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Energy Issues In Brussels – What’s In The Pipeline?

By Henrik Bernitz, MSL Brussels

A competitive internal energy market in the EU is paramount to give European consumers a choice between different gas and electricity suppliers and make the market accessible for all suppliers.

 

According to the European Commission, a competitive internal energy market in the EU is paramount to give European consumers a choice between different gas and electricity suppliers and make the market accessible for all suppliers, especially the smallest and those investing in renewable forms of energy.

The first liberalisation Directives were adopted in 1996 (electricity) and 1998 (gas), with the objective of opening up the electricity and gas markets by gradually introducing competition.

The second liberalisation Directives were adopted in 2003 and included ‘unbundling’, whereby energy transmission networks have to be run independently from the production and supply side. These directives have allowed businesses and private customers to choose their power and gas suppliers freely in a competitive marketplace.

However, a competition enquiry in the electricity sector, published in January 2007, revealed some “serious malfunctions” in the market for industrial consumers. After long negotiations, a new Directive on market liberalisation was adopted in 2009. This was to be transposed in Member States by March 2011, but Bulgaria, Cyprus, Spain, Luxembourg, the Netherlands, Romania, Slovakia and Estonia are yet to do so.

Let’s take a look at the key dossiers in the pipeline:

The Energy Efficiency Directive (EED)

In June 2011 the European Commission proposed a new set of measures as a new Directive on increased Energy Efficiency. This brought forward ways of stepping up Member States’ efforts to use energy more efficiently at all stages of the energy chain – from the transformation of energy and its distribution to its final consumption. Proposals included a legal obligation to establish energy saving schemes in all Member States, major energy savings for consumers, the Public sector to lead by example, etc.

The draft EED was discussed at ministerial level in Brussels mid- February 2012, at which point most Member States were politically willing to commit to the movement, but unwilling to spend, refusing binding targets for energy savings, only accepting flexible “measures”.

However, after added pressure within the Parliament from Claude Turmes (Greens, Luxembourg), the rapporteur for the draft Directive, the committee for Industry, Research and Energy (ITRE) voted on 28th February to jump start negotiations with the EU Council as soon as possible, before the vote in the Parliamentary plenary session mid-March.

In order to succeed, the directive will have to find ways of appeasing national governments that are less supportive of binding efficiency legislation. The Danish Presidency is then willing to find a compromise at Council level before the end of June as it is one of its main priorities.

The draft EED was discussed at ministerial level in Brussels mid-February 2012, at which point most Member States were politically willing to commit to the movement, but unwilling to spend, refusing binding targets for energy savings, only accepting flexible “measures”.

Energy Roadmap 2050

Presented by Energy Commissioner Günther Oettinger in December 2011, it aimed at achieving the EU goal of reducing greenhouse gas emissions by 80-95% from 1990 levels by 2050.

The Roadmap sends a strong message that decarbonisation efforts in the energy sector would be generally beneficial, with a shift from imported fossil fuels to domestic investments.

The Roadmap 2050 puts forward several illustrative scenarios combining the four main decarbonisation routes, namely energy efficiency, renewable, nuclear and carbon capture and storage (CCS); these include: stronger commitments to high energy savings, diversified supply technologies, high renewable energy sources, delayed CCS and no new nuclear reactors.

While the EC reiterates Member States’ responsibility in determining their energy mix, it highlights the need for an effective and greater policy framework to ensure a solid ground for energy security and competiveness.

Gas is seen as critical for the transformation of the energy system in achieving emission reduction as it can be a substitute for coal and oil in the short to medium term.

The Roadmap was criticized by some at its publication for its lack of policy recommendations and interim targets for 2030 (to be proposed by the EC in the coming months). The Energy Roadmap 2050 dossier is currently in the preparatory phase at the European Parliament, under the responsibility of the committee for Industry, Research and Energy (ITRE).

On 29th February, the proposal was passed in the European Parliament, with a majority vote in favour from the committee for Economic and Monetary Affairs (ECON)

 

Low Carbon Roadmap

The EC is of the position that Europe could cut most of its greenhouse gas (GHG) emissions by 2050, thus making the European economy more climate-friendly and less energy-consuming. Reducing GHG emissions to 20% is one of the EU’s goals by 2020. The Roadmap for Moving to a Competitive Low-Carbon Economy in 2050 (March 2011) looks beyond this time period, setting out a plan to meet the long-term target of reducing domestic emissions by 80 to 95% by mid-century, as agreed by European Heads of State and governments. It shows how the sectors responsible for Europe’s emissions – power generation, industry, transport, buildings and construction, as well as agriculture – can make the transition to a low-carbon economy over the coming decades.

To reap the benefits of a low-carbon economy, the EU would need to invest, on average, an additional 1.5% of its GDP annually over the next four decades. The extra investments will spur growth within a wide range of Europe’s sectors and services, and 1.5 million additional jobs could be created by 2020.

The European Parliament’s committee for Environment, Public Health and Food Safety (ENVI) recently adopted a report by Chris Davies (ALDE, UK) backing the Commission’s low-carbon roadmap, before the vote in plenary in March. According to Davies, “even in the absence of a binding international treaty of the kind that we seek, Parliament accepts that the EU should accept the role of first mover, and must take the steps necessary to build a low carbon economy by 2050.”

 

Energy Taxation

In April 2011, the EC presented its proposal to revise EU rules on the taxation of energy products. They find the current Energy Taxation Directive to be outdated and unable to address the EU’s higher ambitions in energy and climate change policies. With the revised Directive, the EC wants to promote energy efficiency and consumption of more environmentally friendly products and to avoid distortions of competition in the Single Market.

The revision to the Directive would change the way energy products are taxed, in order to eliminate current imbalances and take into account both CO2 emissions and energy content of products. It would end diesel’s tax advantage over petrol.

On 29th February, the proposal was passed in the European Parliament, with a majority vote in favour from the committee for Economic and Monetary Affairs (ECON). As the new Directive would price diesel more highly than petrol (the opposite being the case for most EU countries) there have been certain conflicts. The EPP abstained from the vote, whereas the Socialists, Liberals and Greens have been more supportive of the move. The EU Danish Presidency is expected to present fresh compromise proposals to the Council committee of national experts on Monday 5th March.

When it comes to security of energy supply, even though the Commission tries to reconcile Member States’ diverging positions and ensure than the principle of common interest is maintained, it nonetheless proves to be a contentious topic.

 

Infrastructure

A strong EU internal energy market with security of supply depends on a reliable and coherent energy network in Europe, and therefore on infrastructure investment.

The Trans European Energy Networks (TEN-E) are considered important to the EU’s overall energy policy objectives, increasing competitiveness in the electricity and gas markets, reinforcing security of supply, and protecting the environment. The EU is currently financing electricity and gas transmission infrastructure projects of European interest. Most of the projects are cross-border or have an influence on several Member States. Last November, the European Commission presented its energy infrastructure priorities for the coming two decades which included: electricity grids (e.g. an offshore grid in the North Sea and interconnections in South Western Europe) and gas connections (e.g. the Southern Corridor and the North-South corridor in Western Europe).

New guidelines for trans-European energy networks list and rank projects eligible for financing. The dossier is currently awaiting the first Parliamentary reading, under the responsibility of the committee for Industry, Research and Energy (ITRE), with António Fernando CORREIA DE CAMPOS (S&D, Portugal) as rapporteur. When it comes to security of energy supply, even though the Commission tries to reconcile Member States’ diverging positions and ensure that the principle of common interest is maintained, it nonetheless proves to be a contentious topic. For instance, complications of rivalry exist between supply channels, such as the Nabucco project and the South Stream project. Furthermore, some Member States’ agreements with third country suppliers are not necessarily compatible with EU regulation. For instance, the Commission is stressing the need for Russian oil to observe EU rules on competition and non-discrimination. Moreover, among the European community there are conflicting opinions as to the extent to which Europe should focus on moving away from energy dependence on Russia, looking to domestic resources.

Unconventional Resources of Energy

Over the past ten years or so, discoveries of unconventional fuel sources, such as oil shale and tar sands, look to revolutionise the global energy market. There have been major discoveries in the USA of these kinds of sources and extractions have already been carried out on large commercial scales. In Europe, the matter is more complicated – many say this is because of population density, which makes drilling problematic, and because of stricter regulations around energy production.

Discoveries of significant shale resources have been made in certain EU countries (Poland, Ireland, UK, Bulgaria and Ukraine), but there has been a huge amount of opposition to the process of extraction – hydraulic fracturing – believed by many to be dangerous for the environment and for human health. There has been pressure on EU institutions to investigate further with the hope of formulating tighter policy around shale gas exploration. The Commission has carried out studies on current regulatory frameworks on the matter in Member States and continues to research the possible effects of hydraulic fracturing, and the Parliament is also producing reports on the subject.

A series of important changes will also be taking effect as to the way the EU ETS works. For instance, on 28th February, a vote in the European Parliament for an amendment to the EU Energy Efficiency Directive will allow permits in the Emissions Trading System (EU ETS) to be withheld.

Emissions Trading System

The Commission believes the EU Emissions Trading System (EU ETS) to be a cornerstone of the European Union’s objectives to combat climate change and reduce industrial greenhouse gas emissions cost-effectively. It covers some 11,000 power stations and industrial plants in 30 countries (the 27 EU Member States, Iceland, Liechtenstein and Norway). The ETS will be expanded to airlines in 2012 and the petrochemicals, ammonia and aluminium industries in 2013.

A series of important changes will also be taking effect as to the way the EU ETS works. For instance, on 28th February, a vote in the European Parliament for an amendment to the EU Energy Efficiency Directive will allow permits in the Emissions Trading System (EU ETS) to be withheld. The move is designed to reduce the surplus of allowances currently on the carbon market produced by a combination of uncertainty over the eurozone crisis and stalled economic activity as a result of the recession.
Fuel Quality Directive

In October 2011 it was proposed that the EU Fuel Quality Directive be revised, in terms of the implementation of the labelling and pricing of fuels according to their carbon emission. One area that has been particularly contentious has been the treatment of tar and oil sands, which are believed by many to be highly polluting. Under the proposal, tar sands are assigned a default greenhouse gas value of 107g of carbon/MJ, advising buyers it has more climate impact than conventional crude with 87.5g.

Canada has engaged in a battle with Europe over the proposal, as it is a country rich in tar sand resources, and has been aggressively lobbying for the plans to be rejected. The EU has also been subject to heavy lobbying from the other side of the debate. The vote finally took place in the Fuel Quality Committee on Thursday 23rd February, but there was no qualified majority, which means the vote will be passed onto the Council of Environment Ministers on 11th June.

 

This article is part of a report “Europe’s Energy – At A Crossroads”, published on April 15, 2012 by MSLGROUP on the state of the energy industry in Europe. With the backdrop of socio-economic challenges facing other countries including climate change, growing fuel poverty and security of supply, MSLGROUP’s dedicated energy team has to confront various issues every day on behalf of our clients and in this report, we share our thoughts on these issues. MSLGROUP has a growing footprint across Europe and beyond, and a fantastic team in place to help our clients rise to the challenge of communicating effectively with stakeholders around the world on these and other critical issues.

 

Henrik Bernitz has extensive experience in EU affairs, including several previous positions held with the EU institutions. Henrik has published numerous articles and reports, including parts of the official government study on the Amsterdam Treaty, and reports for the European Commission.

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