EU Energy Union – New Packaging for Old Projects

The European Union summit held on March 19-20, 2015, solemnly declared “the need to build the Energy Union.” Has the dream expressed a few years ago by legendary former European Commission President Jacques Delors come true? Have the Europeans managed to shape a new strategy for dealing with large-scale modern challenges in the energy sector?

The European Union summit held on March 19-20, 2015, solemnly declared “the need to build the Energy Union.” Has the dream expressed a few years ago by legendary former European Commission President Jacques Delors come true? Have the Europeans managed to shape a new strategy for dealing with large-scale modern challenges in the energy sector?

In the document submitted shortly before the summit, the European Commission described the situation in the EU energy sector as follows. The EU imports 53 per cent of its consumed energy at a cost of around EUR 400 billion annually. Six member-states are entirely dependent on a single external supplier for their entire gas imports, making them extremely vulnerable to supply shocks (and it is common knowledge that this supplier is Russia, although the document of the European Commission diplomatically passes it over in silence). Roughly 94 per cent of transport relies on oil products, of which 90 per cent is imported. Collectively, the EU spends EUR 120 billion per year on direct or indirect energy subsidies. Over EUR 1 trillion (!) needs to be invested in the energy sector by 2020 to attain the set energy saving goals, to develop renewable energy and to reduce greenhouse gas emissions. Wholesale prices for electric power in the EU are 30 per cent higher than in the US, while wholesale gas prices are twice as high as in the US. High energy prices reduce the competitiveness of European industry, particularly in power-intensive industries.

Summarizing, we can say that today as 15 years ago, the European Union is working within the classical triangle of energy policy objectives, namely security of energy supplies – reasonable prices – environmental sustainability. However, the environmental objectives in recent years have been clearly overshadowed by concerns about the security of energy supplies and high energy prices.

The future Energy Union will develop along five dimensions:

1. Energy security, solidarity and trust. The Energy Union builds on the Energy Security Strategy, set out in May 2014. The key activities are the diversification of supplies and more transparent gas imports.
2. A fully integrated European energy market, the completion of which requires the development of cross-border interconnections among EU countries and compliance with existing legislation.
3. Energy efficiency contributing to the moderation of energy demand. The proposed package of measures is aimed at reaching the indicative target set in October 2014 - to improve energy efficiency by 27% before 2030.
4. Decarbonization of the economy. The objective set in October 2014 is a 40% domestic reduction in greenhouse gas emissions compared to 1990.
5. Research, innovation and competitiveness: a set of measures to stimulate research and development, primarily in the fields of smart grids, smart home appliances, clean transport, “clean fossil fuels” and “the most secure nuclear power in the world.”

The first thing that leaps to the eyes after an analysis of the proposals of the European Commission [1] and the European Council [2] is that most activities, goals, and even concrete actions have long been declared and implemented. For example, all provisions relating to energy efficiency and decarbonization are abbreviated renderings of Strategy 2030, approved six months ago, while the aims of the Strategy could hardly be called ambitious, as they were rather a “cosmetic improvement of the current movement pattern.” [3]

The internal energy market is the oldest project of EU energy policy, initiated in the late 1980s. Over the past five years, the thesis concerning the need to complete the implementation of the Third Energy Package has migrated from one document to another. This thesis is repeated today, although in a new and sterner wording: “the full implementation and rigorous enforcement of existing energy legislation” [4] that reflects the difficulties that the implementation of the Third Energy Package faces in many EU countries. The idea that the development of cross-border interconnectors is crucial for the formation of a full-fledged EU energy market has been reiterated since 2009; the last large-scale program in this area was adopted in 2013 and is being successfully implemented. R&D promotion is one of the favorite areas of the EU activity. Priorities, mechanisms, and the degree of effectiveness of the programs do change, but the set goals in this area could be called a principal novelty by a stretch of imagination only.

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Infographic. Solar power in Europe

The document reflects a compromise between the supporters of the “old” and “new” energy industry, but the balance is shifted in favor of hydrocarbon energy. Yes, the Energy Union implies energy efficiency, reduced greenhouse gas emissions, greenhouse gases capture and storage technologies. But in its decisions the European Council has put much more emphasis on the regulation of gas imports, the development of relations with suppliers of fossil fuels and the use of “local resources.” [5] The latter implies coal and nuclear power, which is not yet said in public, but the euphemisms do disclose a clear strategy. Renewable energy is mentioned in the document only in the context of the need to bring subsidized renewable energy sources in “accordance with the rules of the internal market.” Thus, the European Council has once again confirmed the trend of the last two years: “there is little doubt that sustainable energy, in particular renewable energy, is being sacrificed for affordable or cheap energy.” [6]

Recent significant decisions have been made only along the dimension of “energy security, solidarity and trust,” that is in the sphere of external energy policy of the EU. The ability of the EU to “speak with one voice” requires consensus from all the member-countries, which is an extremely difficult task, but “on many issues it is virtually impossible, due to the mismatched interests of various countries of the EU.” [7] However, the challenges arising in connection with the inappropriate business practices of Gazprom (in the view of some European politicians), Ukrainian transit instability and strained Russia-EU relations have prompted the EU leaders to develop the instruments of a common energy policy.

The decision to ensure transparency and compliance with the EU legislation of bilateral agreements for the purchase of gas has been most notable. The matter at issue is the development of information exchange mechanisms, established in 2012, with regard to intergovernmental agreements between the EU member-states and third-party countries in the field of energy [8]. Today all bilateral intergovernmental agreements of the EU are submitted to the European Commission, which analyzes their compliance with EU energy legislation and informs about the nature of the agreements all 28 EU member-states. At that, these rules do not apply to commercial contracts.

Of course, this mechanism will be further developed, but to what extent? The wording of the European Council is rather inconsistent [9]. Commenting on the results of the summit, Chairman of the European Council Donald Tusk said that “all gas contracts – between governments or businesses – must be in line with EU law.” [10] That figures, but will new mechanisms of control be established? The decisions of the summit make no mention of extending the information exchange regulations to commercial contracts. On the contrary, the text clearly draws the line between intergovernmental “agreements related to the buying of gas” and “commercial gas supply contracts.” And if in respect of the former, the EU leaders called for transparency and compliance with EU law, in respect of the latter they unambiguously emphasized the need to guarantee “the confidentiality of commercially sensitive information.” In addition, the final text of the decisions of the summit does not include a provision contained in the draft document about the right of the European Commission to block bilateral agreements of member countries at the stage of signing. A number of EU countries led by Germany clearly opposed the most radical proposals of the European Commission and will adhere to this position when implementing the decisions of the summit.

 

Apart from the transparency of the agreements, the proponents of the common EU external energy policy have insisted in recent years on establishing a pool of buyers, capable of effectively resisting pressure from monopoly suppliers during negotiations. The initial reaction of the Commission to this idea was very cautious, because 1) it comes under the exclusive national jurisdiction, and the matter at issue is no so much the decisions of national governments, but of commercial companies; 2) the proposal is not entirely consistent with competition law to put it mildly. The opinion of the European Council has been phrased very carefully: “to assess options for voluntary demand aggregation mechanisms in full compliance with WTO rules and EU competition rules.” It is significant that the mention of WTO rules and EU competition rules appeared in the document at the last moment. The word “voluntary” is of key importance too. And finally, as in the joke about the intention of a young unemployed person marrying Rockefeller’s daughter, “he still needs to persuade Rockefeller,” i.e. to persuade companies that supply gas to the EU to negotiate with a pool of European consumer companies.

“The Energy Union” concept represents a package of EU projects that are already underway. The new branding raises the political profile of energy issues and is likely to enhance the efficiency of implementing the existing plans in the future. At the same time, fleshing the Energy Union out will be complicated by the reluctance of EU countries to abandon their freedom of action on energy issues, by differences in national interests and by challenges in creating an adequate system of governance at the EU level. The initiatives relating to external energy policy are set out in very careful wording. However, their implementation even on a limited scale could have a negative impact on Russian energy suppliers (gas suppliers, in the first hand). The best way to prevent the emergence of a truly common EU external energy policy is to ensure the security of Russian supplies and the positive dynamics of the political relations between Russia and the EU.

1. European Commission. European Union Package COM (2015) 80. 25.02.2015 http://eur-lex.europa.eu/resource.html?uri=cellar:1bd46c90-bdd4-11e4-bbe1-01aa75ed71a1.0001.03/DOC_1&format=PDF

2. European council meeting (19 and 20 March 2015) – Conclusions http://www.consilium.europa.eu/en/meetings/european-council/2015/03/european-council-conclusions-march-2015-en_pdf/

3. N. Kaveshnikov, EU Strategy for Climate and Energy Sector // Modern Europe Journal, 2015, # 1, p. 101 http://www.sov-europe.ru/2015/1/kaveshnikov2.pdf

4. European council meeting (19 and 20 March 2015) – Conclusions http://www.consilium.europa.eu/en/meetings/european-council/2015/03/european-council-conclusions-march-2015-en_pdf/

5. European council meeting (19 and 20 March 2015) – Conclusions http://www.consilium.europa.eu/en/meetings/european-council/2015/03/european-council-conclusions-march-2015-en_pdf/

6. N. Kaveshnikov, Renewable Energy in the EU: the Change of Priorities // World Economy and International Relations Journal, # 12, 2014, p. 79 http://elibrary.ru/item.asp?id=22749553

7. N. Kaveshnikov, Development of EU External Energy Policy // MGIMO-Universitety Vestnik , # 4, 2013, p 88 http://www.vestnik.mgimo.ru/sites/default/files/pdf/10mezhd_otn_kaveshnikov.pdf

8. Decision No 994/2012/EU of 25 October 2012 establishing an information exchange mechanism with regard to intergovernmental agreements between Member States and third countries in the field of energy

9. European council meeting (19 and 20 March 2015) – Conclusions http://www.consilium.europa.eu/en/meetings/european-council/2015/03/european-council-conclusions-march-2015-en_pdf/

10. Remarks by President Donald Tusk after the first sessions of the European Council meeting. 19/03/2015. http://www.consilium.europa.eu/en/press/press-releases/2015/03/19-european-council-intermediate-remarks-tusk/