EU energy policy: more questions than answers

07 March 2007

European Commission president José Manuel Barroso is a good salesman. In announcing 10 January the Commission's first major initiative of 2007 – an energy and climate change strategy taking the European Union to 2020 – he encouraged us all to buy into the dream of a “low carbon economy.” Europe, he said, could forge a “post-industrial revolution,” in which competitiveness will be maintained, the environment protected, and energy supplies secured, writes Stephen Gardner. However, the upbeat headlines disguise the true intentions of the Commission's plan. At its heart is the admission that climate change cannot be stopped and the only possibility is to beat, in the words of climate scientist Professor James Lovelock, “a well planned sustainable retreat”. The Commission's wants to limit global warming to two degrees Celsius above pre-industrial levels, but the publication on 2 February of the Intergovernmental Panel on Climate Change's (IPCC) fourth assessment report threw this into sharp relief. Temperatures are expected to rise anywhere from 1.8 to four degrees in the next hundred years, according to the IPCC's “best estimate”. The increase may even be as high as 6.4 degrees, leading to melting ice caps, hurricanes, heatwaves, rainfall disruption and droughts. Crysallising the debate But at least the Commission has crystallised the debate. “Until now there was no clear policy for common goals” addressing energy and climate change, says Juan Delgado, a research fellow at Brussels think tank Bruegel. “The Commission has put all the cards on the table. Now it is the [EU] member states' responsibility to choose what they want from the menu.” Member states will pass first judgement on the proposals at the European Council on 8-9 March. The menu before them largely consists of a series of recommendations for increasing energy efficiency and diversifying the energy mix, with a number of headline targets attached. By 2020, the Commission says, primary energy consumption should be 20 percent more efficient, renewables should comprise 20 percent of the energy mix, and biofuels should contribute 10 percent of vehicle fuels. Achieving these will allow the EU to reduce its reliance on fossil fuels imported from unstable suppliers, such as Russia and the Middle East, both of which will enjoy increasing shares of global production in the years to 2025. The Commission also proposed further targets in separate initiatives published during January and February: carbon dioxide generated by the production and use of fuel should fall by 1 percent annually from 2011, and car engines should emit on average by 2012 only 120 grammes of CO2 per kilometer, compared to around 162 g/km today. All this, argues the Commission, combined with existing measures such as emissions trading, will make possible an overall cut in CO2 emissions of 30 percent by 2020. However, this is contingent on other developed countries coming on board as part of a post-2012 Kyoto Protocol agreement. If this cannot be done, the EU will, under the Commission's proposals, work to a self-imposed target of a 20 percent cut in CO2 emissions by 2020, compared to 1990 levels. Wishful thinking? Jason Anderson, a research fellow at the Institute for European Environmental Policy (IEEP), says the 30 percent target is not just wishful thinking. “It can be done – but can it be agreed? The question is, will the technological possibilities be matched by political will?” Christian Egenhofer, senior fellow at the Centre for European Policy Studies (CEPS), agrees. Commission proposals to the EU states “never come through unscathed,” he says. He adds it is likely the March European Council will support in principle the energy plan's broad lines, but “the targets are only meaningful if member states have strategies to achieve them. They must put policy instruments in place. There is nothing yet.” It is the agreement in principle that the Commission is looking for at the moment, says Bruegel's Delgado. More concrete proposals will follow. “The Commission's objectives are very general. It is not clear how they can put them in place. There will be no legislative proposals to implement the goals before the summer. Even if member states agree on the principles, they won't agree on the details –  details are much more difficult.” Bones of contention are already emerging. One is the Commission's insistence that a “true [EU] internal energy market” needs to be created. This will drive the efficiencies required to meet CO2 reduction goals and will be achieved largely through “ownership unbundling” – separating the production of energy from its transmission to the customer. Large utilities, especially in France and Germany, have already stated their opposition. Germany's RWE, in a statement to the Financial Times, said unbundling may be illegal in Germany and could “amount to expropriation.” CEPS's Egenhofer says the question of liberalising the EU energy market is the “biggest point of controversy” in the Commission's package, and may “sour the whole discussion.” Although blaming some countries for intransigence is “simplistic,” he says, “in principle, most problems will come from Germany and France. If Germany is not willing to move, it makes things very difficult.” Devil in the detail The other area where the devil is in the detail is the Commission's approach to the future energy mix. This is controversial partly because of the heterogeneity of the energy mix in different EU countries. In Sweden, for example, oil contributes 29 percent of the energy mix; nuclear power 37 percent; and hydropower and renewables 25 percent. By contrast, in Poland, coal supplies the greatest share (59 percent), with oil providing 24 percent and renewables just 5 percent. In the United Kingdom, oil and gas are predominant, meeting between them 73 percent of energy demand. The contribution of renewables is low at just 1.6 percent1. Some member states including France, the UK and Slovakia, are against blanket renewables targets. There is no disagreement over the headline emissions reduction target, but member states want maximum freedom in deciding how to achieve it. Countries are keen to reduce oil and gas dependence, says Bruegel's Delgado. But “some are limited in their supply options. In the long term it is difficult to radically reduce dependence on oil and gas. They have to start now, because it takes time. The easy way is to go back to coal, but this is completely contradictory to environmental policy.” A second alternative is nuclear energy. Some countries, such as Germany, Italy and the UK are rethinking their attitudes to nuclear power because, Delgado says, they “have realised there is no clear alternative to replacing the power supply.” Delgado adds that renewables are presently “not a clear substitute for current sources.” The IEEP's Anderson partly agrees. “Renewables are realistic technically,” he says. If all forms of renewables, including hydropower, biomass and wind energy are taken together, the commission's stated 20 percent target may be possible. In fact, the EU already has a renewables target of 12 percent of the primary energy mix by 2010, but the Commission concedes this is unlikely to be reached. However, says Anderson, “they are not giving up; rather they are redoubling efforts.” The key to getting renewables off the ground will be to break down market access barriers using instruments such as generous subsidies – as once were given to the nuclear power industry. Countries like Germany and Spain are already willing to support renewables in this way, but for the EU as a whole, a “major societal effort will be needed,” says Anderson. Waiting for answers With its proposals, therefore, the Commission has started a ball rolling, but for the moment there are more questions than answers. Providing answers will take two to three years, says Christian Egenhofer from CEPS. “It's a huge package, with a major impact in many areas.” The Commission – and society in general – is also paying insufficient attention to a fundamental trend in energy supply, says Dr Michael Smith, director of Energy Files, an oil and gas forecasting agency. “Normally, targets grossly overestimate how much gas and oil will be available,” he says. “There will be a huge shortfall in gas and oil regardless of energy efficiencies.” The Commission's plans are therefore timely, but are they radical enough in a world in which, according to a 2004 French government report, the oil production peak will be reached in 2013? The oil price shot up between 2002 and mid-2006, though it has now moderated somewhat at around $59 per barrel at the beginning of February 2007. Dr Smith insists that the EU “should reduce vulnerability right now” through “radical strategies” such as de facto rationing, especially of liquid fuels, using financial and technical instruments. EU member state governments are hardly likely to agree to such measures when they meet in March. Bruegel's Delgado says even confronted with increasingly stark evidence “no country wants to take on additional burdens in terms of environmental standards.” The way to reach a viable agreement, he says, is to share goals and burdens as widely as possible – and steps in that direction have begun. The day after the launch of the IPCC report in Paris, 46 countries backed a French call to create a strong United Nations level environment agency, in place of the current UN Environment Programme. This would be based on a 'Universal Declaration of Environmental Rights and Duties.' The EU should play the lead role in this development, says Delgado. What is really needed is a long term, concerted effort to manage energy and environmental policy, based on an international structure that “must impose obligations from above.” A version of this article originally appeared in Ethical Corporation magazine.

 

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