Towards a European Energy Strategy?

by Simon Schmidt

Originally written for and published in Europe & Me magazine issue 19:

Energy policy has the potential to foster Europe’s role as an innovative hub for transnational cooperation, but it too often demonstrates the gaps between competing national interests. This article explores energy cooperation through the internal market, external energy security and how Europe is creating innovation in the sector.

Towards a European energy strategy?

The first multinational attempts to institutionalize and regulate energy interests emerged after the Second World War. New energy market dynamics and the awareness that disputes over natural resources can breed war led to the creation of the coal and steel agreement, providing the first pillar of communal European interests. The European Union now oversees its Member States’ own measures and conducts its own transnational decision-making processes to ensure a stable and affordable energy supply across Europe.

The ambitious Europe 2020 Energy initiative, formulated in 2010, required member states to reduce their greenhouse gas emissions by 20%, to increase the share of renewable energy to 20% and to improve energy efficiency by 20%. During the next two years the European Commission responded to the lack of commitment by member states and has since issued a series of European level reforms to ensure that European Member States pull their weight in producing a sustainable energy program. These additional steps show a distinct aim at closing the gaps between national actions and European visions.

One key vision put forward in the Treaty of Lisbon was the notion of a transnational energy market. One key vision put forward by the Commission in the Treaty of Lisbon was the notion of a transnational energy market. Energy was now to be considered an EU policy area in its own right and the creation of a single internal European gas and electricity market was a major goal that would support the Energy 2020 goals. At its core, this common market aims to separate energy production from international distribution by breaking big companies’ exclusive infrastructure ownership and to encourage competition among energy providers. Hence, this market would grant all European consumers more supply options, would enhance free trade and make an important step towards common market-based prices. This plan therefore directly Europeanizes two key facets of energy strategy: better accessibility for supply and greater price affordability.

Responses to Russia

Better accessibility has not reached a point where energy security is no longer fragmented among its members. This is simply due to the fact that external market actors are essential for guaranteeing the energy supply of most member states because European energy created within European borders cannot meet demand. There is a universal consensus that Russia, and its state owned company Gazprom, is the most important actor in the EU’s energy security system. Russia currently supplies 38.7% of total gas imports and 32.6% of total oil imports to the EU. In several Eastern European states and particularly the Baltic countries, all gas is provided by Russia.

Despite a recognition that Europe is subject to the whim of Russia, there exists no unified response to this development among EU states. Even after 2009, when Gazprom cut gas supplies to Ukraine, a ‘transit country’ to the rest of Europe, and the impact was felt as far as the UK, the approaches of different member states continued to conflict with one another. Germany sought close ties with Gazprom, and pushed for the construction of the Nord Stream gas pipeline, running through the Baltic Sea, to avoid land transit through Belarus and Ukraine. Poland’s government was horrified by the new German-Russian alliance, with Radek Sikorski going so far as to call it the ‘Molotov-Ribbentrop pipeline’, and Polish public opinion remains very negative towards the project. The project in fact evolved into a multilateral endeavor, albeit a western one, involving not just Russia and Germany but also France and the Netherlands.

In contrast, the Baltic States traditionally pursue a rather cautious policy towards Russia and are certainly wary of their 100% dependency of Russian gas. They have engaged in an Eastern European movement to tackle the troublesome Gazprom monopoly of European energy. Lithuania initiated the complaint against allegedly unfair pricing mechanisms, contracts for gas which are linked with (greatly increasing) oil prices – resulting in an official investigation of Gazprom by the EU Commission on anti-trust law violations. The investigation covers deals between the Russian state company and the buying nations Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Estonia, Latvia and Lithuania, who are all highly dependent on Russian gas. If the investigation turns out to be successful, Gazprom could face fines of up to 10% of its annual sales.

The issue of external actors shows that European states aren’t acting as a unified front. However, they all share the common understanding that unilateral decisions are memories of the past and that the EU should be the body to handle issues of vital importance regarding energy security. After all, Nord Stream is gradually evolving to be a multinational pipeline, and all member states respect the EU’s authority with regard to pursuing the anti-trust investigation against Gazprom. Gazprom has already announced that it is likely to cut long-term contract prices to Europe next year.

European innovation or fragmentation?

An answer to the energy security dilemma would be to produce more European domestic energy, but even here there is a split between states who are trying to promote renewable energy and those who aim to harness their domestic shale gas supplies. Germany is steadily withdrawing from nuclear energy and promoting renewable energy sources, eager to be recognised as an innovator in green technologies. Poland on the other hand is strongly promoting shale gas extraction to diversify its energy supply. As Brain editor Matt Shearman argued here, the Polish Government is undertaking these measures in order to cope with the green energy policies of the EU, as much to reduce its reliance on Russian imports.

At a European level, the question of shale gas extraction remains a complicated one.

At a European level, the question of shale gas extraction remains a complicated one. While Warsaw regards hydraulic fracturing (fracking) as a bridge technology to meet its decarbonisation requirements, the European Commission is concerned about the potential large scale environmental effects, thus negating the environmental benefits. Are these contrary approaches undermining a pan-European energy strategy? After all, every member state is entitled to create its energy mix according to its own needs and particularities. Here, EU strategies function rather as guidelines and provide important regulation frameworks to ensure an innovative and sustainable transnational energy policy in the long run.

The EU’s major framework for sustainable energy is the EU Emission Trading System (ETS), a system based upon trading emission allowances that companies are allotted; the less carbon used, the less carbon allowances need to be bought, or else a greater number can be sold to recoup money. At a European level, the EU will continue to reduce the limit at which greenhouse gas emissions are allowed before carbon permits need to be bought as well as expanding the ETS to include more industry sectors. It is planned that the market will reduce carbon emissions by 8% in comparison to 1990.

The impact of this framework can be seen by how it will affect energy production in Eastern Europe. Polish coal plants for example, the primary source of Poland’s carbon emissions, originally received free carbon allowances – literally ‘allowing’ them more carbon produced for their energy – but will now buy them from the start of 2013. This will make dirty coal energy production less competitive, forcing industries to invest in greener sources of energy instead of trading in costly carbon allowances. In the short term, Warsaw is likely to introduce supportive measures for its coal industry, but the ETS is slowly forcing Poland’s long-term reliance on coal to come to an end.

Energy as a ‘European common good’?

Energy is intrinsically linked to the core of national security, and for this reason it is especially hard to find common ground between Member States, even when the right universal aspirations might exist. But the general trend suggests that European leaders are increasingly shifting their approach towards unified strategy proposals. The EU summit in 2011 demonstrated the uniqueness of European cooperation, where national initiatives are continually transposed to European strategy.

The EU summit in 2011 demonstrated the uniqueness of European cooperation

France pushed for the promotion of low-carbon sources to foster its construction plans for nuclear power plants, leading to an official accord for the European promotion of “investment in renewables and safe and sustainable low carbon technologies.” Germany and Poland demanded a legally-binding target for energy efficiency, which led to a reassurance statement by all member state leaders that they would deliver on the Energy 2020 targets. These founding agreements led to the agreement for a more coherent European foreign policy in terms of energy.

…most importantly, the instinct towards autarky and fear of external European suppliers must disappear to improve the energy mix in all European countries

Whilst this is often hard to perceive, it is important to remember the degree of consensus among member states when attempting to put European energy strategies into a global context. Supranational strategies are vital when it comes to pushing individual states to promote alternative energy methods.

There is still a lot of work to do in order to foster the notion of a true European energy security system though, domestically as well as in how European states respond to global actors. Perhaps most importantly, the instinct towards autarky and fear of external European suppliers must disappear to improve the energy mix in all European countries. It is crucial to the future wealth and energy security of Europe to put a positive value on coordination, mutual dependence and the effective allocation of financial resources and the impact this might have on energy-rich neighboring countries. After all, the idea of a globally integrated energy system has existed for several years – initiative is the next step it needs to keep developing.

Simon Schmidt is an alumnus of the International MA program in Russian and Eurasian Studies of the European University at St. Petersburg. He currently conducts a traineeship at the Delegation of the European Union to Uzbekistan in Tashkent. His main interests are Russian-EU relations and energy, security and economic developments in post-Soviet Eurasia.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s