Why Europe must act collectively on energy by Javier Solana (in the FT)
EU homepage energy (in English)
EU energy fact sheet 2004 (pdf, 4 pages)
EU Green paper (links to the strategy document and accompanying pieces)
Green Paper (pdf, 20p. - the strategy paper itself)
Green Paper slide presentation (pdf, 14p.)
Green Paper technical annex (pdf, 49p.)
First: a light note to those that find windfarms ugly: I can only point out first of all that the EU, like countless companies, find that wind turbine convey such a positive image that they are worth peppering on their home page:
More depressingly, EU statistics show that the EU still gets more 4 times more electricity from oil than from wind:
(and it also gets more electricity from biomass than from wind)
And Europe is no longer on target to meet its (modest) obligations under the Kyoto protocol:
But let's get to the meat of the proposals.
The fluff is exemplified by Solana's opening paragraphs:
Energy security has shot to the top of the European and wider international agenda. It is easy to see why. Europe will be importing a growing amount of its energy needs from abroad. We already rely on external sources for 50 per cent. Most estimates suggest this will rise to 90 per cent for oil and 70 per cent for gas by 2030. Russia's recent disputes with Ukraine, Georgia and Moldova over the terms of gas supplies have concentrated our minds.Solana is the high representative for external relations, a job that's still looking for substance, especially after the Constitution that was meant to transform it into a EU Foreign Minister was rejected, so his article must be read to take that into account: it is Solana's attempt to muscle into EU negotiations with neighbors on energy, otherwise managed by the Energy directorate. I note that the only point he makes on domestic policies is that liberalisation is under way and that it is a good thing (presumably to fight import dependence and provide stability).
If we are importing an ever greater amount of energy from abroad, we need to discuss this with foreign partners. It also makes sense to do this together, as Europeans. We are already working together on liberalising and integrating energy markets within the European Union. It makes sense to complement this with concerted action on the external side. If you negotiate together, you will have more influence.
That theme comes across throughout the Green Paper - WITHOUT EVER BEING ARGUMENTED. It's just a fact:
Europe has not yet developed fully competitive internal energy markets. Only when such markets exist will EU citizens and businesses enjoy all the benefits of security of supply and lower prices. To achieve this aim, interconnections should be developed, effective legislative and regulatory frameworks must be in place and be fully applied in practice, and Community competition rules need to be rigorously enforced. Furthermore, the consolidation of the energy sector should be market driven if Europe is to respond successfully to the many challenges it faces and to invest properly for the future.(that's the last item in the initial description in the paper of the "current energy landscape" - thus presented as a fact, like growing import dependency and global warming)
This slide (about the "common goals") exemplfies this:
The 6 main goals in the Green Paper are:
1. Completing the internal market for energy;
5. Innovation and technology;
6. Setting an external policy;
The first one is "liberalisation", the second one is seen in the same logic (it focuses on creating domestic competition in various EU countries), and the third one is about stripping national governments of their individual energy policies - especially for those that have comprehensive ones like France.
The good things in the Green Paper
- there is a real focus on sustainability, including energy efficiency, demand reduction, giving priority to low carbon energy, and promoting R&D; it's sadly not in the headlines, but it takes the biggest chunk of the Green Paper itself, and all of it makes sense, including the acknowledgement that demand reduction and domestic renewable energy will be the best way to ensure security of supply;
- calls for investment in networks, coordination of networks, build up of spare capacity and storage and planning for catastrophic events all make sense;
- the goals of external dialogue are also reasonable, including suggestions to help neighboring producers built their export infrastructure towards Europe, and calls to extend carbon trading beyond Europe.
The intriguing things in the Green Paper
The Green Paper is pretty bullish on nuclear energy, and it even suggests that Europe should set itself a minimum share of low carbon electricity production. That's a pretty smart compromise, as it encourages renewable energies while keeping the door open to nuclear energy;
Both the Green Paper and Solana acknowledge the reality that energy is an eminently political issue, and thus that Member States will want to have their say. This is mostly coherent in Solana's paper (see extract below), but it borders on the schizophrenic in the Green Paper as it has just explained before that that the goals is to have the markets decide what are the best investments, to have private companies compete on a pan-European basis and not on national markets, and to have "coordinated" regulation of the sector in all countries... but Member States are still presumed to influence the choices of what kind of power generation is priviledged or not.
Some question whether our member states, given their different outlooks and interests, can agree on a substantive set of messages. More dialogue, they say, sounds good. But what are we going to say? My answer would be that we should stress that most producers and all consumers have a shared interest in maintaining a stable, transparent framework in which the pricing mechanism can function as freely as possible. This means no unilateral measures and no "politicisation" of energy exports to punish foes or reward friends. What we need is an orderly combination of markets, law and consensual negotiations.
The crazy or silly stuff
This points us towards the question of Russia, which is after all the root cause of all this agitation thanks to the Ukrainian shenanigans earlier this year... Barroso (President of the European Commission) and Solana would love to get a strategic dialogue going with Russia, and the Green Paper dangles some apparently tempting carrots in front of the Russian: offer access to other countries to your network, and we'll let you enter our own downstream business, and treat you as an "equal partner".
The fact that Russia doesn't care so much about downstream, and that they certainly won't open their networks (and have every reason not to) doesn't seem to have registered, nor has the fact that, as all the pipelines go to Europe, it doesn't really matter. The parallel attempts to build infrastructure from the Caspian (both for oil and gas) bypassing Russia is also unlikely to be looked upon with kindness by Russia, but do make sense on their own.
This brings us to EU vs national countries issues.
Russia is clearly a topic where the EU is itching to take away responsibility from the Member States. With energy the single most important area of dialogue with Russia, and with France, Germany and Italy being the main conduits of this dialogue, taking over these negotiations would boost the EU versus the most annoying Member States... Which of course means that there is little chance of that happening, but many opportunities to brand these countries as "nationalistic" and "protectionist".
This graph (from the FT) shows how this would work on the vexing issue of gas storage, which I mentioned yesterday in this diary (Energy - the EU marketistas want their cake and to eat it too):
"Coordinate" these, and you effectively take power away from E.On, GDF (the evil protectionist "national champions" form Germany and France) and Snam (Italy) and give it to the European Commission or its new energy regulator.
Which gets us, as usual, to the underlying assumption that markets will solve everything. As quoted above, it is repeatedly stated throughout these documents that enforcing the liberalisation directives (and, once again, not just the letter of the directive, but also the spirit of the directive, i.e. the full unconstrained liberalisation) are the only way to ensure security of supply and lower prices. This means fighting national ("nationalist") energy policies, and eliminating "dominant" companies in their domestic markets.
The following questions are never discussed:
- if nuclear is encouraged, how is this going to be (i) financed, (ii) supervised and (iii) who is going to deal with the waste?
If State involvement in any of these is authorised, how is this made compatible with the denationalisation of the regulatory framework?
- who gets to define policy viz. Russia (concerning mainly oil and gas)? Those that consume most gas? Those that import most gas as a portion of their consumption? Those that import most Russian gas (in volume or in proportion)? Those that have otherwise intense diplomatic links with Russia?
- Are long term contracts to ensure stability and security of supply (which the EU has fought tooth and nail in recent years as incompatible with "market liberalisation") now encouraged? Who has the right to negotiate them? The companies? The EU regulator?
- What's the criteria to know if a market is "competitive"? Price levels? Share of imports? Share of sales made by foreign companies? (And how do you define "foreign"? By the location of headquarters? Nationality of shareholders? Nationality of CEO? Origin of energy production?) Let's have objective criteria...
The EU could be the appropriate level to regulate the sector, but not for so long as it keeps its pure market ideology. Countries that have been importers of energy for a long time - or those that want to impose environmental preoccupations know that security of supply and the accounting of externalities require consistent policies over the long term, serious enforcement power, a lot of political support - and that these goals have a price that markets on their own are not able to make private players pay.
If the EU gets to be the regulator today, it will, in its current incarnation, go for the most pro-business, lightest enforcement and short-termist version, and that's not going to respond to ANY of the stated goals.