisation pathways towards 2030, a strong ʻEnergy Unionʼ is needed to achieve the EU 2030 goals. But letʼs be clear: such a union should not represent a buyerʼs cartel. Rather, it should feature an integrated energy market and effective climate and energy policies. (…) To make the most of the diversity of its energy sources, and to move towards an Energy Union, the EU must better pool its resources within the internal energy market,” she added.
Given that solidarity and friendship among EU member states tend to weaken when individual countries’ pocketbooks are perceived to be impacted unevenly and perhaps unbefittingly, national interests diverge – often reflected in policy proposals. Currently, as a case in point are at least two leaked non-papers informing the discussions on the ‘Energy Union’ with the German point of viewon one side and the UK/Czech point of view on the other.
In Germany’s non-paper on the ‘Energy Union’ the German government calls for a “coherent strategy” – meaning that “the five pillars [i.e. energy supply security; competitive internal market; moderation of demand; decarbonization; investment in research and innovation] of the Energy Union are not considered isolated but become truly interlinked”- and wants the predominant focus to be on “implementing the EU policy areas where there are concrete targets [i.e.binding EU-wide targets in the 2030 Climate and Energy Framework endorsed by the European Council].”
In Europe’s pursuit of a “fundamental energy transition towards a safe and sustainable low carbon energy system” it is of overriding importance that the ‘Energy Union’ “provide a stable and reliable investment framework lowering investment risk for safe and sustainable low carbon technologies, particularly energy efficiency and renewable energies [, whereas fossil fuels] should be phased out.” Existing EU policies and laws on energy and climate change form the bedrock for all the above up to the year of 2020.
As for legislative measures post-2020, the ‘Energy Union’ “should aim for a stepwise and balanced alignment and convergence of national energy policies.” The German government intends to differentiate between “core areas of integration” such as the ‘internal market’ – full implementation is viewed here as prerequisite for providing energy security – and so-called “energy mix areas” where it may be prudent to grant more flexibility. As for the former, the establishment of “a common mechanism for the purchasing of gas” is, however, categorically dismissed by Germany as “run[ning] against the liberalization of gas markets in Europe.“ “A functioning and competitive internal energy market is of key importance to all areas of energy policy. It is the crucial driver for competitive energy prices, increased EU energy security, more efficient use of energy and for cost-efficiently integrating renewables into the market,” the argument goes.
As for the governance structure, it is “imperative to negotiate core elements of solidarity together with other elements of the 2030 climate framework.” This statement exemplifies that Germany strives for genuine convergence at the European level with “more coordination of national energy policies since national energy policies of EU member states are increasingly connected physically, economically and politically.
Most importantly, the German stance calls in areas with EU targets for “a specific, robust and reliable governance structure.” Anything less than that, “if the new Energy Union governance was merely a soft law process without any differentiation for areas with targets,” could not be regarded as in line with the2030 European Council conclusions. However, any overall energy governance must respect the EU member state’s energy mix competence and grant the necessary flexibility while also providing “EU financial resources (…) to promote regional cooperation projects for energy efficiency and renewable energy [only].”
In contrast, the UK and Czech Republic non‐paper zeroes instantly in on the main sticking point – the ‘governance’ issue – by giving the non-paper the title “European Governance of EU Energy Policy Goals”. With respect to the governance system, the UK/Czech proposal calls on the European Commission to “focus on the EU’s collective progress towards EU energy goals, and assess the coherence of measures to deliver them, rather than focusing on details of implementation at national level; be light touch and non-legislative so as to respect Member State flexibility over its choice of measures and technologies [- adhering to the principle of subsidiarity as defined in Article 5 of the Treaty on European Union -], as per the European Council’s Conclusions, with discussions on national plans to be conducted informally and bilaterally between Member States and the Commission;” to “radically streamline(s) the existing multiple reporting mechanisms” by way of “allowing the use of existing national plans where practicable.”
Moreover, the UK/Czech proposal postulates that “National Plans must be capable of supporting all low carbon technologies, and the governance system must not discriminate against or in favour of specific low carbon technologies or restrict Member States’ energy choices.” The rationale here is that a wide range of technologies along with balanced policies are required to meet the EU’s energy goals. All available low carbon technologies should be considered, which includes “renewables and energy efficiency (with regard to EU-level targets) but also nuclear and CCS” where member states choose so in their respective national plans.
Interestingly but not really surprising, the UK/Czech proposal adds here that “[w]here necessary, they should be supported by the Commission in doing so.” Overall, the “governance system should facilitate national and regional coordination, although not require it,” and instead focus on collectively delivering on the EU’s energy goals – meaning that it should remain EU member states’ prerogative to determine their respective energy mix.
UK/CZ ‘Energy Union’ Proposal
Source: @ClaudeTurmes, Member of European Parliament & Spokesperson for Energy Policy @GreensEP
How should these divergent national interests as they pertain to the ‘Energy Union’ be bridged?
In general, any discussion on European energy supply security and the development of a future European (internal) power market design must have its seeds in market-based instruments and concepts compatible with EU law. The two main lingering sticking points surround, first, the governance structure – strong convergence with legal enforcement mechanism in case of non-compliance within an institutionalized multilateral structure vs. weak convergence with minimum cooperation within a loose “non-legislative” framework based primarily on bilateral monitoring – and, second, whether to follow a bottom-up – i.e. a piecing together of systems already existent at member-state level – or top-down approach – i.e. with a narrow interpretation of ‘flexibility’ – with regard to the energy mix at member-state level and directly related to that the question of what comprises ‘acceptable’ “low carbon technologies” (renewables and energy efficiency only or also nuclear and CCS) with regard to EU-level targets.
Given that Germany is a large country in the heart of Europe and a leader in renewable energy sources, it has an interest in solidifying and synchronizing the growth in renewable energy sources via cross-border grid expansion/interconnections and implementation of a competitive internal market to the fullest extent at EU level and, therefore, prefers a common approach leading to a legally institutionalized robust structure.
This approach does, however, not take into account other member states’ specific circumstances due to their varied historical and geographical conditions and especially not that a significant amount of generation capacity – nuclear as well as coal – is set to be retired over the next decade, which might actually increase Germany’s own dependence on direct Russian gas supplies in the medium term (‘bridge fuel’). Counting on future energy efficiency gains may not do the trick and could be a gamble. Further, a lack of adequate base-load generation – once Germany’s current overcapacity is removed – could leave the entire EU dangerously exposed in the future. Thus, the ‘Energy Union’ structure should make the most of the existent generation diversity within the EU and cherish this diversity. This also means that advanced nuclear and CCS (coal) need to be part of ‘investment-grade’ low carbon technologies and eligible for future EU funding.
In the end, it is very likely that a delicate balance will be struck; namely, a legally institutionalized robust structure based on strong convergence at EU level but encompassing all possible low carbon technologies at member-state level. Note, any irrational politicization of energy choices made by member states may derail the current relative unity and solidarity and yield only one winner – Russia.
This article by Roman Kilisek was originally published on Breaking Energy. Republished with permission.