What Brussels holds in store for the energy sector

September 13, 2012 | 00:00

What Brussels holds in store for the energy sector

It's tough, la rentrée, but the bureaucrats are back, the crisis has resurfaced and the EU machine is in motion once more. What does it hold in store for energy policy this autumn? Cyprus, which took over the rotating 6-month presidency of the EU in July, has four main priorities: grids, the safety of offshore oil and gas platforms, renewables, and Energy Star (an energy efficiency programme with the US). Also on the agenda are: the reform of the EU Emission Trading Scheme (ETS), the internal energy market, energy taxation, biofuels, shale gas, carbon capture and storage (CCS) and nuclear energy. EER-correspondent Sonja van Renssen takes a look at what to expect from Brussels this autumn.

European Energy Commissioner Günther Oettinger
(c) Reuters/Laurent Dubrule

Energy infrastructure and offshore oil & gas

The two biggest legislative issues to be discussed by energy lawmakers this autumn are grids and the safety of offshore oil and gas platforms. The basis for the former is the European Commission's energy infrastructure package, issued nearly a year ago, which seeks to stimulate the construction of major new electricity, gas, oil and carbon capture and storage (CCS) projects. Its goal is to establish a number of "projects of common interest" that will benefit from new, fast-track permitting procedures. It also sets out conditions under which such projects could get EU subsidies. Cyprus's goal is to negotiate an agreement between member states and the European Parliament on these proposals by the end of the year.

MEPs are due to hold a first vote on the infrastructure package on 18 September. This will give the Parliament a mandate to negotiate with member states. Infrastructure is also one of two topics for the Cypriot presidency's informal meeting of EU energy ministers in Nicosia (Cyprus) on 17 September (the other is renewables - more on that later). In a background paper prepared for the meeting, the presidency notes a "significant convergence of views" on infrastructure and says "the remaining issues seem less problematic".

In parallel, the Commission and other stakeholders are drawing up a list of real-life projects “of common interest”, which is due to be finished by the end of the year. Member states and MEPs are also negotiating the special subsidies that could flow to these projects via the so-called "Connecting Europe Facility", a new line in the EU’s budget for 2014-20 if the Commission gets its way. It has proposed to set aside €9.1 billion for energy infrastructure projects (and almost the same again for broadband infrastructure projects, which smart grid projects could benefit from). The numbers will be fixed only when the next entire EU budget is decided – in theory by the end of the year – while a detailed framework for dishing out the subsidies is the subject of a separate debate this autumn.

On new rules for offshore oil and gas safety, Cyprus, which has recently discovered gas reserves off its coasts, is less ambitious, aiming only to achieve progress in negotiations rather than an agreement between member states and the European Parliament by the end of the year. The Commission issued the proposals nearly a year ago following the BP Deepwater Horizon oil disaster in 2010. It wants to extend an EU environmental liability directive to all EU marine waters and require offshore operators to assess risks, prove they could cope with a leak, and prepare emergency response plans in case of one.

The debate is set to move to these issues this autumn after focusing so far on the legal form of the Commission’s proposal. A majority of member states and MEPs – and the oil and gas industry – want a directive rather than the proposed regulation. This would give member states more time and flexibility to implement new safety rules. In July the Commission signalled it was ready to accede on this point. This means the debate will now move to issues such as how to ensure polluters have the financial ability to pay for any clean-ups, special conditions for Arctic drilling, the independence of national regulators and the law’s application to the overseas operations of EU companies. MEPs are due to hold a first vote on 9 October.

Internal energy market and renewables

The Commission's Energy Department is currently preparing a new policy paper on the internal energy market for release on 15 October. As EU energy commissioner Günther Oettinger said in an interview

Capacity markets are springing up all over Europe and Brussels would like to impose some kind of harmonisation on them
with EER in May: “Our internal market communication will be the start of a debate about market design, market mechanisms and capacity markets.” It is capacity markets in particular that will be the focus of the new communication. These are markets that reward the Megawatt rather than the Megawatt-hour, in other words, the availability of generation capacity rather than the production of energy. Capacity markets, which are necessary to cope with the intermittency of energy from renewable sources, are springing up all over Europe and Brussels would like to impose some kind of harmonisation on them.

The internal market communication will in effect complement the renewable energy communication that came out in June. The renewable energy communication makes it clear that while the Commission believes a “binding supportive framework” for renewable energy is needed beyond 2020, it has not yet decided whether that should primarily be based on markets or a combination of EU targets and national support schemes. This is part of the debate over a 2030 EU climate and energy package. Renewables is the second main topic for the Cypriot presidency’s informal meeting of EU energy ministers in Nicosia on 17 September. A ministerial resolution on renewables is due to be agreed at the only formal meeting of energy ministers that will take place in the second half of 2012, on 3 December, in Brussels.

Efficiency: Energy Star, finance and standards

The fourth and final priority on the Cypriot energy agenda is to finalise a five-year extension of the EU-US Energy Star programme, which coordinates energy labelling programmes for office equipment (computers, printers, scanners, etc). The existing programme expired at the end of 2011, but EU-US negotiations on a successor were complete by November. The EU must now adapt its existing legislation to reflect the new agreement. The Commission issued a draft regulation to this effect in March, which must be approved by member states and the European Parliament. The Commission says Energy Star reduced the electricity consumption of office equipment sold in the last three years by around 11 TWh, or 16%, cutting energy bills by €1.8bn. The main change in the new agreement is that the US is introducing third-party verification, while the EU will retain self-certification.

Cyprus will also oversee the Council of Ministers’ formal signing of the new EU energy efficiency directive, agreed in June, after the European Parliament rubberstamped it this week. After that, national governments will have to start implementing – after deciphering – the very confusing and complex result of a long, difficult negotiation. The Commission is still due to publish an assessment and recommendations for financial support for energy efficiency in buildings in the coming months. In parallel, EU regulatory committees are continuing to develop eco-design standards for a growing list of products with televisions, heaters and dishwashers just a few of those on the agenda for this autumn.

EU ETS reform

Although not officially an energy issue and therefore on the plate of environment rather than energy lawmakers, the reform of the EU Emission Trading Scheme (ETS) is a big legislative item in the energy arena in Brussels this autumn. At its very last meeting before the summer break, on 25 July, the Commission kicked off action on the ETS with a proposal to delay the sale of a certain number of carbon allowances into the market from next year. Its goal is to raise the EU carbon price – still languishing at below €10 a tonne. It wants to make up for the effects of the economic crisis in Europe, which has reduced industrial production – and therefore emissions – and left the carbon market with a surplus of allowances.

How many allowances should be delayed, if any, is what member states are supposed to decide by the end of the year. The European Parliament will have a veto. The Commission, which suggests between 400 million and 1.2 billion, is consulting on this until 16 October. At the same time as launching its proposal to delay allowance sales, the Commission is also asking member states and MEPs to confirm in law its right to do so. It appears to be taking no chances after several representatives from energy-intensive industries questioned its legal right to “intervene” in the market like this.

Later in October or November, the Commission plans to follow up with suggestions for deeper, structural reforms to the ETS, such as tightening the emissions cap for 2030. This will feed into the

The energy agenda is a busy one, with issues such as the ETS having effects on large parts of the European economy beyond just the energy sector
debate over a 2030 EU climate and energy package. Note that specific industry sectors, such as steel and cement, are currently developing their own 2050 low-carbon roadmaps to help shape this debate. It is also worth noting that at the end of August, the Commission announced plans to link with Australia’s fledgling ETS by 2018. A partial link from 2015 would already allow Australian firms to buy EU allowances – another good way of eating into Europe’s allowance surplus.

Energy in transport

Energy in transport is back on the agenda this autumn through energy taxation, indirect land-use change (ILUC) and CO2 standards for cars. Cyprus hopes to reach unanimous agreement on a revision of the EU's energy taxation directive at a meeting of finance ministers in Brussels on 13 November. It may well be successful since both the European Parliament and member states seem to agree that the core of Commission’s proposal – governments would have to tax diesel more than petrol based on its higher energy and carbon content – should be thrown out the window. Finance ministers and MEPs are happy for minimum tax rates to be set according to the principle that diesel contains more energy and emits more CO2 than petrol, but they do not want actual prices (fuels are usually taxed well above the minimum) to have to reflect this.

Biofuels were in the news all summer due to intense droughts in the US that triggered calls for biofuel promotion policies there and in Europe to be toned down as fears of a food crisis bloomed. To make matters worse, a study released over the summer from the Friedrich-Schiller University in Jena, eastern Germany, suggested greenhouse gas savings of locally produced rapeseed biodiesel were not as high as the EU’s renewable energy directive assumes (only 30%, not 38% as per the directive). Still to come is a Commission proposal on indirect land-use change (ILUC), or the indirect displacement of forest by fuel crops. Originally due by the end of 2010, the Commission has repeatedly postponed rules to account for ILUC-related carbon emissions because numerous studies have shown these would be very bad news for biodiesel. The new date for the proposals is October.

Separately, the Commission is still debating whether to propose EU sustainability criteria for solid and gaseous biomass (vs. liquid biofuels). So far, there are only national criteria.

Just before the summer break, the Commission also rolled out a proposal on CO2 limits for cars and vans in 2020. The new proposal confirms limits already floated in existing legislation: 95gCO2/km for cars and 147gCO2/km for vans. This would cut car emissions by a third and van emissions by a fifth compared to today. Carmakers are divided over the proposals, some saying they can be met, others warning of a fresh burden on an already sickly sector. Member states and MEPs are set to sink their teeth into the plans even as the Commission prepares a follow-up proposal for CO2 standards after 2020 for release in November. It is also due to issue an alternative fuel infrastructure package towards the end of the year. This is likely to cover electric cars as well as biofuels and other alternative fuels.

On other transport issues, the EU faces a continuing battle with the US, China and others over its inclusion of international flights in the ETS. An EU proposal to regulate CO2 emissions from international shipping looks less and less likely this year. Fuel suppliers to ships will have to comply however with new marine fuel sulphur limits agreed by EU policymakers in May.

Shale gas, CCS and nuclear

The shale issue has never left Brussels despite a consultancy report for the Commission at the start of the year that concluded there are no major gaps in EU environment law to regulate current shale gas activity. In the European Parliament, MEPs in both the environment and energy committees are busy preparing reports on shale gas, to be voted on in mid-September. And last Friday, on 7 September, the European Commission released three more studies on shale gas extraction in the EU, one on environment impacts by DG Environment, one on economic impacts by the Joint Research Centre and one on climate impacts by DG Climate Action.

Their conclusions are contradictory: yes, shale gas could compensate for the decline in conventional gas production in the EU (although import dependency would remain the same), but the risk to the environment is high. One of the reports presents an exhaustive list of EU policy gaps that need to be filled to ensure the sustainable exploitation of shale gas.

Carbon capture and storage (CCS) is another issue which hasn’t gone away. Over the summer, the Commission published a report on the use of European economic recovery money for energy infrastructure. Despite good progress on most gas and electricity infrastructure projects, it said the

Yes, shale gas could compensate for the decline in conventional gas production in the EU, but the risk to the environment is high

supported CCS projects are still behind schedule. None have adopted final investment decisions. Two of the projects also appear in first and second place on a list of preferred projects for additional, EU carbon market funding published at the start of the summer: the UK’s Don Valley project and Poland’s Belchatow lignite plant. The Netherlands's Green Hydrogen project is third of this preferred list. Up to three CCS and 16 renewables projects are set to benefit from the carbon market funds. This is fewer than the Commission originally intended, which is due to the persistently low carbon price. The projects are to be funded from the proceeds of ETS auctions, and they look to deliver only up to €1.5bn now, not the €4.5bn originally foreseen. Successful applicants will be named by the end of the year. The Commission is still considering a fresh policy paper on CCS.

On nuclear, the Commission plans to issue a fresh report on the availability of nuclear decommissioning funds in different EU countries this autumn. Its final report to member states on nuclear stress tests is also expected, with new proposals on reinforcing the existing European legislative framework on nuclear safety to follow.

That is a summary of what to expect from Brussels this autumn. The energy agenda is a busy one, with issues such as the ETS having effects on large parts of the European economy beyond just the energy sector. The EU’s guide for its energy future remains the energy 2050 roadmap (yet to be accepted by Poland), which sets out scenarios for secure, sustainable, affordable energy supplies. The debate unfolding now is how to get to there.

 

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