At their spring summit in March 2006, EU heads of state singled out "high and volatile energy prices", import dependency and global warming as major issues facing the EU. In response, the Commission forwarded new plans, which were endorsed during the March 2007 European Council and which have been presented as an ambitious new EU climate change and energy policy (see our LinksDossier).
In order to realise the commitments made in March, the EU is trying to find the correct 'balance' between the three potentially conflicting objectives: security of supply, competitiveness and environmental sustainability.
A high-level group of regulators, business leaders and civil society organisations was set up by the Commission in February 2006 and is providing advice for addressing this challenge. Its main goal is to foster closer coordination between policy and legislative initiatives and the development of an integrated approach as well as to contribute to creating a more stable and predictable regulatory framework.
In a first report published on 2 June 2006, the group made the following recommendations on what it believed to be "the most urgent and sensitive issues to be addressed at EU level":
1. The functioning of the liberalised EU electricity and gas markets (see related LinksDossier )
- fully unbundling network operation from service delivery to reduce vertical concentration in the energy sector and guarantee fair access to the network for new market entrants
- establishing minimum rules for price transparency and disclosure of price formation mechanism
- enhancing the independence of national regulators and extend their competences to address cross-border transmission
2. Access to affordable energy for power-intensive industries
- The Commission should provide guidance, within 12 months, to make long term contracts with external gas and oil suppliers compatible with EU competition law. Long term contracts, the group says, are "necessary to have access to cost-effective energy inputs".
3. Energy efficiency and conservation (see related LinksDossier)
- drawing up a list of priority measures to increase energy efficiency and achieve the EU target of 20% energy savings by 2020. Cost-effectiveness and duration of payback periods should be taken into account when drawing up the list (an energy-efficiency action plan is due in September 2006)
- making full use of the possibilities offered by combined heat and power generation (CHP) to address rising demand for heating and cooling
- making full use of harmonised energy-efficiency standards, for instance on stand-by energy consumption of household and office appliances (Eco-design directive)
4. Reviewing the EU emissions trading scheme (EU-ETS) (see related LinksDossier)
- Before 30 June 2006: making more use of auctioning (up to 10% of total allowances under current EU rules); making more use of clean energy projects outside the EU (CDM/JI) and urge the UNFCCC to clear up the remaining obstacle to their widespread use; consider differentiated allocation between sectors for the second phase of the ETS in order to favour investment in new energy infrastructure
- Before end 2006: send a stronger signal towards low carbon investment; reduce administrative burden for small plants
- 2007 and beyond: advance negotiations on a post-Kyoto regime in order to build a global carbon market; include other gases in the ETS; increase certainty for investors including regulatory stability; harmonise allocation methods; consider exempting small plants from the ETS for the second trading period
Large industrial consumers of electricity represented by the Alliance of Power Intensive Industries warned about an "enormous risk of de-industrialisation" in Europe as a consequence of high electricity prices. "Power is a very important component of our cost structure," says the alliance which includes the alloys, cement, ceramics, chlor-alkali, glass, iron & steel, lime, non-ferrous metals and paper industries. But it says current energy and environmental policy has added to the cost of power beyond anything driven by oil and gas price increases worldwide. The alliance believes failures in the liberalisation of EU gas and electricity markets as well as the unintended consequences of the CO2 emissions trading scheme are to be held accountable. It says both developments are "exclusively European" and therefore call for "a critical review".
The European chemical industry - which claims to be the largest energy consumer in the EU manufacturing sector - says more needs to be done to ensure the ETS does not put European companies at a disadvantage over international competitors. "We must reduce the complexity [of the EU ETS] for example by excluding SMEs, and limit the impact on power prices," said Theo Walthie, from the European Chemical Industry Council (CEFIC). Walthie called for quick action to be taken under the second phase of the scheme, which starts in 2008 until 2012. "We cannot wait until 2013 for a solution," he said. CEFIC believes more use should be made of clean development projects abroad (so-called JI/CDM in UN jargon) to help the EU meet its commitments under the Kyoto Protocol.
The European Trade Union Confederation (ETUC) raised concerns about the employment implications of industries threatening to re-locate to escape high energy costs in Europe. ETUC secretary general John Monk warned about a purely liberal approach to energy policy, saying "public service obligation" needs to be guaranteed to the benefit of citizens. ETUC also points to rising energy prices as a serious concern for households, saying there is an increasing threat of "fuel poverty", particularly in the new member states.
Environmental NGOs criticised the composition of the high-level group as being imbalanced in favour of energy-intensive industries and large energy utilities. "Leading companies […] in the renewable energy and energy efficiency sectors are absent. Consumer and health organisations are absent. Academia and research institutions are absent," the NGOs said in a statement to the group. They recommended that the balance be corrected to better reflect these concerns.
WWF, the global conservation organisation, condemned what it called a "misconception" about the alleged negative effects of the ETS on the competitiveness of European industries. It says the ETS is "by far cheaper" than other options (such as taxes) to achieve CO2 emissions reductions targets, adding the fears are "not justified". "The ETS is expected to result in only modest losses in most traded sectors," the WWF points out. It also points to a study by the ZEW economic research institute in Germany which says the scheme will "not be a job killer". "If employment effects of the EU ETS are compared to impacts of alternative regulation methods assuring the Kyoto targets, ZEW rates the arrangement of the EU ETS among the better choices," says the WWF.