Andris Piebalgs: The Commission’s energy package

In an exclusive interview with EURACTIV, Energy Commissioner Andris Piebalgs says that new energy and climate-change proposals should lead to higher prices for consumers. But paying 5% more now will avoid much steeper price hikes in the future, he argues.

The energy package was announced six months ago. Now that the Commission proposals are in the public domain, it appears that climate change and the reduction of greenhouse gases are the top priorities. Has the idea of a common energy policy been postponed?

No, this is not true, it was envisaged all the time. The objective for me was always to base energy policy on climate-change objectives. That is why we do not propose too many specific objectives.

There is a clear correlation between climate-change objectives, security of energy supply and competitiveness. If I want to formulate an objective not to exceed 50% dependence on energy imports, where should I look? I should look at what we can produce inside the Union. And that definitely costs more. But then you should also take into account the carbon price. 

So it is also very clear that the carbon price will have the biggest influence on the energy market. It is the one that changes the way the energy markets work.

But it seems that the common energy policy is not as high on the agenda now because of opposition from big member states…

What is an energy policy? It is a common energy market that works under particular investment conditions. And this is for me what European energy policy is. So, we need to take measures to make the common energy market stronger, more interconnected, more diversified and provide for more stability in our relations with other countries.

Then, what is the common incentive to invest inside the Union? It is the carbon price. I could favour certain technologies such as renewables, etc, but it will never work on a broad scale if carbon does not have a price. And I could have as many directives as I want, and punish large integrated companies – it would not work.

What else do we need? Supervision of the market. I don’t see anything else in it because the world has changed since the time when Europe had only coal to worry about. Then we clearly knew – we could just plan how much coal was consumed, how much as produced and it was not controversial. Now, we have global supplies of gas, oil and coal, which means that we would need a global energy authority to do what our founding fathers did in the 1950s [with the European Coal and Steel Community].

Does the Commission actually feel that the twin challenges of energy security and climate change can be met with technological innovation in energy, or is a major behaviour and lifestyle change needed as well from consumers?

I think it is both. For me, personally, lifestyle and behaviour change is even more important. From the EU member states’ side, I could feel sometimes, for instance in the UK, that people really demand action against climate change. But you also need technology. If I cried, “Don’t use coal and gas!”, should we switch off the lights? No. What we need is technology that allows us to live comfortably but without emitting greenhouse gases. And technological breakthrough is needed. If I look at how much investment has been made in technology, it is not sufficient. This is what we tried to push also with regulatory measures. If people do not like it, I’m sorry, but without regulatory measures we cannot encourage investment in new energy technologies. So we need the regulatory measures as well. 

A recent Eurobarometer poll shows that citizens do not really see energy as an important issue. It ranked only 12th in their priorities, far behind unemployment, crime and terrorism. Is there not a gap between the political elite’s and citizens’ perception of risks?

Yes, and I think this is where the political responsibility problem begins because I think it is for leaders to see if there are risks or not. For instance, it is very difficult for me to say what will happen to Latvia if the global temperature rises five degrees, but I know that it will bring risks. So it is also my task to take action and to explain. About EU citizens – it is very different in different member states. In Germany, where I have been recently, they place energy supply as the first worry and climate change as the second. So it is not so clear.

One point that came out clearly in the survey is citizens’ concern about rising energy prices. But the Commission says that much higher prices are needed to trigger new investments and behavioural change and says that it wants to get rid of the regulated capped-prices currently in place in countries such as France. Isn’t that showing that the Commission’s liberalisation policy is out of touch with citizens? How can governments sell this to voters? 

We know that markets bring the best prices and the best service. That is a generally well-perceived truth. If you asked whether you would like to go back to monopoly, nobody would actually want to do this, because everybody understands that monopoly is insufficient and also, it allows governments to ‘cross-subsidise’.

What does that mean?

You take public funds and subsidise the construction of a new power plant with taxpayers’ money. In a way, you make the prices not what they really are. As a result, you build too much capacity, and actually you invest much more and it is more expensive for society. What it means is that you really need to create competition to put prices down because that is the only way to use as little money as possible. 

So what you are actually saying is that to invest in new capacity, liberalisation is not enough, that active public policies are needed to support investment?

No, what I’m saying is quite the opposite. What I’m saying is that liberalisation is the best way to spend as little money as possible for new-generation capacity. You use your funds more reasonably. You achieve the real prices and not something that does not really exist, taking money from people’s pockets to subsidise power.

Will your energy package lead to higher or to lower prices?

It will lead to higher prices if we do not follow the Commission proposals. We have now power plants that need to be replaced. On average, nuclear power plants are about 25 years old. And nuclear represents one third of the power in Europe. In addition, one third of the older-generation capacity needs to be replaced in the next ten years. The overall investment that is needed just for generation in the next 25 years is €900 billion. Where will you get this money from? It will come in the prices, inevitably! Now, we are benefiting from the investments done previously by cross-subsidisation. But these power plants will come to an end. And we are consuming still more electricity. So we need to raise money.

Do you expect all the money to be raised only through private companies? 

That’s the best way! Not all of the money will necessarily come from the private sector of course, also from state-owned companies, but the same conditions will apply.

So that should lead to higher prices then …

It is inevitable. But what I’m saying is that the higher price will be much less high than if we simply don’t implement these measures. At the same time, we are saying that support is needed for specific people in need, with a universal public-service obligation. For private consumers, you can make particular rules, but you should not play against the basic market rules because then the investment is inefficient, the plants are built in places where they are not needed and it costs much more.

Isn’t climate change an apt example of market failure? Energy prices actually never reflected all the ‘external costs’ of our energy consumption and production patterns in terms of pollution and external dependence…

That is why we have a particular challenge. And now we will have to pay for these external costs. What we have calculated is a 5% increase in prices [to factor them in]. If we do not pay this 5% now, we will pay later 20 or 50% more because of the oil prices going up. It is quite clear that given the current rate of consumption and reserves, in five years time we will not have oil prices at $60 per barrel, forget about it! For gas prices, it is the same. 

So, considering investments in energy generation takes 15-20 years, if you do not invest in technology now, you will end up paying for it later. 

On the energy mix, the Commission took a very neutral stance, saying that member states should keep national sovereignty in choosing their optimal mix of coal, renewables nuclear, etc. However, at the same time, it does propose ambitious greenhouse gas and renewable energy targets that will inevitably have an impact on member states’ energy mix. For instance, business organisation UNICE says that if you do without nuclear in Germany, then the prices of renewables will go through the roof. So, is the Commission actually avoiding the subject of energy mix? And, since that appears to be the case, why doesn’t it come forward with more concrete suggestions, including nuclear?

It is a bit of a trap you set for me here. For nuclear power, you need a couple of things in place. First of all, you need long-term political stability for investment, and this can only be provided by legislation from a national parliament. It is not for the Commission to do this because the plants are built on the soil of a sovereign state. Secondly, you need to know what happens with nuclear waste and with the decommissioning of old nuclear plants. I would say that Finland is an example of where these conditions exist.

Then you should also take into account the carbon price that decides whether it is practical to build a nuclear plant or if a more suitable alternative exists. What the Commission is clearly describing are the pros and cons, but it is not an easy investment decision to make. And calling for more nuclear will not mean that more nuclear power plants will be built. In a market economy, it should be decided by market forces. And we also assume that the nuclear technology is already there. We can talk about nuclear waste transportation and storage but we cannot say that this technology is in need of further development.

On fossil fuels, the technology is not there as we would like it to be. Technology for carbon sequestration and storage is still not there. That is why we made this political choice that you should be building coal-fired power stations that are not only highly efficient but also CO2 capture-ready. Because they are built for a period of 40-50 years. So, we are pushing for the technology but at the same time, we are not calling whether or not to build these new coal-fired power stations.

Concerning the tough renewable energy targets, at this stage, we have less than 10% of renewables in the energy mix. For whatever reasons, we have neglected this technology. The binding target is to make those technologies competitive with fossil fuels and with nuclear technologies. And then investors will decide: long or short term, according to their needs. In a country where there is a huge energy-consuming industry, nuclear power plants are probably interesting. In a country where there are a lot of possibilities for renewables, where you can get cogeneration and you do not have a big energy-consuming industry, you do not need to build huge power plants.

Why is the Commission not setting sectoral targets for renewables then? You only proposed one general target of 20% but the existing target for electricity produced from renewables has been given up in your proposals. The wind energy industry says that it has been a very effective instrument in support of renewables…

Yes and no, I could agree and disagree. For wind energy, significant capacity so far only exists in Germany, Spain and Denmark. And that’s it, to be fair! The good news is that these are large member states, but they operate in very particular circumstances. 

What we are calling for is much higher binding targets for all member states. But then, you can fall foul of the critics who will say we are pushing to build windmills in Finland! No, we are not, but we need to keep some flexibility. Instead, in our renewables road map, what we are asking for is an overall binding target and an action plan on how to get there in three areas: electricity, bio-fuels and also heating and cooling. And for a plan to provide added value, you need indicative targets. But, yes, they could change…

You would want indicative sectoral targets for each member state that the Commission would approve or reject?

We would approve or reject the whole plan, but not the individual indicative targets because technologies can evolve. For example, if there is a breakthrough in solar technology or geothermal heating, what do we do? Member states have a point when they say: “If you block us on an area and then punish us, you limit our possibility to follow market developments.”

And this is true – we cannot be locking ourselves into one technology if we want to be successful. Otherwise we will never achieve the 20% target.

But, to my knowledge, there is only Germany and Denmark supporting a 20% target for renewables at the moment…

That is wrong – I would say the whole European Union supports it. If you remember conclusions of the European Council in March 2006, heads of state and governments called for 15% in 2015. So, I really believe they will endorse this target and that it will be endorsed bindingly. The keyword is not “20%”, the keyword is “binding”. 18, 20, 22% for me is not the most important thing.

In its proposals, the Commission looks forward to all kinds of technologies but there are two noticeable absences: the system of personal, individual carbon credits, currently considered in the UK and the switch from centralised power distribution to a more decentralised system. Will these two kinds of solutions also be considered in the forthcoming EU technology plan?

If you look at our proposals, there is attached a ‘vision paper’ from a technology platform that we created on ‘smart grids’. We should not only support this vision but also provide how much money we should invest in it and where. The ambition is that we really achieve this technology. 

About behaviour change and personal carbon credits, I cannot say much because in my understanding there is less science in it. It is more a political instrument to change behaviour, so I would say that it could be different in different countries. It would certainly be very heavy and bureaucratic. 

I still believe more in educational system, because it is the easiest way to do this. Because kids really care about the environment, it is one thing they really care about.

Then, commissioner, where is the education document in your energy package?

The European Union is not just the Commission. We called in the energy-efficiency plan for more education. But the Commission should not prescribe all action. I would personally favour a very strong and good educational programme, though: in universities, for each architect, whatever area you are in, educating people in energy consumption and the ways it creates CO2. And the timeframe is not long – in a generation you can actually change behaviour. It is a rather short timeframe.

There is also a financial aspect to changing individual behaviours. For example, if I want to insulate my house or change all my windows to double-glazing, but I do not have the money, what has the EU done for me?

The EU energy-efficiency plan called on member states to introduce incentives. In Belgium for instance, you can get reimbursement if you get energy-efficient equipment. I think it is important that member states promote insulation of houses and support renewable technologies. This is why the 20% target counts, because then you can do these things; you can finance new technology or you can change behaviour through incentives. But the Commission cannot prescribe everything. Otherwise, why would we need national governments?

Commissioner Piebalgs, thank you very much. 

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