David Buchan is a senior research fellow at the Oxford Institute for Energy Studies. From 1975 to 2006, he held several correspondent posts for the Financial Times newspaper in Brussels, Washington DC and Paris, covering energy, defence, the Soviet bloc and diplomacy.
To read a shortened version of this interview, please click here.
Taking a step back first: How did the EU's energy policy develop, and in what ways do you think this affects policies today?
I was really focusing on the EU's climate change policy. Climate change policy is quite a dramatic change from an integrationist viewpoint, because you get member states agreeing first of all that they have to act only on a European level, that the instrument they act through – the emissions trading system – is their main instrument. They don't really have a national instrument.
On the issue of carbon pricing, it is only at the European level. And then of course, there is all the subsequent legislation and regulation that follows on from this, such as regulations about cars, about better efficiency in buildings, about the inclusion of aviation emissions into the ETS - and probably shipping later on - etc.
So, from a political point of view, it seems to me this has a very strong integrationist effect, which is interesting and which is standing in contrast to what's happening in other areas, such as the financial sector, where Europe is finding it extremely difficult to come up with a unified policy.
In your book, you seem to give surprisingly good marks to the EU on the issue of energy-market integration, saying it is more successful than in the US. Can you develop this theme?
It's an interesting contrast, and it partly relates to the very segmented and fragmented American scene: they have three grids which work at different speeds. They allow some integrated monopolies where outside competition is not allowed.
The Europeans - through internal market-type powers and antitrust policy - have to some extent moved to something that's much more like a common market design for the electricity system. In the US, however, the gas system is a little bit more integrated than in Europe.
We keep hearing from the European Commission that integration of electricity markets in Europe is insufficient, that there is not enough trading, that there is not enough interconnection, etc….
Well that's certainly true on the gas side, and we found that in January [during the Russia-Ukraine gas crisis] that there need to be many more gas interconnections, particularly between north and south. It was southern Europe that had the problem, but the gas system was by and large designed for east-west gas pipelines coming from Russia, with not many north-south interconnections. So there is definitely a problem there.
But if you think about it in a more international framework, these 27 member states, it is remarkable what has been achieved when you look in contrast to something like the United States.
One of the issues addressed in your book is whether the EU is realising its full potential for energy. Can you mention areas where the potential has already been achieved? Are there others where there is still a lot to be done?
On the internal market, I think what is being done is just about the maximum that can be done. I don't see any future in having a fourth package of internal market legislation.
On security of supply, a lot has happened recently since I wrote the book, and there is a great deal being made there at last. So I think there is some promise.
On nuclear power, more should be done on research aid for countries that want to move ahead with nuclear, and particularly with waste disposal. There was a Eurobarometer last year that showed that at least 40% of nuclear opponents said they would change their views if the waste disposal problem could be solved. So this is a key obstacle. And I think more should be done.
There is of course the problem of waste disposal sites, which is something that member states have to decide themselves. Brussels certainly can't, it wouldn't dare - and shouldn't dare - to have an opinion on that. So the decision about the site and about where to put the waste disposal has to stay with the member state. But at that point, I think Euratom and the EU should be more forthcoming and helpful.
Another big topic in your book relates to the possible trade-offs between the EU's potentially conflicting energy policy objectives (security of supply, competitiveness and the environment). Where do you see the trade-off as being the most acute?
Probably the most difficult is for Poland. They see security of supply as lying in coal, they have more than 100,000 coal miners, and they use a very small amount of gas. For climate change reasons, actually they could use more gas, but they don't want to, because of the obvious reason that it comes from Russia, which raises security-of-supply concerns. So I think that's an acute trade-off.
The trade-off about liberalisation versus other objectives is easy. It has been a problem for the British, but I think they are now accepting – I think everyone now is having to accept – that climate change means that there will be more interference in the market, that there will be more non-market mechanisms, as they say – targets, quotas, etc. And so if you're still a free market ideologue, you'd say 'this is a terrible trade-off', that it's ruining markets. But I think the free market for energy is made completely out of date by the climate change necessities.
An emblematic part of this debate has related to the question of energy champions. The French and Germans are basically promoting and supporting them, arguing they are a necessity for security-of-supply reasons, while others such as the British have argued more in favour of free competition and breaking up large integrated players.
Is this debate now shifting too? Is there now a realisation that big energy champions are in fact needed?
Well, the governments that helped create them feel they are needed and feel comforted by them. Now, from an economic point of view, I don't think there are great economies of scale in having enormous companies. Companies operating efficiently don't have to be that big. Obviously, if you're EDF in France and you're building nuclear power stations, it helps to be a big company with a big balance sheet and with the state as a principle shareholder.
I think that is more or less the status quo on national champions. France has them, Germany has them too and Italy as well to a large extent. Spain tried with Endesa, but that has largely failed, and a lot of the new member states have national champions, although they are much smaller. Britain doesn't seem to care whether it has an energy champion or not.
Do you think this is sound policy?
Well I don’t think it is particularly sound. As I describe in the book, there has been a sort of ‘laisser acheter’ attitude by the British: Any one can come in and buy anything as long as they pay a good price for it. As a Brit, I don't feel particularly comfortable with that.
To conclude, you also had a warning for the Copenhagen climate conference…
The difficulty in getting a deal last December [on the EU climate change and energy package], in a Union where we're promised ever-closer union between neighbouring countries with the same values: it was pretty difficult with the group led by Poland wanting even greater transfer of resources.
So I think that it's a bit of a warning for the difficulties that are to come in Copenhagen about the developed countries ever doing enough to help the developing countries.
David Buchan's book, 'Energy and climate change: Europe at the crossroads', can be ordered by emailing Margaret.ko@oxfordenergy.org
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