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Ana Palacio: Europe’s Energy Essentials

At last month’s European Council meeting in Brussels, energy issues dominated the agenda — for the third time this year.

 

Energy’s emergence as a focal point for European leaders makes sense, given that it lies at the confluence of the three existential threats facing the European Union: a revisionist Russia, the declining competitiveness of European businesses and climate change. As these developments challenge Europe’s values, its social model’s viability, and the world’s long-term security, EU leaders must focus on building a new energy system that ensures a reliable supply, sensible pricing and ecological sustainability.

The good news is that a framework is already emerging that could facilitate this initiative. Indeed, beyond widely discussed targets for energy production for 2030 — covering greenhouse-gas emissions, energy efficiency and renewable resources — the European Council’s conclusions embrace key elements of a practical and effective approach to energy. But, in order to move from aspiration to implementation, Europeans must muster the unity of purpose that so far has been conspicuously absent in EU energy policy.

The most tangible element of the EU’s emerging energy-policy framework is the internal energy market, which, once completed, will allow for the unimpeded flow of energy and related investments throughout the EU. Such an integrated energy market would lead to significant savings — estimates go as high as €40 billion ($51 billion) annually by 2030 — thereby providing a much-needed competitiveness boost.

The internal energy market would enhance Europe’s energy security as well. Though the EU as a whole maintains a balanced energy mix, with supply divided relatively evenly among gas, coal, oil, renewables, and nuclear generation, individual countries are often excessively dependent on a single source and, more dangerously, a single supplier: Russia. Unrestricted energy flows within the EU would mitigate the risks of supply disruptions or shocks.

Of course, establishing an internal energy market is not just a matter of policy. The EU needs the right infrastructure to facilitate the movement of energy among states and regions.

On this front, there is much to be done. Spain, for example, can currently transmit only 1.5 percent of its electricity-generating capacity to the rest of Europe, owing to a lack of transmission infrastructure in the Pyrenees and France’s reluctance to open its energy market to competition from the Iberian Peninsula.

The European Council, recognizing the urgency of this issue, has called for greater electricity interconnection, targeting 10 percent of generating capacity by 2020 and 15 percent by 2030, with countries exporting 15 megawatts of power for every 100 megawatts they produce. Achieving these benchmarks will require both significant capital investment and a shift in EU member states’ mentalities, so that fears like France’s do not continue to impede progress. Countries need to know that their companies will not suffer either from outflows of electricity to other EU countries during shortages, or from price increases, owing to the rising emphasis on renewables.

The emerging European “energy union,” which the Council has endorsed, could be the ideal vehicle to facilitate this shift. The problem is that EU leaders have yet to define a compelling and effective strategy for building it.

Indeed, though European Commission President Jean-Claude Juncker has established a vice-presidential post responsible for energy union — now held by Maroš Šefčovič — no one seems to know what exactly the position will entail. So far, Šefčovič has merely presented five vague pillars for the energy union, leading many to consider the current policy approach to an energy union hollow.

The EU needs a well-defined energy strategy that helps to overcome the trust deficit that is hampering effective solutions. This means, first and foremost, establishing clear and predictable community rules and cost-sensitive policies for the energy union.

Doing so would help the EU to achieve another critical goal: presenting a more united front to the rest of the world. The Council’s recent conclusions recognize this imperative, and the new Commission structure is conducive to policy coherence. Member states must now fall into line.

A major test will be next year’s United Nations climate change conference (COP21) in Paris. The 2009 conference in Copenhagen was an unmitigated disaster, as Europe’s “lead by example” approach failed to attract followers. The EU cannot afford to isolate itself, or misunderstand the geopolitical forces at play, yet again.

Fortunately, the Council seems to have internalized this lesson, leaving open the possibility of reconsidering its commitments after COP21. But it has a lot to do before then, not only to establish a unified approach, but also to translate that approach into strong tactics and a clear message at COP21. Success would provide a strong foundation for the broader EU energy agenda.

If the EU is to address the key challenges of energy security, competitive pricing and sustainability, it will need a unified, comprehensive, and compelling policy approach. The foundations of such an approach — an internal energy market, the framework of an energy union and a cohesive external voice — are emerging. Now Europe needs to follow through and make it work.

The piece first appeared in Project Syndicate.

Ana Palacio, a former Spanish foreign minister and former Senior Vice President of the World Bank, is a member of the Spanish Council of State and a visiting lecturer at Georgetown University.

 

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