June 10, 2016
BRUSSELS INSIDER by Sonja van Renssen
The Big Chill
Why the European Energy Union is on hold
June 10, 2016
The fear of terrorist attacks and the spectre of a Brexit are putting a chill on activities in Brussels, including the great Energy Union project. But there are deeper reasons too why the Energy Union, one of the top priorities of the European Comission, is running into profound difficulties. Power markets are still overwhelmingly determined by national policies and member states resist EU-wide schemes in many crucial energy policy areas, writes Sonja van Renssen. From a gloomy EU capital, she reports on the conflicts around gas security of supply, Nord Stream 2, energy efficiency targets and emission reduction targets for transport, buildings and agriculture.
These are strange days in Brussels. The terrorist attacks of 22 March emptied the streets and shut down the airport. The migration crisis has sent European leaders rushing back to their capitals. Brexit threatens while Europe wavers. Here in Brussels, the result so far has been a wave of cancelled events and bankruptcies in the service sector, stagnated policy making and big uncertainty over the future of Europe. Energy policy is no exception to this general malaise.
European Commission officials are reportedly under strict instructions to decide nothing – and this means “absolutely nothing” one EU source stipulated – until after 23 June, the day UK voters decide whether to “remain” or “leave” the EU. “The referendum is having a chilling effect on policy making in Brussels and in the UK,” says Jonathan Gaventa, a director at climate and energy think tank E3G in London. “It has also been a convenient thing to blame for pushing back difficult decisions.”
The fact is that the Energy Union is running into difficulties. “It’s moving very slowly, if at all,” says Brook Riley, an energy efficiency expert at Friends of the Earth Europe.
“Energy issues are still not dealt with by heads of state and government,” says Georg Zachmann, a scholar at the Brussels-based Bruegel Institute, a think tank. “This is one of the major blocking items because the decisions necessary to create something that could be called an Energy Union are really beyond the remit of energy ministers.” Decisions on energy have implications for everything from national autonomy to industrial competitiveness to issues like health.
Power markets stay national
If European leaders spend their political capital on Brexit and migration, then an Energy Union needs to emerge bottom-up. The Commission dare not impose itself top down because a far-reaching reform of the electricity market for example – legislative proposals are due by the end of the year – would generate losers as well as winners.
The elephant in the room on market design is overcapacity. There is a lot of surplus generation capacity in Europe today. Experts such as Paolo Frankl, head of renewables at the International Energy Agency, have said that Europe needs a clear roadmap to phase out the most polluting power plants as well as a policy to promote renewables, as part of a new market design for a low-carbon economy. But organising any such supply-side intervention from Brussels – knowing that national energy mixes are sacrosanct – is political dynamite.
Yet bottom-up, Zachmann does not see energy ministers getting stuck into a European level debate. On market design, France is mulling a carbon floor price to save national nuclear champion EDF, while Germany is focused on looking after its threatened lignite power sector. Cross-border discussions are often bilateral. On the ground, national, not European price signals are shaping energy markets: electricity prices are determined much more by grid charges, renewables subsidies and capacity payments, than the carbon price for example.
Nordstream 2 is key to solidarity
In the world of gas meanwhile, Brussels faces opposition to its proposals for a regional approach to security of supply. As we reported on 20 May, Brussels has succeeded in convincing member states that it should scrutinise intergovernmental agreements on gas (IGAs) before they are signed, but faces opposition to regional gas security plans, a mandatory solidarity principle and more transparency on commercial gas contracts.
For Zachmann, the gas security debate cannot be resolved without addressing Nord Stream 2. This is the new gas pipeline that a consortium of European companies, together with Gazprom, wants to build from Russia to Europe. Germany is a fan; Central and Eastern Europe are not. Zachmann believes that Germany will have to guarantee gas supplies to Central and Eastern Europe if Nord Stream 2 goes ahead. He points out that the Commission has put Germany in a “Central-East” region with Poland, the Czech Republic and Slovakia in its gas proposals. “It puts the country that wants to build Nord Stream 2 in solidarity with those that oppose it.” He adds: “Of course countries do not like responsibility for solidarity if they are more likely to have to provide it.”
Don’t expect this issue to die down. Slovakia takes over the rotating 6-month EU presidency from the Netherlands on 1 July. And at a meeting of EU energy ministers on 6 June in Luxembourg, Slovakia gave pride of place to “security of energy supply” in a short presentation of its work programme.
Energy efficiency: only area of ambition
Slovakia is not a Eurocrat’s dream. It is a member of the Visegrad group – together with the Czech Republic, Hungary and Poland – that is today famous for its hard-line stance against migrants but has also been a thorn in the side of EU climate and energy policy in the past.
If gas security of supply is at the heart of Slovakia’s energy programme, it also plans to work on energy efficiency, however. It will lead negotiations with the European Parliament with a view to finalising a new energy label for consumer goods, and it will open discussions on the revision of the EU’s 2012 energy efficiency directive and 2010 energy performance of buildings directive. Legislative proposals for both are expected from the Commission in early autumn.
“Energy efficiency is the only one of the [Energy Union’s] main policy areas, where we are talking about more ambition,” says Riley from Friends of the Earth. Commission President Jean-Claude Juncker himself has championed an increase in the EU’s non-binding energy efficiency target for 2030 from 27% to 30% and the Commission is currently modelling a target as high as 40% – which is what NGOs and the European Parliament support.
Riley believes that efficiency is interesting to countries like Slovakia because they can 1) get EU funds to achieve it 2) deliver on social issues like better housing and energy poverty, and 3) sell any overachievements to big emitters like Germany where emission reductions are more expensive.
The next big fight (after Brexit)
Energy efficiency can reduce the costs of the energy transition and help return Europe to growth. That is not to say all nations will welcome EU proposals in this arena with open arms. But looking at the months ahead, experts in Brussels are unanimous in their pick of the next big fight: national targets for emission reductions in economic sectors outside the EU Emission Trading Scheme (ETS) for 2030. This basically means transport, buildings and agriculture. (Remember, an EU ETS reform for 2030 is already underway.)
The Commission plans to issue this legislative “effort-sharing” proposal in July – after the Brexit vote, obviously – together with a proposal on how to account for emissions from land-use, land-use change and forestry (LULUCF), a strategy for decarbonising the transport sector and updated energy market scenarios for 2030 and 2050.
This will be quite a package. In the run-up to it, press releases from the Commission suggest that EU Climate and Energy Commissioner Miguel Arias Cañete has been travelling from bilateral to bilateral to negotiate a proposal that has at least a chance of adoption. He’s on the non-ETS version of the Energy Union tour of his colleague Maroš Šefčovič, Vice-President for the Energy Union. Still, stakeholders expect a highly controversial proposal that will set the pace for negotiating certainly the EU ETS but perhaps other parts of the Energy Union too. And that pace will be slow.
Experts also agree that remain or leave, the Brexit vote on 23 June will not be followed by a return to normal. Either way, the EU is unlikely to come out with guns blazing. Especially if its current policy of trying to make itself invisible is anything to go by. If the UK stays, it would assume the rotating EU presidency in the first half of 2017, after Slovakia and Malta. “The Energy Union and climate cooperation could [then] be a major part of the rapprochement [between the UK and the EU]” suggests Gaventa. But first, 23 June 2016.