External energy policy: Brussels takes charge

September 12, 2011 | 00:00

External energy policy: Brussels takes charge

For the first time, Brussels is taking concrete steps to wrest control of external energy policy from the EU member states. To begin with, the European Commisson wants to monitor all intergovernmental energy deals between EU member states and third countries. In the longer term, it wants to be allowed to negotiate energy deals on behalf of the EU. The proposals come at a sensitive time in the history of the European Union.

‘When you see that some 60% of natural gas is imported from third countries and as far as oil is concerned 80%... it’s perfectly clear that the success of any energy policy is dependent upon a successful common external energy policy on the part of the EU,’ EU Energy Commissioner Günther Oettinger told journalists in Brussels last Wednesday when he unveiled his plans for a new external energy policy for Europe. ‘If we speak with one voice’, he added, ‘I think we’ve got a completely different weight [in negotiations].’

That the EU is trying to speak with one voice in energy matters is not new. What is new is the context. When the Lisbon Treaty entered into force on 1 December 2009, it opened up a new chapter in European foreign policy. The post of ‘High Representative of the Union for Foreign Affairs and Security Policy’ was considerably upgraded. Unlike her predecessor, the current High Representative, Catherine Ashton, sits in the European Commission, chairs the EU council of foreign ministers, and has at her disposal a brand new European External Action Service that is nothing less than the EU’s very own Foreign Office. If foreign policy becomes more Europeanized, it seems only natural that external energy policy should follow.

Observers have long criticized the lack of a unified European energy policy towards third countries, particularly Russia. At an Energy Summit on 4 February of this year in Brussels, European heads of state and government finally responded to these criticisms. They called on the Commission to present ideas for improving the coherence of EU external energy policy. They said Member States should at least inform the Commission of all new and existing bilateral energy agreements with third countries. A subsequent stakeholder consultation held by the Commission confirmed that, for many, the status quo is inadequate.

Information exchange

The legislative and policy proposals Oettinger presented on 7 September follow the lead from the EU Heads of State. The most concrete element of the new plans is a legislative proposal for member states to run all new and existing bilateral energy deals with third countries past the Commission. There are some 30 intergovernmental agreements on oil and twice that on gas in place today, the Commission estimates. The only reporting obligation that exists to date is for member states to report gas deals to the Commission under a 2009 gas security of supply regulation.

The Commission’s new proposal strengthens and extends this reporting obligation to all intergovernmental deals ‘which are likely to have an impact on the internal market for energy or on the

'Member states will be required to inform us of agreements. The Commission will be aware of what’s going on before negotiations start and how negotiations are going'
security of energy supply’. ‘We are proposing a mechanism for early and thorough exchange of information... for all energy agreements, regardless of whether we’re talking about gas, oil, electricity or renewables,’ Oettinger said. The Commission would distribute the information it receives to all member states, unless it is confidential.

‘Member states will be required to inform us of existing [agreements] and those that are in the course of negotiation’, Oettinger explained. ‘The Commission will be aware of what’s going on before negotiations start and how negotiations are going.’ The new rules would also apply to intercompany agreements insofar as these are explicitly referred to in intergovernmental agreements. Before an agreement enters into force, the Commission would have the right to carry out a ‘compatibility check’ to verify that the deal being formulated is in keeping with EU law.

The commissioner gave several examples of where, in his opinion, Brussels’ involvement has benefited energy deals with non-EU countries. Thus, Azerbaijan has promised the EU ‘considerable supplies of gas over a long period’ because Commission representatives personally negotiated in the country and the ‘joint European gas interested was stated very clearly.’

Oettinger also offered a pragmatic justification for the reporting obligation. ‘Often member states have had to make concessions in bilateral agreements which were not in fact reconcilable with internal community law,’ he said. During Polish negotiations on the Yamal pipeline for example, which transports gas from Russia to Germany via Poland and Belarus, there were investors and partners who wanted to ‘sit on the whole thing for themselves’. But internal EU market rules, said Oettinger, demand third party access. So the Commission got involved and secured it. ‘This is good not just for our Polish friends, but for the Russians, to avoid a long drawn out court case subsequently,’ Oettinger concluded.

In other words, by confirming in advance whether bilateral agreements are compatible with EU law, the Commission says it can provide investors with important legal certainty. In the longer term, it envisages developing ‘standard clauses’ that member states could use as a template for ‘EU law-proof’ intergovernmental energy agreements.

But of course this is just one reason for the new proposals, which are expected to lead to more transparency and an improved ability to maintain a properly functioning internal energy market, safeguard energy supplies, and realise major new energy projects. The price for all these benefits, according to the Commission, is only a ‘rather limited extra burden’ on member states.

Warsaw's watch

But to what extent will member states be prepared to cede their powers in external energy policy? Oettinger said he had reason to be optimistic about member state support for his plans. First off, he pointed to the 4 February Energy Summit, where European leaders had called for more coherence of course. Second, an informal meeting of EU energy ministers earlier this year ‘there were some very encouraging remarks made and blockage seemed unlikely,’ the German commissioner said.

Third, in Poland, which currently holds the rotating EU presidency, the Commission has a vociferous supporter of the proposal in the Council of Ministers. Poland has an eternal bone to pick with Russia,

'This is very important to Warsaw. It would be nice to think we could sort this out before the end of the year'
and it has made external energy policy a priority for its term in office. Under Warsaw’s watch, energy ministers are due to discuss the Commission’s proposals in November and heads of state at a summit on 9 December. ‘This is very important to Warsaw’, Oettinger said. ‘It would be nice to think we could sort this out before the end of the year.’

Jerzy Buzek, the European Parliament’s current president and a former prime minister of Poland, spoke of the proposal in glowing terms. ‘Creating a real European Energy Community is just as important as the 1992 single market project’, he said. ‘The EU must have the ability to pool its supply capacities and to engage in coordinated energy purchasing.’ He added: ‘Negotiating EU-level agreements with third countries... will become ever more necessary.’

Trans-Caspian Pipeline

This last suggestion goes further than the Commission’s legislative proposal. It is made, however, in the much broader policy paper accompanying it, where the Commission sets out a detailed vision for all aspects of a future EU external energy policy. Here, it suggests that sometimes the Commission should negotiate not alongside but instead of member states. ‘Negotiating mandates for the EU may be necessary where agreements have a large bearing on the EU energy policy objectives and where there is a clear common EU added-value.’

The Commission points to its mandate to negotiate with Azerbaijan and Turkmenistan for a trans-Caspian pipeline as an example. Turkmenistan explicitly requested EU involvement in this. On Monday 12 September, the EU Council of Ministers is giving the Commission a formal mandate to negotiate with Azerbaijan and Turkmenistan for the building of a large trans-Caspian gas pipeline between the two countries. This pipeline is needed to get gas from Turkmenistan into Nabucco, a yet-to-be built pipeline which would connect Turkey to Austria. All of this ultimately is designed of course to reduce Europe’s dependence on Russian gas.

A similar EU-level approach could work well to secure the political and legal framework for importing large quantities of renewable energy from the Southern Mediterranean in future, the Commission suggests.

Construction of the Yamal-European pipeline (photo: General Electric)
But while member states may be able to swallow Commission interference in all bilateral energy deals, full-fledged substitution of member states by the Commission in energy deals is sure to raise some hackles. ‘It is the worst kind of meddling by the Commission’s control freaks,’ responded the British MEP Giles Chichester, Conservative spokesman on energy in the European Parliament. ‘Our energy arrangements are Britain’s own business, not the EU Commission’s.’ Other big nations with vested energy interests such as France, Oettinger’s own native Germany and Italy may yet prove similarly unenthusiastic.

Unseen insights

In the broader policy paper accompanying its legislative proposals, the Commission last Wednesday also presented some other hitherto unseen insights into its vision for a future EU external policy. One ambition the Commission has is to expand its energy market policies into neighbouring regions. It made a start on this several years ago with the Energy Community Treaty, which effectively extends the EU’s internal energy market southeast into the Balkans. Key transit countries Moldova and Ukraine recently joined the Energy Community and the Commission is now calling for stalled talks with Turkey to be restarted.

Switzerland is another energy priority for the Commission. Brussels is eager to finally fully integrate this country into the EU electricity market, as it did with Norway through the European Economic Area (EEA).

One way of extending its influence into neighbouring energy markets is for the EU to export its transparency and safety standards. The EU has some of the world’s highest standards of market transparency and regulation, as well as on nuclear and offshore oil and gas safety. It is trying to get other countries to raise theirs. For example, the Commission would like to see its nuclear safety ‘stress tests’ in the wake of Fukushima extended to its neighbours. And the EU is creating a new forum with partners in the Mediterranean to promote the highest offshore oil and gas safety standards in the region. The Commission also sees a role for the EU in setting global standards for sustainable trade and investment in green energy.

More general principles for energy trade and investment are currently promoted through the Energy Charter, which provides an international multilateral framework for energy trade, transit and investment. But a question mark continues to hang over the Charter’s relevance since Russia has never ratified it – and indicated it is unlikely to do so. Rather than daring to broach this sensitive point, the Commission suggests the Charter should be ‘refocused on core areas’ and seek new members in North Africa and the Far East.

EU-Russia Roadmap

But the Commission does tackle the issue of Russia. With regard to its most important energy partner, it says cooperation needs a ‘new and strong legal base’. Negotiations on a New EU-Russia

'The EU must have the ability to pool its supply capacities and to engage in coordinated energy purchasing'
Agreement, which would replace that in force since 1997, must include a chapter on energy, the Commission stresses, addressing topics from access to energy resources, networks and exports markets to investment protection and crisis prevention. The Commission proposes a joint EU-Russia Energy Roadmap that identifies opportunities for long-term cooperation. More immediately, Brussels wants to discuss the stability of crude oil supplies through the Druzhba pipeline.

Where the EU could run into problems with Russia is in its plans to synchronise the Baltic States’ electricity networks with the EU’s power system. So far, the Baltic system is integrated into the Russian network. Swapping them over would mean disconnecting them from the Russian system. The problem is that the swap would, through geographical necessity, include Kaliningrad, a small Russian enclave. Russia is unlikely to agree to this lightly.

Another important point is that the Commission wants to reach a tripartite agreement with Ukraine, Russia, and the EU to ensure stable and uninterrupted gas supplies to Europe through Ukraine. Brussels says it will support efforts to rehabilitate Ukraine’s gas transmission network. About a fifth of the EU’s gas supply is estimated to pass through Ukraine. At his press conference on Wednesday, Oettinger said he did not foresee a repeat of earlier disruptions this winter. ‘You can never rule out a problem but as things stand I think it would be wrong of me to say I see a problem,’ the commissioner said. In any case, a new compulsory early warning system for supply disruptions ‘works’, he said, and member states are now required to have a 30-day reserve under the 2009 gas security of supply regulation. Nordstream, a new pipeline to transport gas directly from Russia to Europe, bypassing Ukraine, will come online on 8 November, Oettinger added.

Mediterranean Partnership

In the longer term, the Mediterranean is an area of growing importance for the EU, both for fossil fuels and electricity from renewable sources. The Commission expects the first large-scale pilot solar plant projects to come online in North Africa in 2011-12. It proposes an EU-Southern Mediterranean Energy Partnership focused on electricity and renewable energy market development in these countries. It would like to finalise a Memorandum of Understanding on energy with Algeria, where talks have dragged, and extend cooperation beyond the traditional oil and gas to renewables. Talks with Libya could be next on the agenda as this country emerges from turmoil.

In all of its partnerships, the EU sees a new role for cooperation on low-carbon technologies and energy efficiency in light of the climate change challenge. Climate policy is not explicitly mentioned in the

'It is the worst kind of meddling by the Commission's control freaks'
EU’s new external energy policy but there is plenty to suggest the EU is taking green growth seriously. The Commission proposes R&D and innovation partnerships with other large energy consumers on issues from smart grids to electric cars. It suggests new alliances will be needed too, for example with biofuel producing and consuming countries such as Brazil and the US, to promote sustainability standards. The EU plans for joint research with the US and Japan into substitutes for rare earth metals – a vital yet increasingly scarce resource for many of the latest energy technologies.

A final noteworthy proposal is the Commission’s suggestion to establish a ‘Strategic Group for International Energy Cooperation’, composed of representatives from member states and the Commission. This Group would coordinate the EU’s external energy position and speak on its behalf in international energy fora such as the International Energy Agency, G8 and G20. At the same time, the EU will seek to align its internal and external development policy with its energy goals. The Commission suggests creating a database of energy projects in partner countries funded by the EU, member states, or multilateral EU institutions such as the European Investment Bank, to maximise synergies and minimise duplication of effort.

The Commission’s external energy policy proposals come at a crucial time. As everyone knows, it is proving extremely hard to get the 27 members of the EU to stand shoulder-to-shoulder in financial matters. Günther Oettinger’s plans for a much more integrated external energy policy will be yet another “stress test” for the unity of the Union.

 

Eurelectric, the industry association of the European electricity industry, ‘welcomed’ the European Commission’s Communication on External Energy Policy. Eurelectric published its own policy paper last week on external energy policy, "One Voice in One Market".

The association of the gas industry, Eurogas, did not want to comment on the Commission’s new proposals. Eurogas did refer to its own position paper on the subject, published last May.

All the relevant documents relating to the Commission’s proposals can be found here.

Needless to say, if you, dear reader, would like to respond, please do so in the space provided below or send an email to the editor, karel.beckman@europeanenergyreview.eu.  

 

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