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EU POLICY
25 February 2015 16:15

How the EU’s evolving Energy Union reveals underlying politics

Simon Evans

Simon Evans

02.25.15
Simon Evans

Simon Evans

25.02.2015 | 4:15pm
EU policyHow the EU’s evolving Energy Union reveals underlying politics

Europe’s energy system needs to be fundamentally transformed, shifting away from reliance on fossil fuels, according to the European Commission’s proposals for an energy union.

framework strategy for the energy union, published today, explains how the commission plans to achieve this transformation. The strategy attempts to create a coherent vision by synthesising all existing EU policies on climate and energy with a number of new initiatives.

Reactions so far suggest this synthesis has only been partially successful.  Legal NGO ClientEarth says the strategy lacks clear rules on how EU targets will be met.  Thinktank E3G says the strategy is “good on vision, but deeply confused on delivery priorities”.  NGO Greenpeace says the plan is “contradictory” and lacks coherence, while  WWF says it has “blind spots”.

Carbon Brief explains where the idea of an energy union came from and shows how the strategy text has evolved through several drafts, revealing evidence of the differing political priorities that have challenged creation of a clear and coherent strategy.

It’s important to note that the commission proposal will be discussed by member state governments at meetings in March, April and June. They could propose further changes.

Moving on from Tusk’s energy security union

The idea of an energy union was first proposed by European Council president and former Polish prime minister  Donald Tusk in an April 2014  article for the Financial Times. Tusk’s proposal 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.

Earlier this month, Carbon Brief produced a detailed energy union briefing based on a leaked draft strategy dated 30 January. The briefing explained how Tusk’s proposal had been transformed into a more holistic strategy with five “dimensions”: integrated energy markets, a new deal for energy consumers, energy efficiency, decarbonising the economy and research.

Since then, a  second draft was widely leaked, including to Carbon Brief. This draft shifted emphasis in a number of key areas while the final version moves things on again. So, how has the energy union evolved in recent weeks?

A central role for climate policy

Creating an energy union was one of ten priority areas set by incoming European Commission president Jean-Claude Juncker. He called for a “resilient energy union with a forward-looking climate change policy”.

This language has subtly evolved, giving greater emphasis to climate policy. The first line of the energy union strategy now sets out: “The goal of a resilient energy union with an ambitious climate policy at its core.” Additional text says: “An ambitious climate policy is an integral part of our energy union.”

In contrast to Tusk’s fossil-heavy vision, the strategy says the EU has to “move away from an economy driven by fossil fuelsâ?¦ and outdated business models”.

The strategy makes no mention of coal and says shale gas is “an option, provided that issues of public acceptance and environmental impact are adequately addressed”.

Plans for collective gas purchasing, as suggested by Tusk, featured in an early, internal commission discussion paper on the energy union seen by Carbon Brief. This lists “develop a scheme for common purchasing of gas” under “key actions for 2015-2016”.

In the final strategy, common gas purchasing is downgraded to a voluntary scheme, reserved for crisis situations in member states that import all of their gas from a single supplier. Six member states rely entirely on Russia: Bulgaria, Estonia, Finland, Slovakia, Latvia and Lithuania.

Shifting the emphasis on energy security

Energy security continues to be an important part of the strategy, with amendments to the text reflecting competing ideas about how best to achieve it. All versions say the EU must reduce its oil consumption, given its dependence on imports and the challenge of climate change.

The 30 January draft says:

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

This broad sweep, including renewables and domestic energy sources – perhaps shale gas – has become more focused in later versions. The second draft seen by Carbon Brief puts energy efficiency first, in front of completing the internal energy market.

It says:

“Energy security requires more efficient energy consumption and the completion of the  internal energy market.”

The final version switches priority back again:

“The key drivers of energy security are the completion of the internal energy market and  more efficient energy consumption.”

A stronger emphasis on energy efficiency?

“Efficiency first” is supposed to be the motto of the energy union, according to climate and energy commissioner Miguel Arias Cañete. A coalition of NGOs and business groups campaigned for ” efficiency first” to be reflected in each of the energy union’s five dimensions.

All versions of the text seen by Carbon Brief say energy efficiency must be treated “as an energy source in its own right” and that member states will be “encouraged” to give it priority.

The final strategy goes further, however. It says:

“The commission will ensure that energy efficiency and demand side response can compete on equal terms with generation capacity.”

There is no detail on how this would be achieved. The commission says it will review existing energy efficiency rules in 2015 and 2016, proposing revisions, if necessary, to meet a 27 per cent energy-saving target for 2030. It will also draw up a new strategy on heat and cooling.

The final strategy lacks ambition to be world-leading on efficiency. Earlier drafts say:

“The cheapest, safest and most secure energy is the one not consumedâ?¦ ambition [is] to turn the EU into the most energy efficient economy in the world.”

Becoming number one for renewables

The ambition to be the world’s most energy efficient economy may have disappeared, but all versions of the text retain a goal of “becoming the world leader in renewable energy”. A package of new renewable energy policies in 2016-17 will aim to ensure that the EU’s 2030 target to source 27 per cent of its energy from renewables can be met cost-effectively.

The final strategy adds text on the need for energy markets and grids to become “fit for renewables”. It says this means markets moving towards real-time pricing and power grids being linked and balanced to reflect variable renewable output.

It says:

“Existing power grids designed and often managed for conventional power production in a national scope are suboptimal for a future where supply from renewable sources will become ever more important and where balancing is needed to compensate for their inherent variability.”

Harmonising electricity market rules

Joining up EU electricity markets is another energy union priority. This will enable cross-border trade, increased consumer participation through demand response as well as the integration of renewables.

A separate commission document sets out how the EU should reach its target to achieve electricity market interconnection equivalent to 10 per cent of capacity in each member state.

The final energy union strategy adds stronger language on electricity market integration compared to earlier drafts. This new language says:

“Today, the EU has energy rules set at the European level, but in practice it has 28 national regulatory frameworks. This cannot continueâ?¦ We have to give a new political boost to completing the internal energy market.”

The commission will propose a new electricity market design this year, with a legal package to follow in 2016.

A new deal for consumers

Earlier drafts talked of the need to “shift towards a participatory energy system”, one where there was “a fundamental shift is needed to the demand side, with consumers playing a more active role”. The idea was for consumers to be active energy market participants, who generate their own electricity and adapt their energy use in response to changing prices.

The final strategy still talks of creating a “new deal for consumers”. However, the language appears to have been moderated somewhat. It talks of an energy union “with citizens at its core”, where there is “full participation of consumers in the market notably through demand response”.

Language criticising “rent seeking” energy firms has also been removed. An earlier draft says: “Without action to integrate markets better we will be faced with a weak and fragmented European energy landscape leaving consumers exposed to rent seeking by incumbents”.

Ramping up the rhetoric against capacity markets

The business model of these incumbent energy firms is being eroded. Once built, renewables generate virtually free power that displaces gas-fired generation from the grid. Yet gas-fired power plants may still be needed when there’s little wind or sun.

The UK’s response to the problem is a capacity market that pays power plants to stay open. The final energy union strategy has significantly ramped up the rhetoric against such capacity markets, which have also been criticised by the International Energy Agency.

The 30 January draft says member states are “increasingly turning to capacity marketsâ?¦ even when this is not efficient nor cost-effective”. It says they should be “technology neutral [and] open to any capacity, including capacity located in other member states”.

The second draft seen by Carbon Brief says:

“Capacity mechanisms should only be developed to address security of supply if a regional system adequacy assessment points to such a need.”

The final draft goes furthest of all in its anti-capacity market rhetoric. It says:

“Capacity mechanisms should only be developed to address security of supply if a regional system adequacy assessment points to such a need, taking into account the potential for energy efficiency and demand-side response.”

The UK capacity market fails to adequately support efficiency and demand response, according to critics of the scheme.

Decarbonising transport through electrification and alternative fuels

The energy union strategy emphasises the need to reduce transport reliance on oil, which supplies about 97 per cent of transport energy needs. It says fuel efficiency standards will be tightened and that transport systems must be transformed.

The commission will propose a “comprehensive” package of measures to do this covering road-pricing, intelligent transport and efficiency.

There are some subtle changes of emphasis in text on alternatives to oil. The earlier text says increased development and deployment of “alternative fuels” will be needed and says “electrification of transport is important to break oil dependency”.

The final version adds more detail on what is meant by alternative fuels:

“The EU needs to invest in advanced, sustainable alternative fuels, including biofuel production processes, and in the bio-economy more generallyâ?¦ The EU will also need to take into account the impact of bioenergy on the environment, land-use and food production.”

An early commission discussion paper on the energy union mentioned a “possible alternative fuel target (biofuel, electric, hydrogen)”. The idea for a target has been dropped from the final strategy.

Research focus on efficiency and renewables

An earlier draft of the strategy says: “The energy union’s research and innovation agenda will favour activities in the field of renewables and energy efficiency.”

The final strategy appears to broaden this focus to include “clean fossil fuel and the world’s safest nuclear generation”. Despite this wording, the strategy sets out four priority areas which continue to focus on efficiency and renewables.

The priority research areas are: renewables and energy storage; consumer participation through smart grids and appliances; efficiency to make buildings energy neutral; and sustainable, more efficient and lower carbon transport.

The strategy adds that member states and the commission should collaborate on carbon capture and storage, which will be “critical” to reaching climate targets cost-effectively.

Conclusion

The energy union strategy has come a long way since first proposed by Tusk last year. Despite huge progress in creating a more holistic climate and energy strategy, the final text has proved a disappointment for members of the NGO community.

They will continue to argue their case, because the energy union strategy can still be amended by member state governments. Ministers will discuss the plan at meetings on 5 and 6 March before taking a formal position at the EU energy council on 11-12 June.

Once implemented, the commission will give annual progress reports “on the state of the energy union”. Meanwhile, the weight given to different parts of the strategy will help reveal which of the competing political priorities behind the energy union has won out.

Main image: Electricity transmission tower.

Update 26/2: We added two sections referencing an early European Commission internal discussion paper on energy union, seen by Carbon Brief. This pre-dates the leaked draft strategy papers.

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