The EU needs to stay the course with its energy policy

The EU has faced a series of economic challenges in recent years, which have brought significant political and social impacts. Continuing the series of articles by Burson-Marsteller’s senior advisors on the future of Europe, Derek Taylor urges the EU to stick to its energy strategy, which will bear fruit eventually.

Arguably, more money is spent on energy than any other sector of the economy: about one tenth of global GDP, and one twelfth of European Union GDP is associated with energy expenditure worldwide. Yet it is a policy area that generates little attention within the EU. That could change over the next few years as developments in climate change policy, decarbonisation and energy markets combine to bring more focus onto this slow moving yet crucial area. European Commission President Jean-Claude Juncker has indicated that energy policy could return to the fore as the EU moves to complete the Energy Union. If it does, it will be long overdue.

In Juncker’s State of the Union address to the European Parliament in September, he made an appeal to the EU to “stay the course” and complete the Energy Union, the 2015 strategy to provide secure, sustainable, competitive, affordable energy. Juncker also warned that energy imports could be subject to new controls under his proposed investment screening plans, which could mean blocking purchases of Europeans energy infrastructure by foreign state-owned entities.

The first of Juncker’s announcements is no surprise. Since its launch in February 2015, the Energy Union has been a cornerstone of EU policy in a sector in which there has been steady though not spectacular progress. The Energy Union requires EU-wide purchasing of gas, linking and strengthening electricity transmission systems. But the infrastructure is so huge that change will come slowly.

 

Energy and climate policies now coupled

Of course, like all policy approaches on energy for the last 10 years or more, the Energy Union inseparable from climate change policy. It follows from the EU’s 20-20-20 objectives which required all EU member states to increase the share of renewable energy to 20% and cut greenhouse gases by 20%. In addition to these binding targets, there was also a requirement to increase energy efficiency by 20%, all to be achieved by 2020.

In his State of the Union speech, Junker did not develop his ideas any further than continuing progress. But the Energy Union has its own very detailed Roadmap which will continue to lead to a fully integrated European energy market.

Energy is part of the EU’s own story: before the bloc’s founding Treaty of Rome was signed in 1957, the forerunner was the European Coal and Steel Community, which subjected the coal industry to detailed supervision since 1951 (the 1958 Euratom Treaty extended the bloc’s role in the civil nuclear industry). But the EU has been slow to evolve a common energy policy -it started around 2005, and even the oil crisis of 1973 failed to prompt any radical changes.

The EU remains increasingly vulnerable in the energy field. In 2015, external sources of supply accounted for 54% total consumption, up from 40% in 1990 (compared with 9% for the United States). Moreover, its internal energy production is likely to remain stable or even to decline, and its demand would surely grow in the event of renewed economic growth. All 28 EU member states are net importers of energy.

Increasing import dependency adds to the energy challenges facing Europe. A European Parliament study this year listed these challenges as limited diversification, high and volatile energy prices, growing global energy demand, security risks affecting producing and transit countries, the growing threats of climate change, slow progress in energy efficiency, challenges posed by the increasing share of renewables, and the need for increased transparency, further integration and interconnection on energy markets.

 

Balancing energy’s three-legged stool

Energy policy is a three-legged stool, balanced on questions of environment, security of supply and cost. I’ve been through periods where each one of the three have been the most important. Environment issues are currently headlining the process and US President Donald Trump’s decision in June to withdraw from the Paris Agreement on climate change amounts to a challenge to Europe – there are encouraging signs that the EU is ready to “step up to the plate”.

This should not be taken to indicate that the issue of climate change is now totally dominant over the other two factors, security and cost. In fact, the second reference in the State of the Union speech, to screening foreign takeovers, will have been influenced by at least one and possibly both of these factors.

There is, of course, a very logical and direct link between energy security and costs and the involvement of agencies from third countries in Europe’s energy infrastructure. As the Energy Union progresses and the EU increasingly reaps the benefits of a developing single energy market, it becomes inevitable that all those involved should be free to scrutinize and debate takeovers by foreign state-owned companies of a part of their shared infrastructure. Such investment by foreign companies is not necessarily a bad thing or something to be discouraged. Under the right conditions, it could be a benefit to all. But those conditions need to be clear and understood by all sides. Transparency, of course, would be the key to this.

Completing the Energy Union will not be an easy task. It will need to take into account other key laws and policies including the EU’s 2030 Climate and Energy Package and the European Energy Security Strategy. However, success would result in greater interconnection of energy networks across the EU, important energy savings, greater energy efficiencies, lower carbon dioxide emissions and far greater resilience in the face of threats to energy supply – be they from weather and natural disasters, technology failures or geopolitics affecting fuel imports from unstable or unfriendly regions.

The EU will need to encourage research, development and innovation or new technologies to help bring about these energy savings and efficiencies. There is little doubt that in spite of continuing improvements in the way we generate and consume energy, demand will increase over time. For example, climate change is already resulting in increased demand for cooling. The drive to remove petroleum products from transport will require increases in electricity generation.

At the same time, we are trying to reduce the amount of solid fuel – coal and lignite in particular – being used to generate the electricity we need now. Some countries are actually phasing out nuclear power generation, presently our only source of electricity available 24/7 with minimal carbon emissions. With increasing reliance on renewable energies, energy storage will become an increasingly important element in a secure energy supply.

Energy policy evolves slowly. It is a long-term process. A 1995 Commission white paper called for the EU to complete the single market in energy, but in the more than two decades since then, the reforms have not been fully implemented, meaning some former state energy monopolies still have a tight grip on their domestic markets.

But for all its sluggishness, EU energy policy is going forward, and in the right direction. There will doubtless be distractions along the way, and new attempts to delay or divert the process. But as Juncker says, the EU needs to stay the course.

 

Derek Taylor is Senior Advisor for Burson-Marsteller, mainly on energy issues. He spent 25 years working on energy issues with the European Commission, mostly on nuclear energy. He also worked for British Petroleum, the OECD Nuclear Energy Agency (NEA), and chaired a World Bank expert energy panel. He is currently an Honorary Professor in Geo-Energy at the University of Nottingham, his alma mater.

 

 

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