2 Strategy for sustainable, competitive
and secure energy
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7070/06
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COM(06) 105
| Commission Green Paper: A European Strategy for Sustainable,
Competitive and Secure Energy
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| Legal base | — |
| Document originated | 8 March 2006
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| Deposited in Parliament | 15 March 2006
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| Department | Trade and Industry
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| Basis of consideration | EM of 31 March 2006
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| Previous Committee Report | None, but see footnotes
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| To be discussed in Council | 8 June 2006
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| Committee's assessment | Politically important
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| Committee's decision | For debate in European Standing Committee
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Background
2.1 According to the Commission, Europe has entered a new energy
era characterised by an urgent need for investment to meet expected
demand and replace ageing infrastructure; a rising dependency
on imports, some of which are from regions threatened by insecurity;
a situation where reserves are concentrated in a few countries;
a rising global demand for energy, together with rising oil and
gas prices (which in turn have an impact on electricity prices);
and the need to adjust to climate change. It adds that Europe
has not yet developed fully competitive internal energy markets,
and that, only when it has done so, will the benefits of security
and lower prices be felt. It also believes that this requires
a common response, under which the Community, as the world's second
largest energy market, tackles the situation using a range of
policies, but that, because of the long lead-in time in this area,
there is a need to act urgently.
The current document
2.2 The Commission has therefore set out in this Green Paper the
basis of such a policy, and has identified six key areas where
it considers action is necessary in order to achieve the core
aims of sustainability, competitiveness and security.
COMPETITIVENESS AND THE INTERNAL ENERGY MARKET
2.3 The Commission reiterates that these aims will not be achieved
without open and competitive energy markets, and it says that
by July 2007 every consumer, with "very few" exceptions,
will have a legal right to purchase electricity and gas from any
supplier within the Community. However, despite this, it points
out that many markets remain largely national and dominated by
a few companies, and that there are many differences in the approaches
adopted by Member States to market opening. It also says that
by the end of 2006 the second electricity and gas Directives will
have been implemented, and that it will have completed its competition
enquiry into the functioning of these markets. At that point,
a final decision will be made on any additional legislative measures
needed, notably to ensure non-discriminatory network access, adequate
available network capacity, liquidity on gas and electricity markets,
and effective regulation.
2.4 In the meantime, the Commission has identified
five core areas where it says particular attention is needed:
- It says that consumers need
a European grid, achieved by ensuring common rules and
standards on issues affecting cross-border trade. It notes a first
step is being taken towards this on a regional basis, but that,
in order to speed up progress, it will examine what needs to be
done to address differences in the powers and independence of
national regulators, and whether levels of co-operation between
regulators and grid operators might need to be improved, for example
through a European energy regulator. It also suggests that network
operators could be brought together in a European Centre for Energy
Networks to assist in the development of a European Grid Code.
- It recalls that the European Council agreed in
2002 to increase minimum interconnection levels between Member
States to 10%, but that progress has not been satisfactory,
there being a need for additional physical capacity in many areas,
as well as action to free up capacity reserved for former incumbents
under long-term contracts. It believes that both private and public
investment needs to be stimulated, and says that the greater the
degree of interconnection, the lower the need for spare capacity
and (in time) the lower the costs. It intends to identify by the
end of 2006 the individual measures which it considers important
at the Member State level, as well as further actions at Community
level, such as the more effective use of Trans-European Networks.
- The Commission says that the Community will need
substantial investment in electricity generation over the
next 20 years in order to replace ageing capacity and meet demand,
including that arising at peaks. It notes that this requires a
properly functioning market, giving the necessary price signals,
incentives, regulatory stability and access to finance.
- The Commission notes that significant differences
still exist in the extent to which national markets are open
to fair and free competition, and that, if the situation does
not improve, further measures at a Community level should be considered.
- The Commission states that one of the most important
objectives is to promote the competitiveness of European industry
by means of a well-designed, stable and predictable regulatory
framework, and that energy policy therefore needs to favour cost-effective
options and be based on a thorough economic analysis of the impact
of the different options on energy prices. It suggests that a
new High Level Group on Energy, Environment and Competitiveness
will play an important role here, and that a report is expected
by the end of 2006.
SOLIDARITY BETWEEN MEMBER STATES
2.5 The Commission says that liberalised and competitive
markets help security of supply by sending the right investment
signals, but that, in order to be effective, this requires transparency
and predictability, bearing in mind also the threats posed both
by natural disasters and terrorism. It therefore suggests that
there is a need for a European Energy Supply Observatory to monitor
supply and demand patterns and identify likely shortfalls in infrastructure
and supply at an early stage, thereby complementing at a Community
level the work of the International Energy Agency (IEA); that
improved network security could be achieved through increased
collaboration and exchange of information, perhaps involving the
proposed European Centre for Energy Networks; and that, in order
to counter any threat to the physical security of infrastructure,
mechanisms could be developed to achieve rapid solidarity and
provide possible assistance to a country facing difficulties.
2.6 The Commission also suggests that the Community's
approach to emergency oil and gas stocks needs to be re-thought.
In particular, it points out that, since oil is a global market,
a global response to disruptions is required, with any stronger
Community action needing to be compatible with action taken by
the IEA. Subject to that, it says that any such action would be
helped by a new Commission legislative proposal ensuring the publication
of the state of Community oil stocks on a more regular and transparent
basis, and that the Directives on gas and electricity security
of supply should be re-examined, with consideration also being
given to whether sufficient encouragement is being given to the
necessary investment. It adds that this action might include a
new legislative proposal on gas stocks to ensure that the Community
can react to short-term emergencies.
ACHIEVING A MORE SUSTAINABLE, EFFICIENT AND DIVERSE
ENERGY MIX
2.7 The Commission notes that, whilst each Member
State chooses its own energy mix, this inevitably has an impact
on the energy security of its neighbours and of the Community
as a whole, as well as on competitiveness and the environment.
It says that the strategic Community Energy Review (see below)
would offer a clear European framework for national decisions
on energy mix, and allow a transparent and objective debate on
such issues as the future role of nuclear energy. It also suggests
that it might be appropriate to agree an overall strategic objective,
based on a thorough impact assessment, and balancing the goals
of sustainable energy use, competitiveness and security of supply,
with one possible aim being a minimum level of energy originating
from secure and low-carbon sources.
AN INTEGRATED APPROACH TO TACKLING CLIMATE CHANGE
2.8 In noting the urgent need for effective action
in this area, the Commission says that the Community must continue
to lead by example, and work towards the widest possible international
action. It notes that the Community is already at the forefront
of approaches to decouple economic growth from increasing energy
consumption, and that, although its commitment to fighting climate
change is a long-term one, action is needed now, particularly
on energy efficiency and renewable energy (which it adds will
also contribute towards security of supply). It also highlights
the role of the EU Emissions Trading Scheme in creating a flexible
and cost-effective framework for more climate friendly energy
production, and the scope for expanding this.
2.9 More specifically, the Commission says that,
although Europe is already one of the world's most energy efficient
regions, the recent Green Paper on Energy Efficiency[3]
demonstrated the scope for much more progress, and that it will
this year propose an Action Plan on Energy Efficiency to realise
this potential through such means as long-term and targeted energy
efficiency campaigns (notably for buildings), improved energy
efficiency in the transport sector (especially as regards public
urban transport), encouraging commercial banks to invest in energy-efficiency
projects and in companies providing energy services, and more
guidance to consumers on the performance of energy-using appliances,
vehicles and industrial equipment. It also suggests that such
an Action Plan could act as a launch pad for global action in
collaboration with the IEA and World Bank, and that the Community
should propose and promote an international agreement on energy
efficiency.
2.10 As regards renewable energy, the Commission
notes the steps taken by the Community since 1990 to become a
world leader, and says that such energy is now starting to compete
on price with fossil fuels. However, it also points out that it
is likely to miss its existing targets for the share of electricity
from renewable sources, and for the share of petrol and diesel
produced from biofuels, and that it will in any event need to
go beyond those targets if it is to meet its long-term climate
change goals. It therefore says that, in addition to the Strategic
EU Energy Review, it will bring forward a Renewable Energy Road
Map, covering such key issues as the targets or objectives needed
beyond 2010; a new Community Directive on heating and cooling,
a detailed short-, medium- and long-term plan to stabilise and
gradually reduce the dependence on imported oil; and research
and other initiatives to bring clean and renewable energy closer
to markets. At the same time, it proposes that steps should be
taken to improve the technology for carbon capture.
ENCOURAGING INNOVATION IN ENERGY TECHNOLOGY
2.11 The Commission says that the development and
deployment of new energy technologies is essential to deliver
security of supply, sustainability and industrial competitiveness,
and that, whilst relevant research has contributed strongly to
energy efficiency, the challenge ahead requires increased efforts,
involving a long-term commitment. It notes that the Seventh Framework
Programme recognises that there is no single solution to energy
problems, and deals with a wide portfolio of technologies, and
that the Community needs an appropriately resourced strategic
energy technology plan to accelerate the development of promising
technologies and bring these to the Community and world markets.
It adds that such a plan should also prevent overlaps in national
technology and research programmes, and put the focus on goals
agreed at Community level. It also says that the Community needs
to consider ways to finance a more strategic approach to energy
research, and maximise the efficiency of the whole research effort
through large-scale integrated actions providing the necessary
critical mass, with consideration also being given to mobilising
the resources of the European Investment Bank in research close
to the market. It goes on to stress the need for such actions
to be complemented by policy measures to open the market, bearing
in mind the high entry barriers faced by new technologies, and
it points to the possible roles here of the EU Emissions Trading
Scheme and the Intelligent Energy-Europe Programme.
EXTERNAL ENERGY POLICY
2.12 The Commission says that a coherent external
policy is needed to enable Europe to play a more effective international
role, which would not only be a break from the past, but show
Member States' commitment to common solutions to shared problems.
It suggests that the first step is to agree the aims of such a
policy at Community level, and the actions needed to be achieved,
including those at national level, and that the Strategic Energy
Review would provide a single reference point and thus serve as
the basis for achieving this, with follow-up action taking the
form of regular formal political level discussions, involving
the Member States and the Commission.
2.13 The Commission also considers that the benefits
of such an approach would be particularly strong in the following
five areas:
Securing and diversifying energy supplies
The Commission believes that the Strategic Energy
Review could propose clearly identified priorities for upgrading
and constructing new infrastructure, notably new gas and oil pipelines
and liquefied natural gas terminals, as well as the application
of transit and third-party access to existing pipelines.
Energy partnerships with other countries
The Commission points out that the Community and
its energy partners are interdependent, and that energy issues
are a growing feature of its political dialogues with other major
consumers, such as the US, China and India.
Dialogue with major energy producers and suppliers
The Commission notes that the Community has an established
pattern of relations with major international energy suppliers,
including OPEC, but that a new initiative is particularly opportune
as regards Russia, which it says is the Community's most important
energy supplier, but where the Community is also Russia's most
important buyer, and hence an equal partner in the relationship.
It suggests that the development of a common external energy policy
would represent a step change in this relationship, offering security
and predictability for both sides, and paving the way for the
necessary long-term investment in new capacity. At the same time,
the Commission says that the Community has for some time been
widening its energy market to include its neighbours,[4]
and that this process could be extended to develop a pan-European
energy Community, involving a range of countries, such as Norway,
Algeria, and the Caspian and Mediterranean countries. It also
believes that this framework would enable the promotion of Community
investment through Trans-European Energy Networks.
Reacting effectively to external crises
The Commission suggests that recent experience has
shown the need for the Community to be able to react quickly and
in a fully coordinated manner to external events, and that, although
it currently has no formal instrument, this could be addressed
by a new, more formal and targeted instrument, perhaps involving
a monitoring mechanism to provide early warning and enhance response
capabilities to any such crisis.
Integrating energy into other external policies
The Commission believes that a common European external
policy would permit a better integration of energy objectives
into wider relations with third countries on issues such as climate
change, energy efficiency, renewable sources, research and development,
and global market access, leading to better results in fora such
as the UN. In particular, it considers that greater efforts should
be made towards widening the geographic scope of the EU Emissions
Trading Scheme, and to making better use of trade policy tools
to promote non-discriminatory energy transit and the development
of a more secure investment climate.
Development promotion
The Commission says that access to energy is a key
priority for developing countries, and that the Community should
promote a twin-track approach through the European Union Energy
Initiative and through raising the profile of energy efficiency
in development programmes, thereby helping many countries reduce
dependence on imported oil.
2.14 Finally, the Commission suggests that a number
of questions arise on the six main areas dealt within the Green
Paper, as follows:
Competitiveness
Is there agreement on the fundamental importance
of a genuine single market to support a common European strategy
for energy? How can barriers to implementing existing measures
be removed? What new measures should be taken to achieve this
goal? How can the EU stimulate the substantial investments necessary
in the energy sector? How to ensure that all Europeans enjoy access
to energy at reasonable prices, and that the internal energy market
contributes to maintaining employment levels?
Diversification
What should the EU do to ensure that Europe, taken
as a whole, promotes the climate-friendly diversification of energy
supplies?
Solidarity
What measures need to be taken at Community level
to prevent energy supply crises developing, and to manage them
if they do occur?
Sustainable development
How can a common European energy strategy best address
climate change, balancing the objectives of environmental protection,
competitiveness and security of supply? What further action is
required at Community level to achieve existing targets? Are further
targets appropriate? How should we provide a longer-term secure
predictable investment framework for the further development of
clean and renewable energy sources in the EU?
Innovation and technology
What action should be taken at both Community and
national level to ensure that Europe remains a world leader in
energy technologies? What instruments can best achieve this?
External policy
Should there be a common external policy in energy,
to enable the EU to speak with a common voice? How can the Community
and Member States promote diversity of supply, especially for
gas? Should the EU develop new partnerships with its neighbours,
including Russia, and with the other main producer and consumer
nations of the world?
2.15 The Commission concludes by observing that developing
a European energy policy will be a long-term challenge, and it
proposes that, as a foundation for this process, a Strategic EU
Energy Review should be presented to the Council and European
Parliament on a regular basis, covering the issues identified
in the Green Paper. It suggests that this would constitute a stocktaking
and action plan for the Spring European Council, monitoring progress
and identifying new challenges and responses an all aspects of
energy policy.
The Government's view
2.16 In his Explanatory Memorandum of 31 March 2006,
the Minister for Energy at the Department of Trade and Industry
(Malcolm Wicks) says that, although this document shares some
of the proposals set out in an earlier Green Paper[5]
which the Commission produced in 2000, its scope is wider, but
that the UK favours the idea of the Community working together
more cohesively in this area to address common problems. It therefore
welcomes the overall thrust of this Green Paper, and in particular
the emphasis on the effective completion of the internal market
and on energy efficiency. However, he also points out that a number
of specific aspects have the potential to raise legal issues concerning
competence and the legal base, which will be addressed on individual
proposals as they arise, and that there are also suggestions that
a number of new European bodies should be created, on which the
UK would need to consider carefully their potential for added
value. Similarly, the UK would need to consider carefully whether
it would want some of the areas, such as those on gas stocks
and a Renewable Energy Road Map, to be subject to a new legislative
proposal and covered by a Community obligation, and it would also
want both to retain its right externally to deal bilaterally with
other producer countries and to ensure that any Community-level
dialogue with third countries fully reflected the positions of
individual Member States.
2.17 On more specific points, the Minister says that,
whilst the UK welcomes the emphasis on completing the internal
market, it could not agree to the creation of a European energy
regulator, which would involve a major increase in Commission
powers, but that, subject to the legal base and further details
about what might be involved, the proposed European Centre for
Energy Networks could be acceptable. It also agrees on the need
for increased interconnection, but regards the 10% minimum target
as artificial. On security of supply, he says that the
UK may be able to accept increased monitoring by the Commission
of world energy markets, provided this does not duplicate work
already done by others; that it supports the principle of improving
critical infrastructure protection, so long as the management
of national infrastructure is left to each Member State and its
owner/operators; that it welcomes the recognition that oil is
a global market, and that the IEA must continue to lead global
responses to any disruption in supplies, but that, although it
is prepared to consider how the Community's contribution to such
action might be better coordinated, it is not convinced that frequent
publishing of data on the Community would help; and that it considers
that the proposed action for Community gas stocks would be premature,
pending full implementation of the existing Supply Directive.
It supports the need for a diversified energy mix, but
believes that national mixes should be for Member States to determine,
given the different national situations. On climate change,
the Government is concerned that certain measures referred to
in the text of the Green Paper merely as possibilities are subsequently
presented as conclusions, and it is also unclear as to the implications
of an international agreement on energy efficiency involving both
developed and developing countries, where it also has a particular
concern that only the Community would be a party. Similarly, a
Renewable Energy Road Map could raise competence issues, and possibility
of further Community level targets in areas where national targets
are likely to be more effective. On encouraging innovation,
the Government questions what a strategic energy technology plan
could achieve in addition to the Seventh Framework Programme,
and also how any further funding would be financed. Finally, as
regards an external energy policy, the UK recognises that
the Community might add value by speaking with one voice, but
would not want the Commission to have full competence for doing
so on all energy matters, and likewise would wish to retain the
right to speak bilaterally to countries, such as Norway, where
it has a particular interest. It also believes that it would make
more sense to maximise existing mechanisms before any new energy
partnership with Russia is launched, and that it is important
that the identification of European priorities for infrastructure
linked to third countries should involve a market-related approach.
Conclusion
2.18 Although this is a Green Paper, and thus
does not in itself contain any specific legislative proposals,
it is nevertheless a wide-ranging document which deals with an
important area of policy, both from an economic and an environmental
point of view, and which poses a number of strategic questions,
including those which the Commission itself has identified. In
view of this, and of the number of potential concerns which the
Minister has flagged up in his Explanatory Memorandum, we think
it would be right for the House to consider the various issues
raised by the Green Paper at this stage, and we are therefore
recommending it for debate in European Standing Committee.
3 (26683) 10368/05; see HC 34-vii (2005-06), para 1
(26 October 2005) and HC 34-xv (2005-06), para 1 (18 January 2006).
Stg Co Deb 17 January 2006. Back
4
Such as Turkey and Ukraine. Back
5
(22096) 5619/01; see HC 28-xi (2000-01), para 2 (4 April 2001)
and Stg Co Deb, European Standing Committee C, 28 November
2001. Back
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