On the Energy Union Package
“Energy Union” is the new buzzword in Brussels’s energy departments and in the columns of specialized press. These days, one can make a good case for unity in EU’s energy matters, given the geopolitical crisis in its eastern vicinity, its high energy dependence on Russia, as well as the more general concerns about oil price volatility, high energy costs in Europe as compared to the US, or the troubles of the internal energy market. And yet, for all the political drive behind the term, its substance is still largely undetermined.
On February 25, the European Commission launched the Energy Union Package, subtitled A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy. The Package, as shall be argued, is a rhetorically bold, but only halfway successful attempt to provide a novel, comprehensive and coherent concept of EU’s energy challenges and priorities.
Its five programmatic dimensions – deemed “mutually reinforcing and closely interrelated” – are usual suspects: energy security, solidarity, and trust; a fully integrated European energy market; energy efficiency; decarbonized economy; and research, innovation and competitiveness. They do in fact expand on the classical three pillars of EU’s energy policy: liberalized and competitive markets, energy security, and environmental protection and climate change mitigation.
Some of the keywords, though, such as solidarity and trust, mark a more recent rhetorical twist in response to EU’s growingly acute concerns about energy security. To see how, it is worthwhile taking a glimpse at the notion’s short history.
In April 2014 (not long after the Russian annexation of Crimea), the former Polish PM Donald Tusk – currently the European Council’s president – argued in a Financial Times op-ed that “Europe should confront Russia’s monopolistic position with a single European body charged with buying its gas.” He took inspiration from EU’s banking union and, especially, from Euratom, the European agency in charge of acquiring nuclear fuel from outside the EU.
Tusk proposed that “first, Europe should develop a mechanism for jointly negotiating energy contracts with Russia. It would be created in stages. Initially, bilateral agreements would be stripped of any secret and market-distorting clauses; then, a template contract would be created for all new gas contracts; finally, the EC would be required to take a role in all new negotiations.”
One month later, the newly-minted European Energy Security Strategy acknowledged that “the most pressing energy security of supply issue is the strong dependence from a single external supplier.” The Strategy affirmed the principle of solidarity and urged “improving coordination of national energy policies and speaking with one voice in external energy policy”.
Nonetheless, there is not much clarity about what exactly such a “joint negotiation mechanism” should consist in. In any event, the notion of some centralized bureaucratic body that would negotiate a unique price and uniform contractual terms is at variance with the workings of a competitive and liquid internal energy market.
However, the Energy Union Package doesn’t offer the blueprint of any such institution. On the contrary, the document gives short shrift to the Tusk proposal and simply states that it will be “assessed,” mentioning the watered-down option of “voluntary demand aggregation mechanisms for collective purchasing of gas during a crisis.” And still, for the sake of gas supply transparency, the Package urges “full compliance of agreements related to the buying of energy from third countries with EU law.”
“In future,” the document continues, “the Commission should be informed about the negotiation of intergovernmental agreements from an early stage, so that a better ex ante agreement of IGA’s compatibility with internal market rules and security of supply criteria is ensured.” The EC is to also review commercial gas supply contracts of energy security impact.
Such changes are sure to challenge some of the old self-centered habits of the Members States: national-level energy planning, bilateral deals with external suppliers, uncoordinated state interventions in the market etc. Yet while most European governments will probably adapt, more or less grudgingly, to the new rules, some seem to be ready to go much greater lengths with their dissent.
Indeed, on February 20, Hungarian PM Viktor Orban stated that the Energy Union proposed requirements hinder his country’s national sovereignty. Two days earlier, he agreed with Vladimir Putin on a new long-term gas deal with Russia, during the latter’s visit to Budapest. Mr. Orban boasted that the price of Russian gas deliveries to Hungary has sunk from $500/kcm in 2009 to $260/kcm at present, and that Gazprom has relinquished payment demands for Budapest’s unfulfilled “take-or-pay” obligations. Orban has also committed to stop shipping Russian gas in reverse flow to Ukraine, in order to ensure that “Hungary does not reap any profits from the difference between the lower price it pays to Russia and what gas costs on the spot market”, according to the Wall Street Journal.
The Hungarian PM has tried to construe his stance as a business case, as opposed to a political one. In fact, though, his government is simply being rewarded by Russia for breaking ranks with the West and playing into the hands of Moscow’s divisive approach. Ironically, were the latter to succeed, Hungary would lose its strategic value to Moscow and end up in increased energy and political dependence.
Returning to the Energy Union Package, one remarkable proposal is that the Agency for Cooperation of Energy Regulators (ACER), which currently emits recommendations and opinions, is to become an institution of real powers, “should carry out regulatory functions atthe European level.” Were such a step toward centralized regulation to be achieved, the Union’s internal energy market would be bolstered through common network codes and increased cross-border trading. It remains to be seen whether the European Council will accept such a consequential move.
The Package has a marked green character, and it rightly hints at the need to square the internal electricity market’s design with an increasing share of renewable energy sources. Certainly, EU’s energy goals concerning environment and climate, renewable energy sources, and energy efficiency feature prominently in the whole document. However, the document does not address the ever-bloating renewable subsidy schemes EU-wide, the national character of such schemes and of systems of regulated energy prices, and the increasing pressure they exert upon final consumers’ energy bills.
As aptly observed by David Buchan of the Oxford Institute for Energy Studies, “the UK and some east European states [have] grown tired of pursuing energy decarbonization through what they see as expensive and cost-ineffective renewable and efficiency programmes at the expense of other options (chiefly nuclear and cleaner coal).”
To conclude, the Energy Unions Package’s bureaucratic inclination of trying to be something to everyone ends up adding few new suggestions to the familiar known policy lines of the previous strategic documents. It does not realistically prioritize among the multiple goals of decarbonization, internal energy market achievement, empowering EU-level regulators,
common action in energy security matters, planning and financing cross-border grids interconnectivity, and achieving network codes harmonization. Further documents will have to do that and give specific content to the Package’s more practical proposals.
However, the document’s solidaristic approach, its apt rhetoric and the political momentum it brings forth are timely and useful, as they strongly invite further conceptual clarification, strategic thinking and decision-making about EU’s energy agenda.
Radu Dudău
Radu Dudău is Director of the Energy Policy Group, a Bucharest-based non-profit, independent think-tank specializing in energy policy. Energy Policy Group is a National Gas Europe Knowledge Partner.