The Answers We Would Like to Find in the State of the Energy Union

November 11, 2015 | 00:00
The Answers We Would Like to Find in the State of the Energy Union
The Answers We Would Like to Find in the State of the Energy Union
In a week, the European Commission will publish its first “State of the Energy Union”: the report was anticipated by the Energy Union Communication of the 25th of February, which envisaged an annual reporting on the initiative. The occasion triggers an interesting debate on the multiple challenges the European energy policy faced in the months following the launch of the initiative. Furthermore, it raises the question what is to become of the project which was still undefined at this birth and trapped between being the new appearance of old policies and possibly the first serious attempt for an effective and truly European energy policy. However, it is not quite clear whether we will find the answers in the forthcoming Commission Communication (or anywhere else).

As a matter of fact, the tireless twitterer Alice Stollmeyer has already published a leaked draft of the State of the Energy Union. The paper will be matched by other documents: the new list of Project of Common Interests (PCIs), a first Annex , which will be a Roadmap of the forthcoming activities of the Energy Union, and a second Annex, a guidance document for Member States on energy and climate plans, to strengthen the governance of the Union. While these last two documents have not been made public yet, we had a chance to see a draft version of them.

The document leaked by Alice Stollmeyer appears to be in line with the structure of the communication of the Commission during the past few months. In other words and as noted by Stollmeyer as well, the document seems to list the Commission’s achievement and to show its coherence with the previous Communications, without answering to the overall state of the most prominent challenges and the evolution of hot situations (Russia, capacity markets, Nord Stream 2, for instance). The report is still missing several parts, in particular its conclusions and the description of proposed indicators. However, it already seems to neglect some of the objectives described by the early Roadmap of the initiative, particularly when this stated that it should aim “to ensure comprehensive and holistic reporting on the state of play, challenges, and way forward for the implementation of the Energy Union across its five dimensions”. While we cannot expect the Commission to pose uncomfortable questions to itself in the Communication, it is interesting to use the occasion to consider at least four points on which many would like to know the stance of the Energy Union.

1. How to empower the European climate action?

Decarbonising the economy is the third dimension proposed by the Energy Union Communication, but, together with Security of Supply, this is probably the objective which received the greater focus on the European and national level. As the COP21 in Paris is approaching, and so the likely definition of a new Protocol after the end of the unfortunate Kyoto treaty, Decarbonising the economy strictly relates to the international diplomatic position of the EU, in particular due to the growing involvement in climate diplomacy by the USA and China.

The draft State of the Energy Union confirms the official position of the Commission on the topic: The EU economy is currently the most carbon-efficient major economy in the world. However, it does not reflect on how long it will be so, and how effective this carbon efficiency is.

In fact, dieselgate struck a great blow to the environmental reputation of one of Europe climate champions, Germany, hitting not energy production, whose position was already stained by the importance of coal in electricity generation, but car making, the crown jewel of the German industry. As many Member States are still eager to water down the emissions standard proposed by the Commission and supported by the Parliament, a stronger stance by the Energy Union would have been positive to empower the image of Europe in the sector. However, the State of the Energy Union draft names some “next steps”, which are still missing and will maybe shed light on the Commission's future actions. If the ETS revision, proposed by the Summer Package, is indeed a significant step forward, Europe still seems uncomfortable with its relationship with fossil fuels. The Energy Union proved to have a significant focus on gas, likely due to its original anti-Russian interest, and to overestimate gas demand in its projections. As showed in the E3G’s report “Europe’s declining gas demand”, the Commission estimations for the 2015 demand levels decreased by 23% in the past ten years, are still 20% higher than the observed value for 2014 and, finally, are even greater than all the range of forecasts by the gas industry itself. The estimates do not take into account either the outcome of the current energy efficiency target, whose achievement is part of the Energy Union’s aims. Finally, these data are used to plan the development of new projects, such as the new list of PCIs, so this overestimation is unfortunately not only a theoretical matter.

The situation with coal is probably even worse, but it does not seem that the Energy Union is very keen on addressing it. A quick word search in the draft State of the Energy Union shows 44 references to gas, and none to coal. Yet, the “dark secret of Europe”, as the Economist called it, is still there: in 2015, European coal prices have declined 26% and the value for 2016 hit an all-time low of less than $50 a metric ton. It was low prices which led to a 6% increase in coal emissions from 2010 to 2013, when they represented 18% of all European CO2 emissions: almost as much as those from the whole transportation sector. Despite the decrease in coal consumption in Europe from 2013, 19 plants are still under construction, and many Member States are not eager to get rid of their coal industry. One of the priorities of the new Polish government is indeed to save the 96,000 mining jobs of the collapsing coal sector, possibly integrating the mines with the power utilities owned by the state. Germany increased its total emissions by 1.2% in 2014, also due to a 44% of its electricity coming from coal plants, and an increase in coal consumption by 3.8% from 2012 to 2013. Worried about lack of capacity, as a consequence of the nuclear phase-out, the country has decided this July to keep several of its lignite plants as reserve, at least until 2017. A decision which could be significantly more harmful than the Volkswagen dieselgate, and which casts doubts on the true commitment of Germany to the Decarbonising the economy dimension.

2. How to make a coherent external energy policy?

The international level has seen the Energy Union very active, with VP Šefčovič probably being the first true “energy diplomat” of the EU. The results are clearly shown by actions such as working on a strategic partnership with Algeria, proposing the Euro-Med platforms with Morocco and, in particular, launching the High Level Energy Dialogue with Turkey, which has recently synchronised its electricity network with Europe. The country's strategic importance is growing, thanks to the gas discoveries in the South, the Turkish Stream project in the North and the possible new flow of gas arriving from Iran after the nuclear deal. Nonetheless, the Energy Union has been unclear on a few other points of strategic importance. The negotiations for the Transatlantic Trade and Investment Partnership (TTIP), for instance, still lack transparency. On the matter, the draft State of the Energy Union focuses again on gas, referring to the importance of energy in general and Liquefied Natural Gas in particular, and then makes this rather mild remark:

To increase transparency and to ensure that intergovernmental agreements (IGAs) in the energy field comply with applicable EU legislation and policies, the Commission will propose in early 2016 a revision of the current Decision on intergovernmental agreements.

Meanwhile a confidential text, published by the Guardian, already shows a bland approach to environmental safeguard measures in the TTIP by the European negotiators.

Russia remains the most complicated situation, and the Commission role has been significant on this, in particular regarding the trilateral talks, where achieving a result was not an easy task. The Second Round was delayed, apparently for “technical issues”, while the implementation of the binding protocol finally agreed between Ukraine and Russia this September needed further intervention by VP Šefčovič himself to be applied.

Nonetheless, Moscow is not the only one to blame, and the troublemakers are probably elsewhere as well: specifically, among the Member States. If it was Russia which proposed the Turkish Stream project, it was Greece to sign a preliminary agreement worth 2.27 billion dollars, while Hungary discussed its potential participation. Shortly after, Gazprom signed the agreement for the expansion of Nord Stream by 55 billion cubic meters of gas a year with the German E.ON, the French Engie, the Italian BASF and the Austrian OMV. The project can be hardly considered of European interest: it will not only deprive Ukraine of hundreds of millions in transit fees, but also Slovakia. It will bypass at least four Member States which could strongly benefit from increased connections (the Baltics and Poland, but also Finland and Sweden could be included). It will put additional pressure on an already complicated situation, as the Nordstream upstream pipeline, OPAL, is still running at half capacity, lacking the access by multiple suppliers required by European legislation. Not by chance, the expansion of such an already criticised infrastructure faced the opposition of Šefčovič shortly after its formalisation. However, despite the commitment by the Commission in the draft State of the Energy Union to assess it rigorously against the European regulatory framework, preventing such a situation would have been probably better for the cohesion of the new-born Energy Union.

3. How to align the Member States?

The most interesting answer we would like to find in the State is indeed on how to steer the Member States along common policy lines. If this is somehow possible.

In fact, the Commission is facing the need to align the different interests under the still unclear umbrella of the Energy Union. A difficult task, due to the heterogeneity of Member States, which is made even more problematic by their attitudes. Poland for instance, whose former Prime Minister Tusk was one of the promoters of the Energy Union, is keen on a more robust gas Union, and supported the recently agreed Polish-Lithuanian interconnector. This not only in an anti-Russian stance, but also to counterweight the dominance of Germany as regional gas hub. However, Poland is definitively less favourable to a stronger position on decarbonisation, as proved by the powerful opposition to the ETS reform this year. A position which will be likely reinforced by the newly elected Polish government. The famous “Efficiency First” promise by the Energy Union is facing increasing difficulties due to the lack of compliance by Member States: exactly one month after the Energy Union Communication, the Commission launched an infringement procedure against all Member States but Malta for not notifying the Commission about the national measures to transpose the Energy Efficiency Directive. On the 22nd of October, eleven Member States were again required to fully transpose the Directive.

While it is right to say that the Commission has taken several actions against the non-compliance of Member States, sometimes these have been unclear or incomplete. The always-active DG Competition launched a State Aid inquiry into the capacity markets mechanisms many countries promoted in the past few months. Notably, the United Kingdom, the only Member State to have already developed a capacity market, was not included in the 11 Member States analysed by the inquiry. While it is true that the UK market has been the first to receive designated guidelines, having a different treatment for one of the more troublesome Member State has rarely been a lucky choice. Not by chance, the recognition by the Commission of the Hinkley Point C plan as not being State Aid has been followed by the decision of several European energy providers to sue the Commission.

While these problems can be detrimental to the compactness of the Energy Union, they are also treacherous for the achievement of the 2030 energy and climate targets, as they are not legally binding on a national basis. In fact, unlike the previous 20-20-20 package, the 2030 energy strategy set targets only for the EU as a whole, leaving to the coordination of the Commission and the cooperation of Member States the achievement of these.

On this, the first Annex to the State of the Energy Union, on guidance to Member States, is of particular interest. In the draft version, this seems to aim at ensuring coherence between the Energy Union framework and the national plans. Thus, these will be defined in relation to the five dimensions, and coherently with its principles. The development of infrastructures and the structuring of internal demand will be then compliant with rules of energy security and solidarity, thus preventing (or trying to prevent) situations such as Nord Stream 2. There will be also a renewed focus on the 15% target of interconnection, which was considered only an “ideal” option in the original Energy Union Communication. Ambitions whose fulfilment will however depend on the timeline and the measures proposed by the Commission in the second Annex, as well as (or probably mostly) by the true commitment of Member States to the project of the Energy Union. And, at the same time, to the degree of agreement on what this project is and will be.

4. Where to find the soul of the Energy Union?

The most important answer we would like to find in the State of Energy Union is, indeed, what is the Energy Union. The project has been launched with a high degree of flexibility, and it is not too risky to assume that it was, and probably still is, in fieri, Latin for “becoming”. The uncertainty over the nature of the Energy Union is, at the same time, an advantage and a curse: its flexibility helps the definition of a set of policies, which should be able to deal with great heterogeneity and a wide array of issues, from the isolation of Spain to the diversification of the EU energy imports. Moreover, it helps the Commission to increase gradually its weight in several matters without scaring the Member States, which still hold a high degree of power in the implementation, as well as in the definition, of the European energy policy. Countries such as France or the UK would have hardly accepted the wider set of policies proposed by the Energy Union, together with a greater and newly defined governance. Likely one of the reasons why VP Šefčovič remarked several times that there was no need for a treaty change.

Yet, there is another side of the coin. An uncertain and relatively weak Energy Union allows more operating space to the individual action of Member States, which is often not coherent with the European interest. While the Commission can take remedies against these situations, they are not always effective, often expensive and the damage to the image of the Union is noticeably hard to repair.

This is why a steady, coherent and adequately ambitious roadmap is fundamental for the Energy Union, in order not to lose momentum. The measures proposed in the second Annex to the State of the Energy Union (the Roadmap) will be then particularly meaningful. Among the others, the document lists the review of the status of the ACER, and the energy regulatory framework in general. While being perhaps the most interesting, the content of this initiative is still undefined. Will it lay the foundations for a powerful European energy agency? The development of the European energy diplomacy, the new consumer deal, the new Regulation on the security of gas supply are also included, and their level of ambition will tell much about the future of the Energy Union. And the answer of the Member States to these proposals will probably be extremely meaningful to determine their commitment towards the Union as a whole.

Lorenzo Colantoni is a freelance journalist and researcher, specialised in energy and environment, particularly on European policies. Lorenzo is Associate Fellow at the Istituto Affari Internazionali (IAI) in Rome, collaborating on a series of projects, the most prominent being the Energy Union Watch, based off of the recent initiative established by the European Commission. As a journalist, he has worked with the geopolitical magazine Limes, particularly for the coordination of the October 2014 issue on the UK and Scottish separatism. In addition to European Energy Review, he has been writing for L’Espresso, the Caspian Strategy Institute and Energy Post, just to name a few outlets. You can follow him on Twitter @colanlo

Image: Energy Union.
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