Feb 7, 2011

The Sustainable Union: Towards a European Energy Community for the 21st Century

Europe led the way in the first industrial revolution, says Sami Andoura, but unfinished business in its energy agenda means that it is lagging behind in the current one. The strength of the EU lies in its capacity to harness technological know-how in a politically sustainable way. Recommendations for a sustainable Union.

Challenges of a modern European energy policy

When six European states decided in 1951 to integrate two key sectors of their economies and create a Coal and Steel Community (ECSC), their purpose was to replace conflict with cooperation and antagonism with prosperity. Energy was one of these two key sectors, and sixty years later, energy is still at the top of the political and economic agenda. However, despite increased regulatory activity, the EU and its member states are struggling to develop a truly common energy policy.

The difficulty of this task is compounded by the various challenges European societies are facing. These include climate change, which demands radical changes to the way we produce and consume energy; energy supply, due to the fact that people consume more resources than nature can provide and that the oil and gas on which the Union depends lie mostly outside Europe; and economic and financial challenges, illustrated by the recent downturn, which obstruct investment in key areas.

However, these challenges also offer opportunities. The development of alternative, sustainable energy sources and of green technologies is the key. They will underpin a new industrial revolution based on sustainable development and new technologies which will in turn help the Union’s members emerge from the economic crisis while paving the transition to a carbon-free or low-carbon economy by 2050. Will the EU choose to play a pro-active role in the next industrial revolution, or will it be content to follow the lead set by others?

A piecemeal EU approach

Member states have already identified fields of action in this area: the European Union needs to develop a common energy policy that promotes sustainable development and the transition to a low-carbon society, guarantees access for its citizens to energy at reasonable and stable prices, maintains its industrial competitiveness, and ensures security of energy supply for all Europeans.
However, the EU is finding it difficult to put in place a common energy policy along those lines. Despite a spectacular increase in regulatory activity aimed at creating a unified internal energy market (of which the cornerstone is the third energy package adopted in 2009), barely half of the work needed to create a single energy market has been done. Deregulation has been achieved but there is a long way to go before the various national markets become parts of a homogeneous block.

For example, the creation of a unified internal energy market requires a shared interconnection infrastructure for gas and electricity – something which also serves to improve Europe's energy security. However, the Union can neither finance actions of wide scope nor exercise choice over energy. The annual EU budget for energy is 20 million Euro – a negligible figure when compared to the amount member states spend in this area, let alone to the cost of a few kilometres of gas pipeline.
In addition, while the 20-20-20 objectives of 2007 are noble and ambitious in their bid to lower primary energy use and greenhouse gas emissions and to increase reliance on renewable energy sources, it is regrettable that member states too often favour national solutions to meet these shared objectives. Isolated national solutions – such as for instance in the area of renewable energy – not only have clear limits but create the risk of discordant responses to the same challenges. In this field there can be no truly satisfactory solutions, nor added value, without far-reaching cooperation between states.

Meanwhile the external energy environment has become increasingly political, and the European Union remains impotent. Whereas the Lisbon Treaty gives the Union limited powers in internal energy policy, the EU has no such powers in external energy policy. Therefore it struggles to develop a common strategy vis-à-vis producers such as Russia and to make choices about where to import its energy from.

And even though the Lisbon Treaty does explicitly recognise energy as an area of EU activity, stipulating that the EU’s energy objectives must be met in a spirit of solidarity between member states, this solidarity has not yet been defined in concrete terms at the European level. Yet, it is clear that solidarity must become the motor for developing a European energy policy, replacing conflicts over national sovereignty.

Moreover, the concept of solidarity could so easily be adapted to the specific demands of European energy issues. To start with, for example, the concept of solidarity could be broken down into some general principles and objectives such as: speaking with one voice (prior coordination) in bilateral relations with suppliers as well as on issues of external transit; a commitment to a level of investment in networks and to their pooled management; the pooling of potential national research and development programmes around certain critical projects; and enhanced interaction between regional blocs in Europe.

It is simply important to avoid reducing the principle of energy solidarity to financial transfers from "richer" to "poorer". Instead, it must be seen as an opportunity to determine the responsibilities of all and involve the 27 states in the development of European energy policy, thereby avoiding the risk of "free riders" in the implementation of the common energy market.

Long-term solution – a European Energy Community

If the EU’s leaders wish to take on the new challenges concerning energy, the environment, technology, geopolitics, and security collectively, they must ensure that the EU’s energy policy provides the decision-making tools to support these difficult policy choices while remaining flexible enough to accommodate change. In order to create a coherent European zone of energy regulation, the EU needs to develop a coherent approach that achieves a greater degree of competition, cooperation and solidarity in energy policy. The most ambitious option, and also the most promising, is that of a European Energy Community, with its own rules and functioning appropriate to the energy field and including relevant economic, political and strategic aspects. Such a common project is consistent with a deeper degree of integration and pooled sovereignty in this sensitive political field.

Such a European Energy Community would deal with a wide range of issues, including:
  • A well-functioning internal energy market, that is liquid and competitive both at the wholesale and retail level;
  • An integrated and smart infrastructure that not only supports the internal market, but also helps the EU to achieve its sustainability and security of supply objectives;
  • Price stabilisation measures if and when market forces fail to deliver socially acceptable results or threaten to undermine crucial investment decisions;
  • A diversified European energy portfolio through stimulated innovation (R&D) and the use of renewable energy sources;
  • The power to raise levies and to allocate its own financial resources;
  • Adequate crisis management and strategic reserves, that can be dispatched and used for the benefit of all citizens;
  • External powers allowing the EU to project itself and secure its goals on the international scene, and where needed to pre-empt supply deals.
Such a solution will require a more coherent zone of energy regulation, based on the internal market and directed by both the institutions and a decision-making platform, including a real European energy regulator, with the capacity to find effective solutions. The project should also be capable of exporting, in a credible and convincing way, EU regulation to the Union's external partner countries.

Such a common energy policy cannot be put in place all at once. Thinking that the Treaties can be revised to accommodate a new Energy Community under these lines in the short-term is not realistic. Nonetheless, the EU cannot afford to wait. While it may take some time before the European Energy Community project is accepted by all member states, the existing system still has room for improvement. On some concrete issues, there is and will remain a pressing need to develop interim solutions.

Short to mid-term priorities: networks, diversification, financial resources and the external dimension
These dispositions, appearing technical and limited, would nonetheless create decisive and progressive change, opening the way to more cooperation and solidarity in the energy field.

First of all, the internal market process must be founded upon renovated, integrated energy networks of EU dimensions. Infrastructure plays a vital role in the development of an effective European Energy Community as it links markets together, provides a platform for trade and encourages cooperation between states.

However, realism is in order: the European Union will not transform 27 isolated national markets into a single European market overnight. This is why it is important to give depth and structure to cooperation, by establishing energy networks on a regional scale. Agreements of this type are already envisaged between member states, such as the offshore wind project in the Northern Sea or the interconnection of the Baltic energy markets.

It is also important to ensure that these processes take place in a collective framework and that they serve an overarching vision, namely that they contribute to the realisation of a single energy market. In that regard, gaps between different regions must be bridged, so as to avoid excessive regional disparities and to anticipate a future common dynamic. To this end relevant solidarity mechanisms – especially in the form of best practices – should be put in place, perhaps with administrative and financial support from the Union.

The diversification of Europe's energy sources must be supported by the better encouragement of research and development in green technologies and by the use of renewable energy sources. Several projects for cooperation between member states deserve support from the European level (political, financial and administrative). They involve offshore wind, solar, carbon sequestration, and smart networks and metering. Common actions with European financing would allow the rationalisation of investment and maintenance costs.

New alternative energy-technologies require investment on a grand scale, as does the creation of a proper network. This means giving the Union ambitious economic instruments to finance projects which are in the shared European interest. The European Union should therefore have at its disposal independent financial resources, including the power to raise taxes on certain goods and types of production. This issue should be considered when preparing the next Financial Perspective 2014-2021 and negotiating a reform of the budget.

Finally, securing access to gas and oil resources mostly situated outside the Union is of fundamental strategic importance. The European Union must be able to present a united front and speak with a single voice to its external partners, be they producer countries or transit countries. A united front is the only way the EU can ensure its interests prevail vis-à-vis these states and other commercial entities. This implies, if need be, a pooling of energy supply capacity, collective representation within international organisations and the ability to make international commitments and, in the eventuality of a major energy crisis, that genuinely European strategic reserves are available and distributed across Europe in a spirit of solidarity.

All these initiatives have a single and unique objective: promoting energy integration and solidarity between the peoples of Europe and beyond. Freedom from energy dependence would remove a source of tension and conflict. And peace is one of Europe's raisons d'être. The development of a European Energy Community along these lines would thus put the EU back on the track which the Founding Fathers traced in 1951 when they concluded the ECSC Treaty, albeit in a manner that is technologically and democratically adapted to today’s standards and to tomorrow’s expectations.

European leaders should bear in mind that they have a special responsibility towards future generations when developing a common energy policy. Whereas 2030 may seem far off, major decisions on energy taken today would represent a commitment for many decades to follow. Vague rhetoric and declarations without follow-up will not be enough if Europe wants to prepare the transition towards the sustainable development of our societies. If the Union really is incapable of working out a collective response to these shared problems, then clearly one needs to ask what the European project still stands for.

Sami Andoura is a researcher at Notre Europe in Paris.