By / March 31, 2014

Secure, clean and affordable energy for Europe

The EU is developing energy policies that aim to ensure security of supply, affordable energy for households and industry, and…

© Kautz15/ Fotolia

The EU is developing energy policies that aim to ensure security of supply, affordable energy for households and industry, and a reduction of carbon emissions in line with EU climate commitments.

A new global energy landscape

Secure, clean and affordable energy for Europe
© Kautz15/ Fotolia

The global energy landscape keeps changing. Electricity from renewable sources has been gaining market share, but there are concerns that the higher cost of renewables brings electricity price increases. Solar and wind energy are variable, weather-dependent sources that need to be backed up by conventional power plants for as long as affordable large-scale energy storage is not available. The use of agricultural products for biofuels is considered to be playing a role in rising food prices.

Higher oil prices have made costly oil production methods (drilling in the deep sea and the Arctic, exploitation of tight oil and tar sands) economically interesting. Oil demand in developing countries has risen, with China now the world’s largest oil importer. International political developments, such as conflicts involving oil-producing and gas-transit countries, give rise to concerns about security of imports.

Fracking technology has enabled increased gas production and lower prices in the US. Higher energy prices in the EU raise concerns about the international competitiveness of energy-intensive EU industries.

Worldwide greenhouse gas emissions from energy continue to rise. Reductions in energy demand resulting from energy efficiency are offset by growing energy use in developing economies. The use of coal – more polluting than oil or gas combustion – keeps growing, especially in developing countries, but also in countries like Germany and Japan that shut down nuclear power plants in the wake of the Fukushima disaster.

Within this global context, the EU and its Member States (MS) face the challenge of ensuring a secure supply of affordable energy to households and industry, while meeting its commitment to reduce carbon emissions by 80-95% by 2050.

Internal energy market

A recent report on energy prices and costs shows higher energy costs in the EU than in many other regions, and a widening gap. Inside the EU, there are significant differences in energy prices between MS and industrial sectors. Rises in electricity prices are driven mostly by taxes and levies, and network costs.

Completion of the internal market for energy would have tangible benefits, as increased competition among energy suppliers should lead to lower prices. With an interconnected ‘smart grid’, electricity could be more easily exchanged between EU regions in case of demand peaks or surplus production from variable renewables. An integrated gas network, in which gas flows could be reversed, would contribute to convergence of gas prices and help reduce the dependence of some MS on a single gas supplier.

A liberalisation of the EU gas and electricity market between 1996 and 2003 set up common market rules, enabled new gas and electricity suppliers to enter MS markets and allowed consumers to choose their energy suppliers. The third energy package, adopted in 2009, focuses on unbundling the business of energy production and supply from the operation of electricity transmission grids and gas pipelines.

The European Parliament (EP) resolution of 10 September 2013 on the internal energy market emphasises the need for consumer protection, and stresses that modernising energy infrastructure is essential. The European Council of 20-21 March 2014 reconfirmed the objective of completing the internal energy market by 2014, and accelerating the connection of all MS to Europe-wide gas and electricity networks.

In 2013, the European Commission (EC) published guidance for state interventions in electricity markets, such as renewable energy support schemes. Currently, it is scrutinising German exemptions from the renewables surcharge for energy-intensive industries, and UK measures supporting nuclear energy.

Climate and energy: the 20-20-20 targets and beyond

Europe is in the midst of a debate about medium-term (2020-30) climate and energy policies that would promote further decarbonisation and reduce uncertainty for investment in long-life energy infrastructure.

Targets for 2020: The current policies, part of the Europe 2020 strategy, are focused on reducing emissions of greenhouse gases (GHG), in order to avoid dangerous manmade climate change. The targets for 2020 are a 20% reduction in GHG emissions compared to 1990, a 20% market share for renewable energy sources, and a 20% improvement in energy efficiency. These so-called “20-20-20” targets were agreed by EU leaders in 2007 and enacted through legislation set out in the 2009 climate and energy package. The EU Emissions Trading System (ETS) is the main instrument for GHG reductions in the energy sector.

The 20-20-20 targets have so far had mixed results. With an 18% reduction in GHG emissions by 2012, the EU is likely to achieve its 20% target for 2020. In 2011, 13% of final energy consumption came from renewable sources. While some MS are on track to achieve their targets for the market share of renewables, others will have to make additional efforts. Only a 17% improvement in energy efficiency by 2020 is expected from measures under the 2012 Energy Efficiency Directive.

Objectives for 2050: In 2009, the European Council agreed the long-term objective of reducing EU GHG emissions by 80-95% by 2050, compared to 1990. To outline the path towards such a low-carbon future, the EC presented roadmaps for a competitive low-carbon economy, resource efficiency, transport and energy.

Policies for 2030: In January 2014, the EC proposed a policy framework for climate and energy in the period from 2020 to 2030. It proposes a binding GHG reduction target of 40% and a binding target of 27% for the EU-wide market share of renewable energy sources, but so far no energy efficiency target.

On 5 February 2014, the EP voted in favour of three binding targets for emissions reductions, renewable energy sources (at least 30% with binding national targets for MS) as well as energy efficiency, referring to the EC proposal as “short-sighted and unambitious”. The March 2014 European Council called on Council and EC to develop an energy efficiency framework.

Security of supply: energy imports and indigenous sources

The EU is dependent on energy imports – 54% of its energy consumption came from imports in 2012. For example, two-thirds of the natural gas consumed and 85% of oil are imported. Security of energy supply is thus an important concern, in particular for MS that have few indigenous energy sources and depend on a single supplier for most of their energy needs.

While oil and coal are globally traded commodities that are shipped around the world, most gas is transported by pipelines that link particular exporters and importers. Although the EU has diversified its gas supply in recent years, almost three-quarters of EU gas imports in 2012 came from just three countries: Russia (31.9%), Norway (29.4%) and Algeria (13.8%). Less than half of Russian gas exports to Europe pass through Ukraine, which is bypassed by pipelines to Poland through Belarus, and to Germany under the Baltic Sea (Nord Stream pipeline, opened in 2011). A planned pipeline from Russia to south-east Europe via the Black Sea (South Stream) faces delays due to contractual issues and economic sanctions on Russian firms. The planned TANAP and TAP pipelines would further diversify supplies by bringing gas from the Caspian region (Azerbaijan) to southern Europe via Turkey. As an alternative to pipelines, liquefied natural gas (LNG) can be transported by ship. Several EU ports have import terminals for LNG. To obtain better prices for its ample shale gas supplies, the US is expected to start exporting LNG in the coming years. Energy trade is also a subject of the negotiations of an EU/US Transatlantic Trade and Investment Partnership (TTIP).

The Energy Community, established in 2005, extends the EU internal energy policy to the Western Balkan countries, Ukraine and Moldova. Georgia is a candidate for membership.

Indigenous fossil, nuclear and renewable energy sources, as well as efficiency measures that reduce energy use, contribute to reducing dependence on imports. Further exploration is needed to assess the potential of hydraulic fracturing (fracking) for energy production in Europe. In January 2014, the EC adopted a non-binding Recommendation concerning the environmental aspects of fracking, broadly in line with the EP resolutions of 21 November 2012 on the industrial and environmental aspects of shale gas and oil.

The March 2014 European Council called on the EC to present, by June 2014, a comprehensive plan for reducing EU energy dependence. It also urged further action to increase the transparency of intergovernmental agreements between individual MS and energy suppliers.

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