January 13 2017 brussels

January 13, 2017

Malta, which took over the rotating six-month EU presidency on 1 January 2017, does not list energy as one of its six priorities, yet it will get a lot of energy on its plate anyway.

In terms of a concrete to-do list, Malta has inherited two unfinished energy files from its Slovak predecessor. One is a revised gas security of supply regulation. Member states could not reach a common position on this before Christmas, although they did make unexpected progress on the three thorniest issues (a regional approach, scrutiny of commercial gas contracts and a new solidarity clause). Stakeholders believe that trialogue negotiations with the European Parliament (which adopted its position back in October) and the Commission could start as early as February, with the whole file wrapped up by Easter.

The second file that Malta has to conclude is for a revised energy label for household appliances (think of the famous A to G scale – the new law will recalibrate it to get rid of the A+++-type extensions that have been added on over the years). The deal for this is almost in the bag. The only outstanding point of contention is over the apparently technical but actually highly political decision over whether implementation should be based on “delegated” or “implementing” acts. This decision will determine the respective powers of the different EU institutions in implementing the new label.

Energy efficiency: the next priority

It’s important that Malta wraps up these two outstanding issues as soon as possible so that it can get going on the next big batch of legislation, which is the Commission’s “winter package” from 30 November. This consists of no less than eight legislative proposals (as well as a whole series of supporting papers). Malta intends to “kick-start” discussions on all eight, but will give “special priority” to the two proposals that deal with energy efficiency: a revised energy efficiency directive and a revised energy performance of buildings directive. It wants member states to reach a common position on both by June.

In parallel, the European Parliament is also preparing to get its teeth stuck into this massive package. On Thursday, the eight legislative proposals were allocated to the different political groups – the first step towards appointing a rapporteur, or MEP to lead debate on each. This is important because the rapporteur sets the tone for the Parliament’s response.

The Parliament’s largest political group, the centre-right EPP, will lead on the new energy performance of buildings directive, plus electricity market design. The centre-left S&D will lead on the revised energy efficiency directive, a new renewables directive and electricity security of supply. Finally, the liberals, or ALDE, will lead debate on an extended role for ACER, the Agency for the Cooperation of Energy Regulators, while the Greens will take on a new governance system for the European Energy Union.

The Parliament’s first weeks of the New Year have been taken up by an internal battle for a new President. When this is finally resolved in Strasbourg next week, MEPs will be able to get down to the business of policy-making. Like member states, the Parliament is expected to prioritise work on energy efficiency.

EU ETS reform

The word “climate” does not feature in Malta’s overarching work programme, but in a note on its environmental priorities, it says it wants to make “concrete and substantial progress” on the reform of the EU Emission Trading Scheme (ETS). At an environment council on 19 December, some EU environment ministers, including those from France and Germany, called on Malta to push for a common position on the reform by the next environment council, on 28 February.

The Parliament’s environment committee managed to wrap up its position just before Christmas. This will be voted on by the whole Parliament in February, after which a council position would open the door to trialogue negotiations to close this file. A final deal is not expected before the end of the year however.

Many member states seem open to the idea of increasing the reform’s ambition, notably through doubling the outtake rate of the Market Stability Reserve (MSR), which will remove excess carbon allowances from the market from 2019. A stronger MSR is also the Parliament’s increased ambition measure of choice. Others however, argue that it is too early to re-open discussions about the MSR and some, such as Poland, say they could not support any changes without an impact assessment.

Non-ETS and LULUCF

The other two climate proposals that Malta will seek to “advance discussions” on cover the non-ETS sector, or buildings, agriculture, waste and transport. They are the “effort sharing regulation”, which sets national climate targets for the non-ETS sector for 2030, and a regulation on land use, land-use change (LULUCF) and forestry. A first council debate on the effort sharing regulation under the Slovak presidency, illustrated just how tough these discussions will be: our headline was “Minus 2% will be difficult to achieve”.

At the Parliament, non-ETS rapporteur Gerben-Jan Gerbrandy, a Dutch liberal, kicked off the New Year by unveiling his draft recommendations for this proposal. Environment committee MEPs will debate these over the next months before finalising their position, probably in May (and on LULUCF in June).

Gerbrandy wants to strengthen the Commission’s proposal in several ways, including by introducing a long-term trajectory towards an at least 80% emissions cut in 2050 (the current proposal runs to 2030). He also wants to increase the pace of emission cuts in the upcoming decade (in return for doing a little less later) and account for the Commission’s proposal to increase the EU’s 2030 energy efficiency target from 27% to 30% by reducing access to LULUCF credits.

He proposes to auction 150 million allowance from 2021-24 to help finance building renovations in Central and Eastern Europe (the extra allowances would be available because of the more stringent cuts over the next decade) and that member states who accumulate a big allowance surplus by the end of the decade would have to sell them off and use the revenues to fund green investments.

Malta’s odds and ends

Coming back to Malta, the EU’s smallest member state will, in addition to the above, “give due attention” to the EU’s follow-up to emissions from aviation, after the International Civil Aviation Organisation (ICAO) agreed a global approach to curb these last autumn. The Commission is expected to propose further suspending application of the EU ETS to international flights. Malta will also devote time to the Mediterranean and the potential of regional cooperation here. And, notably at its informal environment council in April, it will discuss the EU’s ongoing work in revising its climate adaptation strategy.

Important Presidency dates:

27 February: Energy council, Brussels

28 February: Environment council, Brussels

25 April: Informal environment council, Malta

18 May: Informal energy council, Malta

18-19 May: Euro-Med Conference, Valletta

See here for an information note on Malta’s energy priorities.

 

January 13, 2017

With so much coming up, it’s easy to forget a few important developments that nonetheless crept in just before, after and during the Christmas period and will play out over the months to come.

EU OPAL decision in court

On December 23, the European Court of Justice suspended the Commission’s decision on new rules for use of the OPAL gas pipeline from 28 October. The decision came in response to complaints from the Polish government and its utility PGNiG that the new rules contravene among others the Treaty of the European Union. PGNiG has also launched a case in Germany. The Poles argue that the decision, which on paper restricts Gazprom’s access to the pipeline but in practice will probably see more Russian gas flowing through it, will have a “serious and negative impact on the security, stability and competitiveness of gas supplies to Poland”. All parties have been asked by the European Court to provide more information.

Gazprom offers to settle anti-trust case

On 28 December, Gazprom made an offer to settle a long-running EU anti-trust case against it. A Commission spokesperson said: “The Commission can confirm that it has received proposed commitments from Gazprom. The Commission will now carefully assess if they address, in a forward looking manner, the Commission’s competition concerns in line with EU antitrust rules. To be effective, the commitments would have to ensure the free flow of gas in Central and Eastern Europe at competitive prices.” There is still no date for a decision in this case.

EU positive on Ukraine (despite inconclusive trilateral gas talks)

At a conference on the Ukraine-EU strategic energy partnership on 19 December, European Commission Vice-President Maroš Šefčovič applauded progress on energy sector reforms in Ukraine. He also admitted that trilateral gas talks between Russia, Ukraine and the EU on 9 December had failed to conclude in a “winter agreement” of the kind that was reached previously, but said parties had come “very close” and that talks would continue. No new date has yet been set, a Commission spokesperson said this Thursday.

The sticking point is that Russia did not want to sign an addendum to the existing commercial contract this time round, although the terms and conditions that would be in that were in principle agreed. Ukraine says it has enough gas to get it through the winter. In the background is also a $6.8 billion anti-monopoly fine that Ukraine announced for Gazprom earlier in December. It may prove a useful bargaining chip if Ukraine’s Naftogaz loses its case against Gazprom at the Stockhom Court of Arbitration later this year.

State aid decisions

There have been a series of energy-relevant state aid decisions by the European Commission lately. First, on 20 December it approved Germany’s new renewable energy support scheme, which introduces auctions. These can be separate for separate renewable energy technologies. On the same day, the Commission also approved a German network reserve for security of electricity supply. This is a kind of capacity mechanism that lets transmission system operators pay power plants to keep them open – the German energy regulator estimates that this will cost €126 million in 2016.

The Commission approved the network reserve until 2020, with the understanding that it should become redundant when Germany builds new North-South grid connections. It noted that Germany has also committed to support a bidding zone review by ENTSO-E (representing all European transmission system operators), including the possibility of different biding zones in one member state. While perhaps technically appealing, splitting up Germany into two bidding zones is generally considered a political impossibility.

On 19 December, the Commission also approved €4.5 billion in state aid to French nuclear company Areva for restructuring, although the payment is conditional on the positive conclusion of ongoing tests by the French nuclear safety agency on the nuclear reactor vessel of Flamanville III and approval of Areva’s plan to divest its reactor business (to EDF) under EU merger rules.

Also on 19 December, the Commission approved UK state aid to convert a unit of Drax power station in the UK, Europe’s second largest coal-fired power plant, from coal to biomass. Environmental lawyers ClientEarth criticised what they called a £1.3 billion subsidy, suggesting it could instead be spent on more sustainable alternatives “like energy efficiency measures, demand response technologies, battery storage and lower-carbon technologies”. The guaranteed payment of £100/MWh is “even more” than the support planned for a controversial new reactor at nuclear plant Hinkley Point C, they said. NGOs are increasingly arguing that biomass really is not carbon neutral.

Last but not least, ENTSO-G, the European body that represents gas transmission system operators, released its 2017 Ten-Year Network Development Plan, which looks at the gas system’s resilience over the next 20 years, just before Christmas. It is open for consultation until 3 February. Campaigners say that it is incompatible with the EU’s 30% energy efficiency target and could result in stranded assets.