The state of the European Energy Union

The state of the European Energy Union

European Commission plan to make Europe’s energy market more integrated and less dependent on Russia will be stuck in intense negotiations in the next few years. Diverging interests between member states, a slow economic recovery, and a comparatively modest agreement at the COP21 will not inspire European leaders to adopt ambitious emission targets.

At the current climate summit in Paris, Europe is again seen as the most ambitious player among the international community.

Green sentiment has organized and become influent in the drafting of energy and climate policies in Brussels, and geopolitics in Eastern Europe inspired the European Union to propose a new set of legislation — labeled Energy Union.

The plan was first introduced last February and follows the two initial objectives of reducing dependency on Russian natural gas — which is worth a third of European imports — through the diversification of supply routes, and to promote a better integrated and more efficient energy system.

During a so-called State of the Energy Union on November 19, European Commission Vice-President for the Energy Union Maroš Šefčovič said that 2016 would be a crucial year for the plan.

While he regretted the timing of his speech — which came as concerns over terrorist threats overshadowed any other issues — the EU Energy Chief announced the upcoming publication of defining texts that could present many opportunities for investors if enacted.

Legislative proposals

Three legislative will be introduced by the EU Executive body. Altogether, the measures will amount for 90% of the Energy Union plan.

The first package — due in February — will include a new security of gas supply directive, the liquefied natural gas regasification (LNG) strategy, and provisions for more transparency in intergovernmental agreements.

All these plans would help reduce dependency on Russian gas and to avoid a gap in gas purchasing price between member states – 20-30% in the EU. Although doubts subsist over the reliability of alternative suppliers in the long-term, the measures would seek to intensify existing import routes and would accelerate the development of infrastructure projects — including interconnectors, pipelines and new LNG terminals.

Later in the Summer, a second package will deal with greenhouse gas emissions targets for member states and effort-sharing at the EU-level.

The targets will depend on national energy mixes and efforts already made under the current 2020 program, and will likely be subject to intense negotiations.

Finally, the Commission is set to introduce its last policy proposals in Fall, with a new electricity market design and a directive on renewables.

This last package will create investment opportunities, as the EU will favor projects to develop technologies and promote existing ones in order to meet the 27% 2030 target for renewable energy.

Baffling negotiations in sight

Whatever the final shape of the Energy Union once all packages are introduced, the plan will not be in place before 2019 — the final year of Juncker’s first term as Commission President — as the Commission expects a long legislative process.

Since its adoption will be subject to long and intense negotiations — particularly on emission targets — it is highly likely that no agreement will be reached within the Commission’s hoped timeframe.

The first reason is that member states have diverging interests as regards energy. With different national energy mixes and varying commitments to decarbonization, some member states will refuse the plan unless their emission targets are set at what they deem as reasonable level.

Nationalist governments will also use the sovereignty argument to openly oppose Brussels’ plan, or at least play hard ball in negotiations.

Poland will probably be the illustration of both of these trends: heavily dependent on coal (which generates 90% of the country’s electricity), its freshly elected nationalist government will unequivocally oppose some components of the Energy Union.

The current Climate Change Conference in Paris will also arrange those in Europe who oppose ambitious plans.

Inconclusive so far to make significant impact on GHG emissions, negotiations will probably lead to a final text that is unlikely to meet the Europeans’ original standard — the French already gave up on their plan to make emission targets binding. With the realization that the EU is doing more than the rest of the world to tackle climate change, pushing for ever more efforts will not be popular.

Not a priority

That is particularly true as Europe is facing crises that require urgent settlements, like the refugee crisis, terrorism and the upcoming negotiation ahead of a referendum on Brexit. European leaders are unlikely to use political capital in negotiating energy plans in the face of issues that threaten the European project as a whole.

The State of the European economy is another factor that will weigh on the negotiations. With a currently slowing recovery that will probably drive the European Central Bank to launch its Q2 and cut interest rates, ambitious energy policies at the national level are often seen as a burden.

In France for instance, experts wonder about the feasibility of ending the country’s dependency on nuclear power, considering the country’s modest growth and constantly rising jobless numbers.

In fact, closing nuclear plants would have immediate effects on the economy, as the French Parliament found after it estimated the cost of closing the Fessenheim nuclear power plant at €5bn and 2,000 jobs.

The Commission will have to hope for a strong economic recovery in the EU before it can push forward ambitious emission targets again. In the meantime, the continental bloc will keep focusing on urgent issues directly menacing its future.


About Author

Julien Freund

Julien is an analyst with a focus on Europe. He has worked as a lobbyist in Paris and Brussels and has written extensively on the rise of nationalist parties. He holds two master's degrees in geopolitics and international relations and in European relations, and received his BA in economics and social sciences from the Catholic Institute of Paris.