A Common Energy Policy for Europe

Andris Piebalgs Energy Commissioner

A Common Energy Policy for Europe

EU Energy Policy and Law Conference
Brussels, 9 March 2006

Ladies and Gentlemen,

The Green Paper adopted yesterday by the Commission represents a new beginning for energy policy in Europe. It marks a real change in direction and signals a realisation that energy is now truly a global issue and the challenges that we face can only be solved at the global, and thus fir Europe, Community level. It also recognises that the world is facing whole new energy challenges, and I would like to highlight just a few:

• Firstly, global demand for oil and gas is increasing very rapidly. Oil demand has risen by as much as 2½ million barrels per day in recent years, driven not only by enormous growth in China and India, but equally in the US. This is inevitably putting pressure on supply, which, along with the current instability in some oil producing countries, is leading to volatility and high prices. In a longer term perspective, the world is now consuming two barrels of oil for every new barrel discovered. Competition for resources is growing. Gas demand is rising too, and competition for gas on a global scale is now a reality. Global oil markets are not characterised by transparency and, put quite simply, we do not know how long oil will last, but we do know that the clock is ticking.
• Secondly, at the same time, the EU is becoming ever more dependent on imported hydrocarbons. On present trends, the EU will import 70% of its energy in 2030 compared to 50% today. This is not a problem as such, provided that suppliers are stable and that they are willing to ensure that the investments needed to meet demand at reasonable prices are made in due time. But can this be taken for granted, especially when much of the new investment will be needed in countries where investments by private companies are strongly regulated or restricted?
• Thirdly, massive investment is needed throughout the global energy system to meet future energy demand. In Europe alone, this could be as much as one trillion Euros over the next 20 years. Globally, we are talking about 16 trillion $. This concerns electricity systems and energy efficiency as well as fuels. Without a secure and transparent investment climate, and functioning markets and infrastructures, will this happen?
• Finally, global warming is not just happening, it is accelerating. According to the Intergovernmental Panel on Climate Change, greenhouse gas emissions have already made the world 0.6 degrees hotter and if no action is taken we will cause an increase up to 5.8 degrees by the end of the century. The 21^st century is likely to show significant impacts on weather patterns, such as higher maximum temperatures, more heat waves, increased dry summers, more droughts, and more floods and severe storms. All regions in the world – and also the EU - will have to face serious impacts on their economies and ecosystems. To make its contribution to stabilising global climate change, the EU will need to reduce its CO2 emissions by at least 50% over the next decades, and other countries will have to play their part. This is at a time when global emissions of CO2 are accelerating, and the EU is struggling to meet its existing emissions targets. In short, we are finally beginning to realise the magnitude and the urgency of this challenge.

This energy challenge requires a global response: a new energy system, based on effective collaboration between producers and consumers, efforts to increase energy efficiency worldwide and a quantum leap in the production of renewable and low carbon energy. The EU is in a unique position to lead this response – it heads the world in terms of efforts to produce competitive renewables and energy efficiency and has established effective energy dialogues with both producers and consumers. However, European energy policy has to-date been fragmented and less focussed than it might be, which has certainly reduced its impact on the global scene. If Europe could agree its clearly identified energy goals and priorities and pursue them rigorously with a single voice, it can lead the new global energy agenda, not follow it. This is the fundamental reason why Europe needs a common energy policy.

The Green Paper adopted by the Commission yesterday puts forward a basis for such a Common EU Energy Policy. It starts from the consensus that our energy policy should have three core objectives, sustainable development, competitiveness and security of supply. These are not mutually exclusive goals, but complimentary ones; each aspect of our energy policy needs to contribute to all three goals, and taken together, represent a coherent package to achieve them.

The Green Paper identifies six priority areas where action is needed.

The first priority area concerns the development of fully competitive internal energy markets in Europe. I know that this will be discussed in more detail later today, so on this priority I shall limit my comments to state that I am personally determined that by the end of this Commission, all the necessary legal and regulatory instruments and bodies are in place to guarantee truly competitive and European electricity and gas markets.

Whilst I will await the findings of my Services at the end of this year to reach a definitive conclusion on this issue, it is clear that today there remains too many barriers to competition and too many differences between the rules of the game in the different Member States. Markets remain national in scope and there is no level playing field. Half finished liberalisation in these sectors will not bring all the benefits to EU citizens and industry that we have set out to achieve, and the Commission is deeply committed to resolving this.

The second priority area identified in the Green Paper concerns security of supply within these internal markets; often referred to in terms of solidarity between Member States in the event of a crisis. The Green Paper outlines a series of measures that can be taken not only to deal with internal energy crises, but to prevent them developing. Notably,

• The establishment of a European Energy Supply Observatory identifying likely shortfalls in infrastructure and supply at an early stage and complementing on an EU level the work of the International Energy Agency.
• Improved network security through increased collaboration and exchange of information between transmission system operators, possibly through a new European grouping, a European Centre for Energy Networks.
• A new crisis mechanism to prepare for and ensure rapid solidarity and possible assistance to a country facing difficulties following damage to its essential physical infrastructure and possible common standards or measures might be taken to protect infrastructure.
• A more coordinated Community response in the event of an IEA decision to release stocks. In particular, the publication on a more regular and transparent basis the state of Community oil stocks, and
• The re-examination of the existing Directives on gas and electricity security of supply to ensure they can deal with potential supply disruptions. This is likely to include a new legislative proposal concerning gas stocks to ensure that the EU can react to shorter term emergency gas supply disruptions in a manner that ensures solidarity between Member States.

These are important; creating a competitive electricity and gas market gives rise to whole new challenges in terms of security of supply. It is clear that properly liberalised energy markets enhance, not reduce security of supply, but this requires a proper framework. These new ideas would go a long way to meet this need.

The third priority identified in the Green Paper goes to the heart of a European energy policy, the EU’s energy mix. How to reconcile the fact that the choice of a Member States energy mix is and will remain a question of subsidiarity with the reality that choices made by one Member State inevitably have an impact on the energy security of its neighbours and of the Community as a whole? For example, decisions to rely largely or wholly on natural gas for power generation in any given Member State have significant effects on the security of supply of its neighbours in the event of a gas shortage. Decisions by Member States relating to nuclear energy can also have very significant consequences on other Member States in terms of the EU’s dependence on imported fossil fuels and CO₂ emissions. In reality, therefore, a European approach on the EU’s energy mix is vital, that nonetheless respects subsidiarity.

This can be first achieved through transparency. On a regular basis, therefore, the Commission suggests that it put forward a comprehensive Strategic EU Energy Review, covering all aspects of energy policy. In particular this should analyse all the advantages and drawbacks of different sources of energy, from indigenous renewable energy sources to coal and nuclear. On the latter issue Europe must have an objective debate. Nuclear power, at present, contributes roughly one-third of the EU’s electricity production and represents the most important source of largely carbon free energy in Europe. It is up to Member States to decide whether or not to rely on nuclear electricity, but the consequences of such decision for the EU as a whole need to be transparent.

Furthermore, the results of this Review could be for Europe to move towards a concrete agreement on an overall “Strategic European Energy objective” at Community level. This target would provide a benchmark on the basis of which the EU’s developing energy mix could be judged. It would help the EU to stem the increasing dependence on imports. For example, an objective might be agreed to maintain or achieve a minimum level of the overall EU energy mix from secure or indigenous and low-carbon carbon energy sources. Such a benchmark would reflect the potential risks of excessive import dependency, identify an overall aspiration for the long term development of low carbon energy sources and permit the identification of the essentially internal measures necessary to achieve these goals. It would combine the freedom of Member States to choose between different energy sources and the need for the EU as a whole to have an energy mix that, overall, meets its three core energy objectives.

The fourth priority area identified in the Green Paper follows on from the energy mix discussion, and addresses the question how should Europe address its climate change goals in an integrated manner, in other words in a way that positively contributes to its competitiveness and security of supply. This is becoming an ever more vital question. If the EU is to reduce its CO2 emissions by 50% or more in the coming decades, it will need a series of actions, including for example clean coal and carbon sequestration. In any event it will require a major increase in carbon free energy sources.

In order to achieve this, and at the same time focus on its Lisbon goals, the point of departure is that future targets and objectives in this area have to be made on the basis of a robust cost-benefit analysis. This impact assessment will be carried out in the coming months, leading to conclusions being drawn in the Strategic EU Energy Review that I mentioned earlier. However, already at this stage I can identify two areas where concrete actions are being considered.

Firstly, the Commission will this year propose an Action Plan on Energy Efficiency with concrete measures to reach a target of reducing the EU’s energy use on a business-as-usual scenario by 20% by 2020. Energy efficiency is the only “no-brainer” in energy policy. An effective energy efficiency policy based on implementing cost-effective measures is the only that, without reservation, contributes to all three objectives of sustainable development, competitiveness and security of supply. This is why it has been my highest priority since taking office and will remain so at least until the end of this Commission. Although the Action Plan is “work in progress”, I expect that it will cover at least:

• Long-term targeted energy efficiency campaigns,
• New financial instruments to catalyze investments by commercial banks,
• Mechanisms to stimulate investment in energy efficiency projects and energy services companies, and
• A major effort to improve energy efficiency in the transport sector and in particular to improve rapidly urban public transport in Europe’s major cities.

Finally, energy efficiency needs to become a global priority. It is my intention that the Action Plan serves as a “launch pad” to catalyse similar action worldwide, in close collaboration with the IEA and the World Bank. In particular, the EU should propose and promote an international agreement on energy efficiency, involving both developed and developing countries. This will be one of my priorities over the coming months.

In addition to energy efficiency, it is clear that the EU will have to take a quantum leap in terms of its use of renewable energy and to make a major drive to make it competitive with “traditional” energy sources. This is necessary not only for reasons of climate change; we have to lay the foundations today for finding a solution for when oil supply can no longer cope with demand. This is an obligation that we have to future generations of European citizens; quite possibly our children. The Green paper provides the opportunity for the EU to take the next step in this respect, confirming its world leadership in the renewable energy technologies that represent a rapidly growing global market. As a part of the Strategic EU Energy Review, the Commission will bring forward a Renewable Energy Road Map.

This will cover key issues for an effective EU policy on renewables such as:

• An active programme with specific measures to ensure that existing targets are met.
• Consideration of which targets or objectives to 2020 are necessary, and the nature of such targets, in order to provide long term certainty for industry and investors, as well as the active programmes and measures needed to make this a reality.
• A new Community Directive on heating and cooling, complementing the Community energy saving framework.
• A detailed short, medium and long term plan to stabilise and gradually reduce the EU’s dependence on imported oil, and
• Research, demonstration and market replication initiatives to bring clean and renewable energy sources closer to markets.

The fifth Priority area for action identified in the Green paper concerns the wider aspects of energy and research. The EU is the only area in the world that is effectively putting a price on carbon, encouraging not only research into low or neutral carbon technologies, but also their implementation on the ground. These technologies represent multi-billion Euro global markets of the future. Anyone who pays careful attention to the emerging research on global warming knows that a climate wake-up call is only a question of time and that others will follow Europe’s lead, and hopefully sooner rather than later. We need to make sure that Europe turns this determination to act into a competitive advantage in research terms. This means focussing the money spent at both national and Community level in programmes that are co-ordinated, focussed and result-orientated. The Commission will therefore put forward a strategic energy technology plan for consideration by the European Council and Parliament in the near future.

The final priority area of the Green Paper is, in my opinion, one of the most important. It concerns external energy policy. It is this area, together with the energy mix, that a major step change is proposed in order to deal with the global energy challenges that I outlined earlier. Put simply, Europe needs to use its economic and political weight on the world stage in a much greater way than it has done in the past. It needs to define clearly its goals and aspirations regarding its energy partners, both suppliers and consumers, and then speak with one voice to pro-actively promote these interests.

Firstly, therefore, we need clear agreement on our goals. This should be done thorough the Strategic EU Energy Review for the European Council and Parliament. This would offer a single reference point for all actors in European energy at both Community and national level, enabling not only an effective exchange of information but also a real co-ordination of approach: it would indeed enable the EU “to speak with the same voice”. The first such Strategic Review will need to be prepared by the Commission during the coming months. However, it is already possible to identify some areas that it will need to cover:

(i) A clear and pro-active policy on securing and diversifying energy, and in particular gas, supplies.

The EU needs an active, not a “laissez-faire” approach to the infrastructure that serves its markets. This has not happened in the past. The Strategic Review should therefore propose clearly identified European priorities for new gas pipelines and LNG terminals as well as the concrete political, financial and regulatory measures needed at European and national level to actively support business in completing them. Examples mentioned in the Green Paper include independent gas pipeline supplies from the Caspian region and North Africa into the heart of the EU and new LNG terminals serving markets that are presently characterised by a lack of competition between gas suppliers.

(ii) More effective energy partnerships

In addition, the definition of clear external energy priorities for the EU will enable better use to be made of its energy dialogues. In particular, it will enable real focus on the question how to develop a more effective energy partnership with Russia, more similar for example to the model relationship of the EU with Norway, based on the recognition of our inter-dependence, secure investment conditions and reciprocity in terms of access to markets and infrastructure. At the same time we need to seize the impetus of the G8 and push for rapid retification of the Energy Charter and the Transit Protocol.

Specifically with respect to Norway, the EU needs to take tangible steps to support Norway’s efforts to open the high north of Europe to energy development in an environmentally responsible way. This will represent an important element of the EU’s future security of energy supplies and merits our strong backing.

(iii) Developing a pan-European Energy Community

The South-East Europe Energy Community is a major success. It makes a start in creating a “common regulatory space” around Europe, progressively developing common trade, transit and environmental rules, market harmonisation and integration. This creates a predictable and transparent market to stimulate investment and growth, as well as security of supply, for the EU and its neighbours. Expanding this will be a priority for the EU’s Common Energy Policy, to progressively create a pan-European energy Community, including for example Turkey and Ukraine, as well as Norway, rather quickly. A similar model is being pursued regarding the Euro-Med, and needs to develop further. Finally, priority needs to be given to developing real energy partnerships with the Caspian countries.

(iv) Reacting effectively to external crisis situations

Any European energy policy needs to focus on how best to react to external energy crises. Recent experiences, with respect to both oil and gas, have shown the need for the Community to be able to react quickly and in a fully co-ordinated manner to such events. At present, the EU has no formal instrument dealing with external energy supplies; it needs one, and quickly.

Finally, it should be underlined that a European Energy Policy needs to take an integrated approach, involving all the aspects of the Commission’s and the European Union’s work. This goes for example, for tax policy, agriculture, trade and environment, to name but a few. However, I would like to single out development policy, because I think that an intelligent energy approach to the EU’s assistance programmes could bring profound benefit. Sub-Saharan Africa, for example, has the lowest access in the world to modern energy services. On the other hand it has enormous resources, particularly in terms of local and renewable energy – only 7% of Africa’s hydropower potential is tapped, its solar potential is practically unlimited. Getting a really integrated approach in this area must be one of the key outputs of the follow-up to the Green paper.

Ladies and Gentlemen,

In conclusion, The Green Paper sets out the new energy realities facing Europe, in a world of global interdependence; energy policy necessarily has a European dimension. I believe that there is widespread acceptance of this. The challenge now is to take the issues and options outlined in the Green Paper and engage in a real and widespread debate across Europe – I want the consultation on this paper to be the model for such exercises in the future. On this basis, we need to rapidly reach conclusions and move to concrete action, possibly by the end of this year.