Robust or anti-fragile?

February 13, 2014 | 00:00

Robust or anti-fragile?

Prospects of EU’s 2030 energy and climate policy framework

The first European Energy Forecast Summit: 2014 Outlook organized by the Paris and Brussels-based think tank Premiere Circle took place last week in Brussels. Having established a business platform that provides opportunities for networking and knowledge sharing across energy professionals in Europe, this year Premiere Circle took a step further. The EEF Summit brought together European Commissioners, representatives of European energy industries, including CEOs of large companies, corporate sector, as well as state ministers and legislators. The headliner of the discussions was the 2030 white paper on climate and energy published by the European Commissions on 22 January 2014 (see the briefing by Vieuws in EER’s recent blog post).

Connie Hedegaard, EU Commissioner for Climate Action opened the fist day of panel sessions highlighting the importance of “smarter ways to create growth in Europe” and drawing the following conclusions from the 2020 strategy implementation: “The overall lesson that we have learned is that it helps when you set targets, and it helps when you create binding targets.” Furthermore, the Commissioner claimed that in the future EU’s energy strategy “it makes sense specifically to target efficiency and renewables”, as energy efficiency - being the only non-binding target - proved to be “the lowest in terms of result”, while the renewables could arguably provide more flexibility to the EU member states in order to meet the GHG emissions reduction target.

Recommendations for EU 2030 energy and climate framework

While supporting Commissions’ initiatives in reducing the GHG emissions in pursue of tackling climate change, certain representatives the European corporate sector, as well as World Energy Council, EUROGAS and European Climate Foundation, voiced some recommendations in relation to the framework proposed by the Commission:

One binding target instead of two/three

The outcomes of a survey carried out by World Energy Council across the European Member Countries, suggest quite different “lessons learnt” from the ones mentioned by Commissioner Hedegaard: the three-target-approach was considered “over-determinist” by an absolute majority. In the words of Dr Leonhard Birnbaum (Vice-Chair for Europe World Energy Council and Member of the Executive Board E.ON), the negative perception about the binding targets is explained by the lack of clarity regarding the priorities, which “kills systemic thinking”. Therefore, WEC and E.ON unanimously propose reducing number of binding targets to a GHG-target. However, it was suggested that additional targets may be included, if a clear mechanism is also put in place to link them together and ensure their achievement.

  • Further measures on energy efficiency and RES: up to member-states, provided they are in line with the internal market rules.
  • Cohesive energy policy has to be based on a market design in order to address the ‘long-term disconnect’ between the current policy streams (GHG reduction, energy efficiency and competitiveness).
  • “The quality of the [EU 2030 –D.N.] framework is to be determined not only on the basis of political signals, but their reliability for the investors” (Dr Johannes Meier Chief Executive Officer, European Climate Foundation)

The need for a long-term, predictable and stable investment climate in Europe has been the leitmotiv of the discussions among the speakers and the delegates. According to Monica Merli (Moody’s), predictability and regulatory transparency remain the key difficulties when it comes to investments in European energy infrastructure, where “the increased political interference or even the prospect of it creates uncertainties for investors” [note 1].

Efficiency of Europe’s energy transition – “Lost out of sight?”

The issues of European competitiveness and the current investment climate were addressed in the light of a changing legislative framework and the economically challenging environment. The EU’s ambitious pace of energy transition was approached with caution, bearing in mind its implications for the economic growth. Some of the key challenges identified during the Summit are related to the following topics:

Balancing security of supply and competitiveness

As Dr Johannes Meier (CEO, European Climate Foundation) stated: “Focusing on long-term benefits of low-carbon economy is not enough.” The EU has to rethink the underlying premises that determine its competitiveness, as arguably, “in an uncertain environment it makes little sense to be robust, rather, you need to develop the ability to be anti-fragile” [note 2]. From this point of view, one of the most evident “anti-fragile initiatives” would be to boost energy efficiency.

A perfect storm in electricity markets

The European Investment Bank announced that 40 percent of the existing conventional generation parks is at risk of closure if no additional investments will be made in the sector. Until we have electricity storages it is apparent that conventional electricity production is of exceptional importance. This ‘perfect storm’ is currently affecting the investment climate, hence, network development, making network cooperatives face an immense challenge.

At the same time, investing some 30 billion euro a year in the renewables sector is needed in order to achieve the EU 2020 targets alone. Therefore, the landscape of renewables across the EU member states has to be stabilized.

When discussing the challenges in the power sector, the speakers went as far as claiming that “EU’s energy policy undermines European security of electricity supply”, although acknowledging that “it would be unfair to put the blame on a particular institution or member-state” [note 3]. The call for a more flexible, yet cohesive energy policy across the EU was very explicit. If the 20/20 targets were largely regarded as operational to driving RES, the 2030 framework is expected to address the consequences of the expansion of renewables in the functioning of the European energy markets.

Emission Trading System (ETS)

The need to bring the renewables under the ETS was expressed alongside with the review the price caps. However, some claimed that it might be “too little too late”, as the 900 million allowances are still planned to be thrown back to the market.

Completing the internal market by 2014

According to the Commission, “this deadline still stands, but what becomes a bit blurred is what ‘conclude’ means” [note 4].

Indeed, one may well argue that the completion of the European internal market can hardly be achieved at this stage. Apart from some immense investments in the energy infrastructure that are needed, multiple challenges of a full-fledged European energy market remain.

The table below summarizes some of these challenges as presented by Siemens at the Summit:

Prerequisites Short-term implementation
Full EU energy market liberalization, leading to converging energy costs Unlikely, e. g. France highly regulated, UK liberalized
Sufficient European grid capacity between member states Slightly improving, but starting from weak levels
Acceptance of all member states towards a common support scheme (FIT, RPS, EPS, capacity markets etc.) Highly unlikely
Coordinated European energy policy to define targets for the energy mix of each member state Highly unlikely

Source: Presentation by Dr. Udo Niehage
Senior Vice President
Head of Government Affairs, Berlin
Company Representative for the German Energy Transition, Siemens AG [note 5]

Daria Nochevnik is an MA Candidate International Relations at the University of Kent, Brussels School of International Studies. She is also a Researcher and International Projects Assistant at the Kent Brussels Office, International Affairs Group, Kent County Council

 

Notes

  1. Monica Merli, Managing Director Infrastructure Finance, Moody’s, Presentation at the European Energy Forecast Summit, 07-02-14
  2. Dr Johannes Meier, CEO, European Climate Foundation, Presentation at the European Energy Forecast Summit, 06-02-14
  3. Fabio Marchetti, Presentation at the European Energy Forecast Summit, Vice President - Head of Government Affairs, ENI, Brussels, 06-02-14
  4. Tom Howes, f.f. Head of Unit A4, Economic analysis and financial instruments, DG Energy, EC, European Energy Forecast Summit, Q/A session, 07-02-14
  5. Presentation by Dr. Udo Niehage
Senior Vice President
Head of Government Affairs, Berlin
Company Representative for the German Energy Transition, Siemens AG, European Energy Forecast Summit, 06-02-14

 

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