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6 February 2015 10:55

Briefing: What is the EU’s energy union?

Simon Evans

Simon Evans

Flags of EU countries
© Kingarion/Shutterstock
Simon Evans

Simon Evans

06.02.2015 | 10:55am
EU policyBriefing: What is the EU’s energy union?

Senior officials from across the EU are gathering today in the Latvian capital Riga to discuss the creation of an EU energy union.

In April 2014, European Council president and former Polish prime minister  Donald Tusk launched the idea for an energy union in an  article for the Financial Times, primarily as a response to the Crimea crisis and Russian aggression over gas contracts.

Tusk’s proposed energy union emphasised energy security above all. It called for region-wide purchasing of gas, linking and strengthening the EU’s electricity transmission systems, and making “full use” of EU fossil fuel reserves including coal and shale gas.

Since then, the concept has evolved into a more holistic and rounded strategy, as set out by the European Commission in a widely leaked draft paper. A separate paper, more closely aligned to Tusk’s vision, is expected from Latvia, which holds the EU’s rotating six-month presidency and is hosting today’s conference.

Until the commission publishes its energy union framework strategy on 25 February, member states and lobby groups will be battling to impose their preferred vision on the final outcome.

The Draft EU strategy

The leaked commission paper sets out an energy union of five interlinked topics, or ‘dimensions’. Each dimension includes a series of ‘actions’, many of which relate to existing policy commitments. There are some new initiatives, however, and the overall tone of the paper shows how far the energy union has shifted since Tusk’s April 2014 article.

Here’s a quick rundown of the five dimensions:

Energy security

Tusk’s main reason for proposing the union is retained as one of the five dimensions – to secure the region’s energy supply. It’s significantly broader than Tusk’s vision, however, drawing in renewables, energy efficiency and efforts to reduce oil dependence.

Tusk’s proposal for common gas purchasing has all but disappeared. In its place is “voluntary demand aggregation mechanisms” where countries can join together for extra bargaining power. Germany strongly opposes common purchasing, saying it would run contrary to attempts to liberalise gas markets. The UK gives cautious backing to the commission’s compromise.

The commission paper argues the EU should forge strategic partnerships with energy suppliers or those that host pipelines, such as Algeria, Turkey and Azerbaijan. It says the commission will also propose standards for  security of electricity supplies.

The commission draft says:

“Completing the internal energy market, deploying more renewable and other energy sources and becoming more energy efficient will all lead to more energy security.”

Some member states will be keen for more emphasis here on exploiting domestic fossil fuels. A leaked UK position paper, for instance, stresses the need to use “all low and lower carbon [energy] sources at our disposal”. The awkwardly phrased “lower carbon” source in this case is gas, in particular the shale gas that the current UK government is keen to exploit.

A new deal for consumers

The internal energy market is the idea that energy security, costs to consumers and the integration of renewables would be better served if energy could be traded more freely across borders.

The UK is a long-time supporter of the proposal since, unlike many other EU states, it already has liberalised energy markets and could expect to benefit from greater access to the cheaper electricity on the continent. Market integration is complex, however, as regulatory and market trading systems must be aligned across borders.

The commission will draw up plans to “deliver a new deal for energy consumers”. This new and potentially ambitious aspect to the energy union aims to achieve a “fundamental shift” towards consumers as active market participants, who generate their own electricity and adapt their energy use in response to changing prices.

The focus on consumer participation appears to align with German priorities: its  Energiewende emphasises consumer participation in energy markets. In a leaked paper, Germany says the energy union should “maximise the benefits of energy efficiency and demand management”.

Energy efficiency

“The cheapest, safest and most secure energy is the one not consumed”, the commission notes. It wants the EU to be the “most energy efficiency economy in the world” and will encourage member states to give efficiency top priority in their energy policies.

The commission will revise its directives on energy efficiency in products and buildings and will try to support new ways of financing energy efficiency retrofits. It will also set up a “communication strategy”, presumably to counter stories like last year’s controversy over an EU ban on high-wattage  vacuum cleaners.

A new proposal in the draft is for the commission in 2016 to propose a strategy towards transport electrification and wider use of biofuels. An earlier undated commission document on the energy union, seen by Carbon Brief, refers to “a possible alternative fuel target (biofuel, electric, hydrogen)”. This text has been removed.

As planned, the document says vehicle fuel standards will continue to tighten after 2020 and will be extended to trucks and buses.

Cutting carbon

Ambitious EU climate policy is the fourth dimension of the draft energy union strategy. This section appears incomplete, with a comment in the text noting “section needs to be reinforced”.

The undated commission document calls for a “transition to a largely decarbonised energy system by 2050, based on a very high share of indigenous renewable energy”. This language has been removed. The latest text calls for the EU to “become number one in renewables”.

This text emphasises reform of carbon markets as the “cornerstone” of EU climate policy. The UK, Germany and others have been pushing for reforms to  kick in from 2017, rather than 2021 as the commission has proposed. Early reform is opposed by member states including Poland, and faces a  rocky road through the European Parliament.

A proposal from the Czech Republic, Poland and Slovakia, seen by Carbon Brief, calls for the energy union to “employ a technology neutral approach” to meet the EU’s climate targets, which should be “light touch and primarily non-legislative”. It says the energy union must “aim to ensure cost-effectiveness”, as well as securing supply and decarbonising the sector.

Another new proposal in the draft is an EU strategy on heat, due to be developed some time this year. Heating is the single largest source of energy demand, the paper notes, and accounts for most of the gas the EU imports.

Research and development

The draft document says “the Energy Union will inevitably require an element of disruption of old technologies, old business models and established interests and behaviour.” The EU plans to support this through providing funding and frameworks for research and development.

The draft says the EU will “favour activities in the field of renewables and energy efficiency”, but will also support efforts to develop new nuclear and carbon capture and storage (CCS) technology.

The EU has so far failed to get CCS up and running on a significant scale. The UK has called for a clearer CCS strategy. The EU’s CCS directive is due to be reviewed, with some countries pushing for a  CCS target. But the energy union draft doesn’t mention such a goal,  relegating it to the research and development section.

Sticking to the plan

One key unresolved area of the energy union debate is around governance, in other words how to get member states to stick to the plan. The argument was already a prominent part of  discussions over the EU’s 2030 climate and energy framework, agreed in October.

The draft strategy says there will be a single governance framework covering the energy union, the EU 2030 framework and “other relevant policy areas”. The draft includes a fairly comprehensive list of current EU climate policy initiatives, suggesting it is, in effect, the work programme for this entire policy area.

Member states strongly disagree on the way EU climate policy should be governed. Germany says “specific, robust and reliable” governance is necessary to enforce the agreed EU-level 2030 targets for efficiency and renewables, because member state targets are lacking. The UK calls for “transparent light-touch governance”, a stance that has  attracted some criticism.

Next steps

Policymakers are discussing the energy union in a  meeting in Riga today. The final draft is due to be published on the 25th of February. The document will be released alongside the EU’s formal plan to cut emissions, known as an intended nationally determined contribution or ‘INDC’, which it is required to submit as part of the United Nations’ Framework Convention on Climate Change.

Heads of government are due to consider the draft at a European Council meeting at the end of March.

Main image: Flags of EU countries.

Update 11:15 - we amended the article to replace the word "pillars" with the word "dimensions". The words have subtly different meanings in EU policy circles, with dimensions being seen as more closely linked than pillars.

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