primer

Europe’s energy (dis)union

A guide to one of the Juncker commission’s signature initiatives.

Energy is a foundation stone of the European Union — the bloc’s first iteration, after all, was the European Coal and Steel Community.

It’s now possible to buy Spanish tomatoes in Sweden, visit Belgian bank branches in the Czech Republic and hire Polish plumbers in Ireland. But decades after the EU’s founding, a glaring exception to the bloc’s single market is energy.

The European Commission is out to change that by creating an energy union. It was launched seven months ago, and Brussels is preparing a heavy agenda of legislation to flesh out the project by the end of next year. The idea is to tear down the physical and regulatory barriers to the free flow of electricity, oil and gas across the bloc. Something that the U.S., but not the EU, takes for granted.

“Energy is the missing piece not only of the EU’s internal market but also of the whole European integration,” said Jerzy Buzek, former Polish prime minister and now an MEP who chairs the European Parliament’s industry and energy committee.

Getting there isn’t going to be easy.

As the broad and relatively uncontroversial idea of an energy union gets fleshed out in detail, frictions between countries and interest groups are emerging.

For those of us who — let’s be honest — aren’t up to speed with all the relevant acronyms and policy minutia, here’s what you need to know.

What is it? 

The energy union has five elements.

— Energy security: Russia is no longer seen as a reliable energy supplier, and tries to wield oil and gas as a political weapon. It did so in 2006 when Russia cut off gas supplies to Ukraine, the main transit country for gas exports to the EU, and then again in 2008-09. The bloc dodged possible disruptions last year by shepherding a last-minute gas deal between Moscow and Kiev. The Commission wants to ensure EU countries have at least three different sources of gas and pay the going market price for the fuel.

— Internal energy market: Better connect countries through more pipelines and power grids. In theory, this would increase competition among energy providers.

— Energy efficiency: Consuming less energy will not only reduce pollution, but also cut the EU’s demand for energy imports.

— Decarbonization: Reduce greenhouse gas emissions by 40 percent by 2030 from 1990s levels. To get there, the EU is looking to reform the bloc’s Emissions Trading System, its main tool for fighting climate change. The goal is to raise the price of carbon on the allowances companies have to use to pollute.

— Research and innovation: Encourage breakthroughs in low-carbon technologies through more EU and government funding and partnerships with the private sector.

How will it work?

The EU executive has a list of 43 items that have to be implemented before its mandate expires in 2019. On the list: redesigning the European electricity market, doing a better job of linking countries’ pipelines and grids, empowering consumers, creating a liquefied natural gas strategy for Europe, shopping around for new gas suppliers, figuring out how the bloc can meet its renewables goals for the next decade, speaking with a single voice when dealing with a major energy supplier or on global climate action, and lots more.

“Of course it’s very easy to agree on our top priorities, that we need secure sustainable energy at affordable prices, but what we always try to do is make it very concrete what the energy union means for each country,” Maroš Šefčovič, the Commission’s vice-president for energy union, told POLITICO.

Šefčovič, a Slovak, is the public face of the project. He’s touring the EU to sell the energy union. Commission President Jean-Claude Juncker initially chose him for transport commissioner, but he was moved over to energy after former Slovenian Prime Minister Alenka Bratušek failed to get confirmed for this job.

While Šefčovič is on the road campaigning for the energy union, Miguel Arias Cañete, the energy and climate change commissioner, will be the one dealing with the nuts and bolts of the energy union. And that’s when we’ll see, as always in Brussels, countries and the European Parliament fighting over specific words in texts and their interpretations.

“There is going to be a very heated debate,” Arias Cañete said in an interview with POLITICO. “My presence in the parliament will be permanent.”

Red lines?

While the main battles are yet to be fought, inevitable disagreements are already starting to arise. Such as:

— Is it smart to invest in new LNG terminals when Russian gas is still cheaper than gas supplied by ship from more distant countries? Does it even make sense for Brussels to be looking to sign new gas deals from Turkmenistan to Morocco at a time when the EU is supposed to be moving away from fossil fuels?

— Spain is well equipped with terminals that can receive plenty of LNG, but it does not have enough interconnections with France to send the gas (once it is regasified) to other countries. Why should French and Spanish consumers have to pitch in for a gas pipeline that would allow this LNG to cross the rest of Europe?

— Should the Commission be allowed to take a peek at long-term commercial gas contracts with foreign suppliers (again read Russia’s Gazprom)? Central Europeans like the Poles are keen, while Germany is not, worrying the commercial secrets of its companies will leak out.

— Eastern Europeans are not sold on the EU’s desire to boost renewables. Green energy doesn’t create many local jobs, as these stay in countries such as Germany or Denmark where the technology and headquarters are based.

What’s actually new?

At first glance, not a lot.

The energy union looks like a repackaging of old energy and climate policies tucked in a new box and wrapped up with a fancy new name. For example, one of the main goals is to set up an EU-wide internal energy market. That was supposed to happen in 2014, a deadline that wasn’t met.

Not only that, the energy union doesn’t change the European Union treaties, which means countries continue to have a final say over their energy choice and mix. So the French will get to keep their nuclear power stations while the Poles make plans to open new coal-fired generating plants. The Commission “cannot really have teeth” in dictating to member states how to implement the energy union, said an East European official.

Countries are already clashing over enforcement powers for the Commission.

So again, what’s new in this energy union?

The difference now, EU and national officials insist, is that there is strong “political will” behind the project.

And the “little steps” the Commission is taking through various initiatives could lead to positive spillover effects, said the East European diplomat.

For example, there’s a plan to give more power to the Agency for the Cooperation of Energy Regulators to better coordinate the work of national regulators.

In addition to the Commission’s plans to look at commercial gas contracts, it also wants to vet energy agreements governments negotiate with non-EU countries before they are signed to make sure they follow EU rules.

Winners and losers

Countries:

The energy union has “sweet spots where every member state gets something,” said Georg Zachmann, research fellow at the Bruegel think tank. “The concept so far has tried to be very big in order not to upset anybody.”

— Germany. It gets about one-third of its gas from Russia, but still has many other supply routes and sources, making it resilient to any potential gas supply problems. Germany won’t gain much from the energy union’s focus on energy security. The benefits are elsewhere.

Germany’s Energiewende, the country’s long-term plan to transition to renewable energy, comes with significant costs. Consumers pay some of the highest electricity prices in Europe due to taxes meant to promote green energy. The move toward solar and wind-generated electricity is also disrupting the grids of Poland and the Czech Republic.

Germany’s north-south power lines have too limited a capacity to carry all the power that is produced from wind turbines along the North Sea to industrial states like Bavaria or Baden-Württemberg. That means the extra electricity is shunted through neighboring countries. The energy union’s push for more electricity interconnections and cooperation with neighbors should do a better job of dispersing power surges and making the Energiewende more cost-efficient, the Commission estimates. More cross-border trade will tamp down Germany’s skyrocketing electricity prices.

— U.K. It is already doing pretty well on Brussels’ energy union scorecard: An initial Commission analysis says the U.K.’s gas system is well-connected with other countries, customers can switch gas and electricity providers, the government plans to exceed its decarbonization target for this decade, and it is already pitching in a lot of money for low-carbon research and innovation.

Like Germany, the U.K. stands to gain from the energy union’s focus on increased cross-border electricity interconnections, which are currently insufficient. More cooperation with neighbors would help bring more offshore wind power onto the grid, the Commission estimates. The energy union could also help the country meet its renewable and energy efficiency goals through policies meant that should help consumers be better informed when buying energy-savings products.

— Poland. Poland is keen on the original goal of the energy union when it was first suggested last year by Donald Tusk, then Poland’s prime minister and now president of the European Council: reducing Gazprom’s monopoly power. Tusk even has a dedicated official in his cabinet on the project, ensuring energy security remains high on his agenda. Warsaw wants Brussels bureaucrats to be able to see Gazprom contracts before they are signed, in theory to ensure they are in line with EU laws and not include provisions that may enhance Gazprom’s market power. This is not entirely a new idea. The Commission tried the move already in 2011, but EU states watered it down so that Brussels can now only look at the agreements after they are signed. It is still not clear how the second attempt will turn out and whether there will be immediate legal consequences for signing a deal not in line with EU rules. What is clear: They can always later take a government to court.

—Latvia. The Baltic country is doing well to meet its national renewables and energy efficiency targets for 2020 based on EU benchmarks, but is highly dependent on gas imports from Russia. It has also not fully opened up its gas markets according to EU internal energy market laws, having received an exemption until 2017. Once it does, the energy union can help it better coordinate with neighbors on how to respond in case of a gas supply crisis. The proposed expansion of electricity links with Estonia should help drive power prices down at home.

—Portugal. It has a well-balanced range of oil and gas suppliers and is meeting its national 2020 renewables, energy efficiency and carbon reduction goals, according to a Commission analysis. It is well-connected with Spain, but Spain’s own weak links to France makes it difficult for Portugal to integrate with the wider EU electricity market. The energy union is meant to change that with the construction of more regional  electricity interconnectors. This is expected to help the country cooperate better with its neighbors through more cross-border energy trade, which in turn should keep the Portugal’s high electricity prices in check.

—Ireland. In another case of “a little bit for everybody,” the Commission’s push for more renewables should bring more money for the Beaufort marine energy research center in Ringaskiddy, which is looking into ocean energy technologies, said Irish MEP Sean Kelly.

—Russia. Although one of the energy union’s goals is to reduce the dependence on Russia, the country may be a surprising winner here in spite of the Commission’s best efforts. Gazprom’s deal with several European companies to expand the Nord Stream pipeline to Germany under the Baltic Sea undermines the Commission’s gas diversification plans — which is one of the main elements of the energy union. If Nord Stream 2 is completed, Moscow may end up sending more gas into the EU than it does today. This new pipeline deal shows the EU remains split along an East-West axis when it comes to dealing with this powerful supplier.

Consumers: 

They do pretty well.

— Linking national electricity grids will ensure that “energy will flow from one country to another and that there is no possibility of a blackout,” said Monique Goyens, director general of BEUC, the European Consumer Organization.

— In parts of Eastern Europe, some people can’t afford to pay their power bills. More competition, as well as a clearer understanding of costs and prices, might make it easier to shop around for less expensive operators, said Goyens.

— As more solar panels pop up on peoples’ roofs, energy consumers are becoming energy producers. The energy union is meant to make it easier for people and energy distributors to embrace these new ways of generating and using electricity.

— Despite the potential gains, consumers still need to figure out how to make it work for them. Learning how to use smart meters (the electronic devices that measure energy consumption in real time), embracing new technology and being more disciplined about energy use will require people to change their behavior.

The timeline

It’s a little fuzzy since most of the concrete proposals haven’t yet been announced.

November 18: Šefčovič is set to present the first so-called state of the energy union in Brussels. He’ll spell out the results of his country tours, where he got a perspective on each EU state’s strengths and weaknesses on energy and climate. The event is supposed to become an annual affair. It’s still not certain if it will name-and-shame laggards or just report on what’s been accomplished.

2016: That’s when the Commission will come forward with most of its legislative proposals, which then have to wend their way through the European Parliament and national capitals. It will take about two years for legislators and government officials to decide on the final shape of the laws. Some of the things to expect include a review of the laws overseeing the security of electricity and gas supplies, a strategy for liquefied natural gas, legislative proposals for a new electricity market design, a revised renewable energy directive for 2030, and a review of the energy efficiency directive.

Longer term: The Commission would like to have the energy union’s foundations in place by the time Juncker leaves office in 2019. As the pieces of the puzzle are only beginning to come together, it’s still not clear how much it will all cost.

But a target date for full implementation?

Stay tuned.

What are the odds it will work?

It depends, says Bruegel’s Zachmann in a paper.

Option 1: If EU countries are ready to lose a little to gain a lot, then a bona fide energy union is possible. They’ll have to accept that they may be not be getting everything they want in every single policy area, but would be broadly better off.

Option 2: EU countries choose to fight and get their way on every single proposal. This may make the result less ambitious than originally envisioned and the energy union less solid.

Option 3: Like-minded EU form blocs to work together in one or several policy areas, leading to a patchwork of regional approaches that falls short of a proper energy union.

Option 4: Member states hang on tightly to their treaty-enshrined powers, continuing to look within their borders for energy solutions and cooperating only when they see a clear gain. The energy union would then fail.

This article was first published on POLITICO Pro.

Click Here: Golf special