CHAPTER 1: Introduction |
1. The central focus of this inquiry has been
securing the necessary investment for the EU energy infrastructure
over the next few years. This is crucial for the EU to overcome
what many describe as the energy 'trilemma': how to meet the EU's
carbon reduction trajectory whilst maintaining security of energy
supply and affordability to domestic and industrial consumers.
2. This report has taken into account a range
of issues, which include: the necessary investment and costs;
different energy sources; a potential 2030 policy framework; research
and innovation; and issues of interconnection and energy security.
We have not considered the detail of specific renewable sourcessuch
as wind and solarbut consider renewables in a more general
sense. The aim of this inquiry is to offer our views on the future
direction of EU energy policy at a time when the European Commission,
Member States and other interested groups are engaged in discussions
about the role of energy beyond 2020. We issued our call for evidence
in September 2012 and took oral evidence from a range of EU and
UK witnesses between October 2012 and February 2013. Our findings
are of relevance to policies within the broader EU, with some
reference to how this might impact the UK. It must, however, be
stressed that we did not concentrate on UK policy. This inquiry
has predominantly considered how to resolve the trilemma in a
cost efficient way.
3. Decarbonisation should be delivered largely
through the electricity, heat (buildings) and transport sectors
which, in 2011, accounted for 27%, 35% and 20% respectively of
the UK's greenhouse gas emissions.
We have focused on the electricity sector based on the analysis
of the UK's Committee on Climate Change, which has found that
the costs of decarbonising the power sector are generally lower
than for other sectors and has made the point that both heat and
transport are likely to become increasingly electrified.
For this reason, we have excluded oil from our study. We note
that the Commission recently published an Alternative Fuels Strategy
relating to decarbonisation of the transport sector.
4. Historically, the EU has never had an explicit
energy policy in the way that it has, for example, in the areas
of agriculture and competition. Energy has, nevertheless, been
on the European agenda since the formation of the European Coal
and Steel Community (ECSC) and European Atomic Energy Community
(Euratom) in 1952 and 1957 respectively. Other EU policies, such
as internal market, environment and competition, all bear upon
energy and so the EU developed a de facto energy policy.
5. It was not until the Treaty of Lisbon in 2009
that the EU allowed explicitly for an energy policy. Article 194,
TFEU (see Box 1), establishes
energy as a competence which is shared between the EU and Member
States. Whereas Member States have the right to determine which
energy sources to employ, the EU has the authority to establish
measures necessary to achieve the objectives as outlined in the
|The Treaty of Lisbon established Article 194 of the TFEU, which outlines the competence for energy policy:
"(1) In the context of the establishment and functioning of the internal market and with regard for the need to preserve and improve the environment, Union policy on energy shall aim, in a spirit of solidarity between Member States, to:
(a) ensure the functioning of the energy market;
(b) ensure security of energy supply in the Union;
(c) promote energy efficiency and energy saving and the development of new and renewable forms of energy; and
(d) promote the interconnection of energy networks."
The EU may adopt measures to achieve those objectives, but:
"Such measures shall not affect a Member State's right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply."
6. The existing EU policy framework for energy is comprised
of numerous Directives and Regulations. The most significant of
these are: the EU Emissions Trading System (ETS) (2003); the Security
of Supply Directive (2005); the climate and energy package (2008);
the third internal energy market package (2009); and the Energy
Efficiency Directive (2012) (see Appendix 6). Recently, a number
of proposals relating to the EU energy sector have been put forward,
including: a trans-European Energy Infrastructure Regulation;
the Connecting Europe Facility (CEF); and the ETS backloading
proposal (see Appendix 6 and Chapter 4). EU environmental legislation
also affects energy policy, such as the Large Combustion Plant
Directive (LCPD) and the Industrial Emissions Directive (IED)
(see Appendix 6).
7. Today, the EU finds itself in a dramatically
altered economic situation compared to 2008 when the energy and
climate change package was adopted (see Appendix 6), and there
has also been an unanticipated revolution in the energy market.
Most predictions at that time have been proven inaccurate. The
deteriorating economic circumstances have made the energy trilemma
much more difficult to resolve. It is on that basis that the Commission
suggests the EU's future energy policy should be formulated.
8. There has also been a significant shift in
the global situation. As was identified in the International Energy
Agency's (IEA) World Energy Outlook 2012, the global energy map
is changing. The past
decade has seen a rise in global fossil fuel prices, linked partly
to economic growth in Asia, which has seen it take an increasingly
large share of global fossil fuel consumption. More recently,
the US has experienced a shale gas 'revolution', with the prospect
of becoming energy self-sufficient and a drop in gas prices that
will potentially add 0.5% to US Gross Domestic Product (GDP) by
2017. The cost of
some renewable energy (notably solar) has also declined sharply.
Overall, there has been a growth in coal generation, and a rise
in global carbon emissions, of which the EU is currently responsible
for approximately 10%.
9. The debate about resolving the energy trilemma
is also pertinent given developments in UK energy policy. The
UK Government stated that the UK electricity sector will require
around £110 billion of investment over the next decade to
improve its infrastructure. In response, they have published an
Energy Bill aimed at attracting investment in low carbon electricity.
The main elements of the Bill are contracts for differencewhich
will stimulate investment in low carbon technologies by lowering
risks to investorsand the capacity marketwhich will
secure energy supply by giving capacity providers financial incentives
to provide reliable capacity (see Chapter 6). These elements will
be supported by a carbon floor pricefrom 1 April 2013 a
minimum price has been applied to the cost of emitting carbon
dioxideand an Emissions Performance Standard (EPS), aimed
at preventing the construction of new polluting coal plants. In
Autumn 2012, the UK Government also published their Gas Generation
Strategy, which considered the barriers faced by potential investors
10. The increased prominence of the energy debate
at the EU level is reflected in recent Communications from the
Commission. It is in large part because of these Communications
that we deemed it necessary to conduct this inquiry. In October
2011, the Commission published an Energy Roadmap to 2050.
It explored the challenges posed by decarbonisation in the context
of ensuring security of energy supply and competitiveness. The
Renewable Energy Roadmap assessed both the share and progress
of renewables in the energy mix, and initiated the debate about
setting a target for the level of total EU energy consumption
to be derived from renewable energy sources by 2030, as well as
measures to promote renewable sources in the electricity, biofuels
and heating and cooling sectors.
The Commission's Roadmap for moving to a competitive low-carbon
economy in 2050 gives long-term consideration to cost-efficient
ways to make the European economy more climate-friendly and less
This Communication sets an EU target of reducing greenhouse gas
emissions by 80% by 2050 over 1990 levels, with renewable energy
sources and efficiency seen as playing a pivotal role. The Internal
Energy Market Review paper, meanwhile, assessed the current state
of play of the internal energy market, which is supposedly to
be completed by 2014 (see Appendix 6).
Looking to the future of the ETS, the Commission published an
options paper on its future reform in 2012.
The Commission further issued a Green Paper on 27 March 2013,
which identified a number of mid-term options up to 2030 on both
energy and climate issues (see Chapter 4).
11. The upcoming international climate change
negotiations, including the UNFCCC
Conferences in Warsaw and Paris in 2013 and 2015 respectively,
added impetus to this inquiry.
12. The members of the Agriculture, Fisheries,
Environment and Energy Sub-Committee who carried out the inquiry
are listed in Appendix 1, which shows their declared interests.
We are grateful for the written and oral evidence that was submitted
to the inquiry; the witnesses who provided it are shown in Appendix
2. We are also grateful to Professor Michael Grubb, Senior
Research Associate, 4CMR Land Economy, Cambridge University, who
acted as specialist adviser to the inquiry.
13. The call for evidence is shown in Appendix
3. The evidence received is published online.
14. We make this report to the House for debate.
1 Meeting the Carbon Budgets-2012 Progress Report
to Parliament, Committee on Climate Change, June 2012 Back
The Fourth Carbon Budget, Committee on Climate Change,
December 2010 Back
COM(2013) 17 Back
Treaty on the Functioning of the European Union Back
For the purposes of this report, interconnection is the physical
connection of two or more energy systems that allows for the sale
or exchange of electricity between different Member States Back
Treaty on the Functioning of the European Union Back
Backloading refers to a proposed amendment to the ETS. The amendment
would postpone the auctioning of 900 million allowances from 2013-2015
to later in Phase III of the ETS, which ends in 2020. The backloading
does not affect the overall volume of allowances to be auctioned
in Phase III, only the distribution of auction volumes over the
eight-year period (the 'auction time profile') Back
COM(2011) 885 Back
World Energy Outlook, International Energy Agency, November
Gas Works, The Economist, 14 July 2012 Back
Q 128 Back
Gas Generation Strategy, Department of Energy and Climate
Change, December 2012 Back
COM(2011) 885 Back
COM(2006) 848 Back
COM(2011) 112 Back
COM(2012) 663 Back
COM(2012) 652 Back
COM(2013) 169 Back
United Nations Framework Convention on Climate Change Back