EU energy policy

It is likely that the most developed venture in regional integration, the EU, can provide a good framework for regional energy cooperation. In contrast to many other regional frameworks, there is not only a well established commitment to integrate but also to underpin that integration process with significant powers, in particular the sharing of sovereignty among the member states. These mechanisms have made the EU a much more effective experiment in regional cooperation than most others. There are shortcomings in its operations, but the relative success of the EU suggests that it should be able to draw on its successes to act as a venue for cooperation on energy and the environment.

Today's EU was founded on energy but over its history it has, on more than one occasion, foundered on energy as well. The original European Coal and Steel Community (1951-2002) was an attempt to overcome differences over how these key resources were to be managed, while the Euratom Treaty (on nuclear power, signed in 1957) sought to harness a cooperative approach to the management of what was seen to be the fuel of the future. As it turned out, neither was particularly successful, and it was instead the more mundane principle of a common market that was to be the main driver of European integration. Indeed, energy was to prove a difficult issue upon which to agree a common European policy. From the 1950s attempts to formulate a common energy policy resulted in very little of substance, and even the 1970s energy crises failed to trigger closer cooperation. On the contrary it largely exposed the differences between states. Beyond some rather general objectives and some funding, mainly on the basis of Euratom and research activities, the 'Common Energy Policy' amounted to relatively little (SPRU-RIIA, 1989).

From the 1980s onwards, EU members were more successful in agreeing on policies affecting energy, often on the back of other objectives. For example, attempts to restructure energy markets in the EU were formulated on the basis of rules to secure a common market, while legislation to control sulphur dioxide emissions from large energy using plant such as power stations was premised on the need to tackle environmental damage, which had a cross border effect. Over the last 20 years, moreover, significant EU funds have been provided to support the development of new energy technologies and encourage good practice in energy planning and use. However, a coordinating mechanism in the shape of an explicit commitment to develop an EU energy policy which could reconcile what have often been quite conflicting objectives proved elusive (McGowan, 1990).

There now appears to be a serious commitment to developing such a policy. The issue of an EU energy policy has been back on the agenda since 2005. The challenge of tackling climate change has clearly been one of the drivers pushing the issue to the forefront. At the same time, however, worries over the sources of future energy supplies have also driven the debate. The trigger for this security worry was the limited disruption of gas supplies to Western Europe as a result of the dispute between Russia and Ukraine at the start of 2006. While not the direct show of strength by Russia which was reported in much of the media, the events did feed a sense of vulnerability about increasing reliance on a small range of suppliers as the EU became more and more dependent on energy imports. On current trends the EU's dependence on net imports for 50 per cent of its needs would rise to 70 per cent by 2030. Taken together, addressing climate change and energy security provided an apparently strong rationale for concerted action at the EU level. Moreover the rationale was accepted by the bulk of the member states, including a traditional sceptic on EU energy policy, the UK.

Strands of this new energy policy were proposed by the European Commission at the start of 2006, revised in early 2007, and approved in principle by the heads of state of the EU27 at their spring summit 2007. This set out some ambitious goals in climate change and supply security. The central element of the policy is a unilateral commitment to a 20 per cent reduction on 1990 levels of GHGs by 2020, regardless of international agreements, and an aspiration to achieve a 30 per cent reduction if similar cuts can be agreed with other industrialised countries. In addition it sets out a target of 60-80 per cent cuts by 2050. To meet this objective, the policy also sets 2020 targets of increasing the share of renewable energy to 20 per cent of overall energy consumption, and an improvement in energy efficiency of 20 per cent. Both the GHG reduction and renewable energy targets are binding. The efficiency target is an aspiration, though there is an binding target of a one per cent annual reduction in the interim (EC, 2007a).

In these and other areas, the policy highlights the importance of technology. The Commission's proposals refer to a 'new industrial revolution' in driving forward the changes, highlighting investments in renewable energy, carbon capture and potential nuclear power. Given the growing dependence of the EU on external sources of energy, and the regional and global issues raised by questions of energy and environmental policy, the proposals seek to build upon the EU's existing framework of energy diplomacy. While many mechanisms are envisaged to pursue these objectives, the Commission explicitly sees the project as one premised upon a fully liberalised energy market within the EU. It argues that the present structure of national markets that are often still protected will work against achieving energy security and a sustainable low carbon future (EC, 2007a; Council of the European Union, 2007a).

While the proposals and the member states' endorsement of them are welcome, there are some concerns about the EU's capacity to follow through on its commitments and to reconcile the diverging objectives. It is clear that there are major differences between the member states which have in the past slowed down or aborted EU decisions in this area. As the proposals move from broad declarations to detailed commitments, those differences may well re-emerge. Moreover, even if targets are agreed upon, the prospects for hitting them are not good if the past experience of the Union is any guide (McGowan, 2007a).

More generally, the EU may find itself confronting the problem which is apparent in other realms of energy policy: how far can it (i) pursue a sustainable climate strategy while (ii) guaranteeing supply security and (iii) relying upon market forces? In some ways the first two aims may be compatible, though some of the supply options (coal) are unlikely to contribute to reductions of CO2 emissions while others (nuclear and biofuels) present their own environmental problems. It is less clear how these broadly strategic objectives can be achieved by a reliance on essentially short-termist market policies. While the Commission believes that greater competition and market access will deliver energy security, it is not clear how such an approach can be pursued if energy suppliers are not willing to comply. Moreover, there are signs, for example in the way that state aids rules permit support for energy conservation and renewables, that the Commission recognises that there are serious market failures in the energy sector and that other policy mechanisms may be needed.

Climate change is not only a driver for the EU's energy policy. The EU has sought to develop a broader climate policy to integrate a wide range of sectoral policies relating to transport, industry and agriculture as well as energy in seeking to limit emissions. Meanwhile the EU is also pushing external diplomacy to secure a wider settlement. The EU's attempts to address climate change date back to the mid 1980s, and by 1990 the Commission was proposing a stabilisation of emissions by 2000 and reductions by 2010. Over the following decade the EU debated a variety of means to achieve this end, initially based upon a carbon-energy tax but subsequently focusing on emissions trading (Golub, 1998). In 2005 it launched its own European Emissions Trading Scheme (the EU ETS, see Chapter 11) as the principal mechanism for ensuring that the EU

would meet its obligations to reduce CO2 emissions in line with the Kyoto Treaty (an eight per cent reduction on 1990 levels by 2012).

By 'capping' the overall level of emissions it is intended to encourage electricity generators, oil refineries and energy intensive manufacturers to reduce their emissions, by giving an incentive to use more energy efficient technologies. However, it had limited success in its first period of operations (2005-7). It was expected that the first phase would be an opportunity to experiment, make mistakes and identify problems. Indeed the EU ETS has been beset by a number of problems, largely arising from the way in which member states implemented it. Because many states set emission limits for 2005-7 at or above then-current levels of emissions, the value of carbon, and the incentive to cut emissions, has been extremely weak.

The Commission is trying to toughen the way the EU ETS operates in the second phase (2008-12), requiring many states to reduce their planned total allocation of allowances. For the 18 countries whose plans the Commission has approved, the cut averages around seven to eight per cent. The Commission is also planning to extend the EU ETS to cover aviation (although this will not get under way until 2011) and possibly maritime shipping emissions as well. However, on current trends it is hard to see how even the 20 per cent target for 2020 can be met (Gibbs and Retallack, 2006).

The EU has been widely regarded as a major protagonist in international environmental diplomacy, reflecting to some extent its activism in the international community as a supporter of multilateral solutions to global issues (Vogler, 2005). However, in practice that role has been compromised by a mixture of diverging interests among the member states and procedural difficulties in finding an internal consensus and negotiating with the rest of the world. The positive and negative aspects of the EU's international environmental role have been particularly apparent in the case of climate policy.

There is no doubt that the EU as a whole has been instrumental in pushing for a multilateral role in climate policy. From the beginnings of the climate debate to the recent declaration to negotiate on a 30 per cent reduction in emissions by 2020, the EU has been able to make a strong positive contribution to promoting a global role. Arguably, without the EU's involvement the Kyoto process would not have progressed as far as it has. Moreover, it has set an example for the international community by developing its own mechanisms for tackling climate change, which could provide the basis for a global model. On the other hand, the EU's ambitions have not always been matched by its own deeds. Clearly, part of the problem is the real practical issue of securing the agreement of the member states. This has proved particularly difficult in the conduct of negotiations with the rest of the world. While the EU managed to adopt a fairly united approach at the time of the original Kyoto agreement (Zito, 2005), a few years later divisions among the member states made it difficult to negotiate a common position vis a vis other countries (Grubb and Yamin, 2001).

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