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European Standing Committee C Debates

Security of Energy Supply

European Standing Committee C

Tuesday 8 April 2003

[Mr. John McWilliam in the Chair]

Security of Energy Supply

[Relevant document: European Union document No. 12228/02, Commission Communication, draft Directives and draft Council Decision relating to security of energy supply.]

3 pm

The Chairman: Order. Before I call the Clerk to read the motion, I apologise for the delay in starting the sitting, which was unavoidable. I understand that the Minister was stuck on a train. I reflect only that it is just as well that this is an energy order and the Minister an Energy Minister, rather than its being a transport order and the Minister a Transport Minister.

We have until 4 o'clock at the latest for questions to the Minister. I remind hon. Members that questions should be brief and should be asked one at a time. There is likely to be ample opportunity for all hon. Members to ask several questions.

The Minister for Energy and Construction (Mr. Brian Wilson): First, I should express my own regret to the Committee for the late kick off, due to an act of God or Branson, not necessarily in that order, which resulted in my enjoying a longer familiarity with Bletchley than I ever expected to have. I hope that the Committee has not been unduly inconvenienced.

The document under scrutiny is on the agenda for next month's Energy Council, which I hope to attend. It is in the form of a single communication from the Commission on security of energy supply. As the Committee will know, it contains two proposals, one on oil and the other on gas. That reflects the difference in the character of the two markets—the oil market being global and the gas market more regional—and the difference in the purpose of the two proposals. The one on oil seeks to amend existing arrangements; the one on gas establishes new ones.

Our approach to the two proposals also differs. First, let me deal with oil. The proposals would repeal existing European Union legislation on emergency oil stocks and replace it with a new directive, increasing member states' stocking obligations and the Commission's role in managing stocks and the response to disruption. The Committee identified three areas of concern and they are mentioned in the explanatory memorandum. The first is the likely cost of the proposal; the second is whether actions in that area should continue to be taken by member states acting together as individual members of the International Energy Agency or whether they should in future be co-ordinated and led by the European Commission on member states' behalf; and the third is

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the proposed legal base of the proposal. The Government share those concerns, as do other member states.

On cost, the Commission has, despite pressing by the United Kingdom, produced no justification for the changes proposed or estimate of the cost to business and Government, which we think would be considerable.

On the respective roles of member states, the Commission and the IEA, the Commission proposes changes to arrangements that we and other member states think work pretty satisfactorily. We have arrangements through the IEA to address disruption of oil supply on a global basis. The proposal does nothing to help improve those arrangements, and threatens to undermine them. In particular, the part of the proposal that would allow the Commission to release stocks with a view to influencing the market price of oil strikes us as misguided.

The Commission has proposed article 95 as the legal base for the proposal. We oppose that, as do other member states. Article 95 applies to cases in which the single market is the main purpose of the proposal. This proposal is not about trade in oil products but about emergency stocks, and we believe article 100, the legal base for the existing oil stocking directives, is the right basis.

The gas proposals would introduce a new directive, which would set minimum European security of supply standards and increase the Commission's role in the case of a major gas supply disruption or a perceived lack of long-term supply contracts. In our explanatory memorandum, we voiced our concern that the proposal was premature and that the focus should be on the energy liberalisation package, given that the main single contribution to security of gas supply will be made by an open and competitive internal market. That continues to be our major concern. However, like many member states, we are alarmed by certain specific provisions in the directive, in particular the interventionist nature of the provisions dealing with levels of long-term supply contracts and major supply disruptions and the requirement for member states to set minimum storage targets.

On intervention, the Commission proposes that it should be able to issue recommendations and decisions if it perceives the number of long-term supply contracts to be insufficient or if there is a major supply disruption. We oppose that.

It is for market players to decide their contract portfolio, which will typically be composed of short, medium and long-term contracts. Intervention by the Commission on contract terms would undermine the internal gas market that we have spent years negotiating.

Supply disruptions will primarily be handled using national emergency procedures. There may be a role for the Commission in a major supply disruption affecting a number of member states but that should be no more than a co-ordinating role.

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By requiring member states to set minimum storage targets, the Commission becomes involved in the means of ensuring security of supply. That is a matter for subsidiarity and member states, and market players should be able to determine how best to ensure security of supply. Although that is likely to include storage capacity, it will include a range of other measures too. It is not appropriate that the Commission should do any more than require member states to define and publish their general policy on security of supply so that there is maximum transparency for market players.

The proposal does contain elements that we welcome, such as the steer towards greater transparency through the establishment and publication of minimum security of supply standards and through monitoring and reporting obligations for member states and the Commission.

That, in outline, is the Government's approach to these proposals. Despite strong opposition from the Commission, the Greek presidency has tabled compromise texts that seek to remove or weaken provisions, such as those dealing with Community intervention, which member states oppose. Those have been circulated to the Committee. However the original Commission proposal remains on the table and that is why I think it is right that we concentrate on it.

I shall be pleased to answer any questions that hon. Members might have.

Mr. Michael Jack (Fylde): In the light of the Minister's quite strong criticism of the proposal, why does the motion invite the Committee to support the Government's aim of securing the legislation, when surely some other form of agreement between the member states to be transparent could have been achieved without the need for a directive?

Mr. Wilson: The motion supports not the legislation but the Government's aim of securing practical and proportionate legislation for the reasons that I have set out. We do not support the Commission's proposal as it currently stands. The text of the motion is consistent with what I have just said.

Dr. Stephen Ladyman (South Thanet): Will my hon. Friend explain a little more about what he thinks the Commission thought it was doing in bringing forward such proposals? It seems perfectly sensible for individual states to have proposals for dealing with problems in supply, but if a state chooses not to, is that not a matter for that state and its people? It does not have any bearing on the single market, so why does the Commission intend to interfere at all?

Mr. Wilson: That is a good question, and one that has been explored fully at previous meetings of the Council of Ministers. It has been a little surprising how tenacious the Commission has been in pursuit of the proposal in the face of clear resistance and opposition from member states. It would be fair to say that Britain has been in the forefront of that opposition, and in arguing the case that the IEA does a very good job in the field. It would also be true to say, however, that

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there is virtually no support among member states in the Council of Ministers for the proposals. I am sure that their motives are honourable and well-intentioned, but we think that they duplicate, and possibly undermine, arrangements that already exist and operate well.

Mr. Crispin Blunt (Reigate): I am not sure that the Minister gave an entirely adequate answer to my right hon. Friend the Member for Fylde (Mr. Jack). First, the Government oppose in principle the directive as it applies to oil; and they oppose as being premature the proposed directive as it applies to gas. How can the Minister invite the Committee to secure practical and proportionate legislation?

Mr. Wilson: I can only return to the text of the motion, which is entirely consistent with the position that I have set out. The Committee is being asked to take note of the draft directives and the draft Council decision, and to support the Government's aim of securing practical and proportionate legislation. In that context, I have expressed my doubts, concerns and indeed opposition to the draft directives and all that flows from them. I see no disagreement between us; the motion is exactly consistent with the position that I have stated.

Dr. Ladyman: May I suggest to my hon. Friend a possible motive? The federal Government of the United States of America have a reserve petroleum policy to help control the market. It is never used—it is considered to be the ultimate deterrent—but it is intended to stop market price mechanisms getting out of control. Release of that fuel reserve is thought to be a powerful tool. Could the Commissioners be getting a bit above themselves in trying to recreate a similar tool for the European Union?


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