What Shale We Think About European Politics?
European politicians are having a hard time understanding the issues surrounding the shale gas industry. They are struggling to define proper incentives to foster efficient energy markets. In this sense, European institutions are easy to blame: they are clearly slow at tackling energy issues and are not reactive in primary urgencies like the banking union and political integration.
Unfortunately for European households and energy-intensive companies, that is just one part of the story. European institutions are indeed the referee of the energy markets, but the real players are the national governments.
Countries seem equally incapable to come up with policies to sort out their energy issues. With gas prices three times the ones in the US, European governments are not doing much to save the remaining/existing competitive advantages of the Old Continent. Their late responses to the challenges stemming from the shale gas industry are just another example of weak politics.
BRUSSELS IS STRUGGLING IN ITS REFEREE ROLE
The European Parliament recently voted in favour of a mandatory Environmental Impact Assessment (EIA) for all unconventional drilling activities in the European Union. But the vote is just an indication of intentions - it just gives MEP Andrea Zanoni the opportunity to negotiate a first-reading agreement with EU ministers. In this sense, the legislative process is just started.
"Brussels is assessing whether existing EU energy and environmental legislation is sufficient to deal with the issues that need to be taken into account with the exploration and production of shale gas, in particular to environmental impact and public perception," says Caroline May, partner and head of the environment, safety and planning department at Norton Rose Fulbright.
May is currently part of a consortium of technical and legal experts advising the EU Commission on the current status of environmental regulation applicable to shale gas. The consortium is also tasked with helping the EU to understand whether a Shale Gas Directive is necessary to regulate exploration and production activities across the EU.
Brussels could decide to introduce a new directive, amend the existing legislation or provide a ‘soft guidance’ to the industry.
Despite its efforts, many experts and exponents of the industry blame Brussels. Some of them claim that the EU is struggling with the adequacy of current legislation.
“European regulators simply don’t know in which way to head, because this industry with new technologies is going so big that they cannot keep up with it,” says Andras Jenei, Director of CFPA Energy Workshop, a Hungarian think-tank.
The lack of knee-jerk reactions is evident, but what’s the reason?
European regulators have to find a common ground and mediate different voices and interests. As a result, it seems that their only contribution can be a couple of documents a year on technical issues.
“We are not a government. We don’t have power to pass legislation or to take quick decisions the way you would if you were a national government. So we have to take the interests of 27 member states into account… So all EU legislation takes a couple of years. Nothing is proposed without a cost-benefit analysis,” commented Joe Hennon, European Commission spokesman for the Environment, in an interview already published by Natural Gas Europe.
But there is no consensus among these different countries and voices are extremely ajar.
“The European Union is in a difficult position. They are moving at the rate at which they are able to,” explains John Loughhead, Executive Director at UK Energy Research Centre.
The lack of consensus suggests that the European Union could work on technical reports for many months to come. Different countries could keep bickering easily for the rest of the legislature and it is not difficult to understand that laws on shale gas are not expected any time soon.
According to the influential French Green MEP José Bové, “we are not going to have a new legislation before the end of this Parliament, that is in mid-2014.” Some other politicians said that no laws is expected before 2016.
BRUSSELS IS JUST THE REFEREE OF A SLOW-MOTION GAME
After the recent EU vote, the British daily newspaper The Telegraph wrote that the Brussels could threaten the UK’s fracking ambitions through its intervention. But this is questionable.
The European Union is not the controlling factor. It looks more like the enabler of the market. It is like the referee of the game and it cannot be entirely blamed for a boring and exhaustingly slow football match. The real players – the countries – are probably the real culprits.
In this sense, it is true that Brussels is walking with a limp, but it seems equally clear that the single countries are not moving much faster. They play one against the other: they have no team spirit.
As a result, the match is a slow-motion game whose final result is easy to foresee. At this rate, the standoff on shale gas and energy markets is guaranteed. It is not important what decision players take, they should simply take one. Otherwise nobody will win, everybody - from the gas to the renewable industry - will simply blame Brussels.
NATIONAL GOVERNMENTS: THE REAL PLAYERS
ITALY
As far as poor politics go in Europe, Italy tends to stand out. Since Angela Merkel took the helm of Germany in November 2005, five different Governments “tried” to guide the Peninsula out of its political, financial and social problems. Coherently, the third largest economy of the Eurozone is generous in providing examples of a lack of efficient policies, including in the unconventional hydrocarbons debate: one of the main local experts of shale gas is Iva Zanicchi, Vice-Chair of the Committee on Development and a well-known figure in Italy; well-known, that is, for her musical career.
Nonetheless, Italy seemed more reactive than other countries in understanding the potential importance of unconventional hydrocarbons. At least one extraction project is going on in Italy and the Prime Minister Enrico Letta recently took an open-minded approach to fostering new energy sources.
Some shale enthusiasts see Italy as being more progressive in the energy and the unconventional hydrocarbons debate than countries like France and Germany.
FRANCE
France is another standing example of short-sighted politicians. Both President Nicolas Sarkozy (2007 – 2012) and his successor François Hollande had the unprecedented power to inflame public opinion about most of their decisions.
At a first glance, however, France looks better than Italy in tackling the unconventional markets: it immediately took a decision on shale gas. The ban on fracking was voted under Sarkozy and then confirmed by Hollande.
On 11 October 2013, the French Constitutional Court confirmed the ban on hydraulic fracturing, ruling that ‘articles 1 and 3 of law number 2011-835 as of July 23, 2011 … conform to the Constitution.’ Therefore, the exploration and extraction of shale gas or oil by hydro fracturing remain prohibited.
This decision could be bad for some energy firms, but at least it could appear as an example of continuity. And continuity usually creates certainties, which lowers the risks of running businesses. Unfortunately, this is not the case for France’s stance.
“Sarkozy just did not want to lose the elections and he imposed the ban, but we are quite sure that Parliament didn’t want to stop the industry. They said to companies: wait for a while, don’t worry, the law will be destroyed soon,” said Antoine Combier, the only employee of Collectif 07, a collective funded and supported by the Department Rhône-Alpes.
He shows a document jointly released by the ministries of Finance and of the Environment in February 2012. According to the 201-pages-long report, the ban on fracking was meant to be a temporary measure, which would have been revised after more scientific research. The plans intended for the French parliament to take a decision during the second semester of 2013, with the activities picking up soon after. This information went under the radar of the media, but Sarkozy lost the election nonetheless. The recovery of the operations slowed down and the ban on hydraulic fracturing stood on.
But, once more, things are not that simple. Though Francois Hollande keeps repeating his “non” to shale gas, the debate over it has not stopped in France. In July, Agriculture Minister Stéphane Le Foll ruled out the possibility that Paris could go on with shale gas exploration, contradicting another French Minister who said that unconventional fossil fuels are an opportunity for the country.
Coherently, Combier thinks that the politicians’ approach may change soon, but with little room for constructive projects and policies.
“France is not doing anything about energy. There are no alternatives to the present energy mix,” concludes Combier.
The French case proves that with politics you cannot please everybody, but the lack of credibility, continuity and enthusiasm can displease almost everyone. No one truly knows how dangerous shale gas is, but everyone knows that the “wait and see, then probably change” approach is dangereuse.
GERMANY
Speaking about credibility, the image of Germany could appear so rustproof and stainless that Angela Merkel should hopefully also be Europe’s shepherd in the unconventional hydrocarbon debate. Once more, this is not the case.
Merkel carefully avoided the shale gas debate before the federal elections last September. She preferred to sit it out until after the vote and only then tackle the issue - perhaps. This is not wrong per se, but it is once more a lack of consistent policies. The same weakness showed by Germany in the broader energy sector.
“Germany follows policies, which have imposed substantial costs on its economy which, at the moment, it is able to bear. Germany is able to bear it because it is a member of the Euro that keeps its exchange rate down,” comments John Loughhead, adding that German energy policies are difficult to foresee, as shown by the dramatic changes of direction and the U-turns on nuclear power over the last few years.
In this sense, not even the great Germany can set the right tone for a coral decision in Europe. Not even Germany seems strong and coherent enough to guide European governments out of their deadlock in the energy markets. Unfortunate.
GREAT BRITAIN
Lately, speaking about Great Britain and the EU is, at the very least, daring. The relationship between London and Brussels is anything but clear. These present frictions aside, some exponents of the industry do hope that the UK can trigger a “shale gas revolution” in Europe.
The British government has tried hard to attract investment and create an enthusiastic business environment for unconventional exploration and production. Recently, not a single week has passed without at least one comment by Prime Minister David Cameron and Energy Minister Michael Fallon. They want this to happen.
However, there are two problems. Firstly, a national shale gas industry could have a reduced impact on gas and electricity prices, given the relatively small reserves in the UK and the connections with Continental Europe that make exportations more than likely. Secondly, public resistance could become an insuperable hurdle. Thirdly, some researches show that there could be a problem due to conflicting policies.
“Developing a large number of gas-fired power stations is not consistent with the UK’s carbon targets, unless you use technologies to cap the emissions. While gas can have beneficial effects on emissions in the short term, in the long term the more stringent greenhouse emissions will kick in,” says Samuela Bassi, researcher at the Grantham Research Institute on Climate Change and Environment.
That is why Bassi, co-author of the report A UK ‘dash’ for smart gas, argues that investments in shale gas cannot be done only on the basis of a mere financial computation. The problems for the UK explorations are further related to the existing legislation.
It is not difficult to see that Britain has to abide by the Climate Change Act. This binding law imposes an 80% emissions reduction with regards to the 1990 levels by 2050.
In this sense, the UK government sent clear messages to investors, but it still moves on a slippery slope. Cameron’s pledge to lead the “greenest government ever” could be extremely difficult to be put in practice.
BACK TO BRUSSELS
Looking at the problems that four of the biggest European countries are experiencing with respect to shale gas, it is clear that Brussels is probably more of a scapegoat than a culprit. The interests of the member states are so divergent that Brussels also has trouble dealing with “secondary political issues” like energy before they can even tackle the more controversial political integration and banking union. If Europe does not find mechanisms to converge on single positions, the game over is not too far.
The shale gas debate in Europe resembles a football match played by hobbling retirees, running with their crutches on the pitch. And if the players - the national governments - don’t play a great game, there is little the referee - the EU - can do. It has to adapt to the game and remain almost still. Brussels cannot run faster than Berlin, Paris, London, Rome, Madrid and Warsaw. National governments have to set the tone.
Moreover, as it happens in the main stadiums in the world, nobody cheers for the referee. Everybody loves to blame Brussels. The recent letter by British Prime Minister David Cameron to the EU is difficult to understand. Why to urge Brussels to speed up market deregulation when you are not doing much yourself?
In conclusion, the slow-motion game is the result of weak European politics. It is not difficult then to understand why Europe is called the Old Continent, an old continent made up by old countries that prevent a fresh and young referee to run fast. Players are called to do much more in the energy sector, showing success of one or another industry. The referee will then follow.
Sergio Matalucci