The European Commission announced its plans for a far-reaching Energy Union for Europe on 25 February, with a work package full of legislative and non-legislative actions for the next two years. Brussels also presented a strategy for the UN climate talks in Paris in December and a paper on how to meet electricity interconnection targets inside the EU. We present the highlights plus some responses. For a detailed analysis, see the accompanying article by Sonja van Renssen here.

On 25 February the European Commission presented “the Energy Union for Europe package” in Brussels.  On the same day it also produced separate papers on 1) how Europe can meet a 10% electricity interconnection target by 2020 and 2) the EU’s hopes for UN climate talks in Paris in December.

Below we present the highlights and responses from stakeholders. Please don’t hesitate to leave your comments on the website!

HIGHLIGHTS

Gas

*The Commission will revise the existing Gas Security of Supply Regulation in 2015-16. It will propose preventive and emergency plans at regional and EU level, including Energy Community contracting parties.

*The Commission will prepare a comprehensive LNG Strategy over the same period, which will look into the transport infrastructure needed to link LNG access points with the internal market. The potential for gas storage in Europe and the regulatory framework needed to ensure sufficient storage in winter will be addressed. The Commission wants to remove obstacles to LNG imports from the US and other LNG producers.

*The Commission will assess options for voluntary demand aggregation mechanisms for joint gas buying – but this would be only be possible under certain conditions i.e. during a crisis and when Member States are dependent on a single supplier. They would need to be fully compliant with WTO and EU competition rules.

*The Commission says it should be informed about – and indeed involved in – the negotiation of intergovernmental energy agreements before they are signed, to ensure that they are compatible with EU law and really do improve European security of supply. It will propose a revision of the Decision on Intergovernmental Agreements in 2016 to realise this. Through the review of Security of Gas Supply Regulation, the Commission will also seek to improve the transparency of commercial gas supply contracts.

Electricity

* The Commission will revise an outdated 2005 regulation of electricity security of supply in 2016. It will carry out electricity security of supply stress tests must as it has already done for gas.

Infrastructure

*The Commission will create a dedicated Energy Infrastructure Forum to discuss progress on pipelines and electricity interconnectors with Member States, regional cooperation groups and EU institutions. It will meet at the end of this year for the first time. A second list of priority European infrastructure projects (Projects of Commons Interest, PCIs) is also due this year. The Commission will issue annual reports on progress towards a 10% interconnection target for 2020.

Internal Market

* The Commission will “insist” that Member States fully implement and enforce the 3rd Internal Energy Market Package, especially with regard to unbundling and the independence of regulators. This will be made a condition of using EU funds for energy investments. The Commission also wants to use competition law to assess the evolution and formation of energy prices. It plans to produce biennial reports on energy prices, analysing the role of taxes, levies and subsidies.

* The Commission will prepare an ambitious redesign of the electricity market. Ideas will be out to consultation by the summer, followed by legislation in 2016. The Commission will push back on the renationalisation of energy policy through for example capacity mechanisms and propose new incentives for smart grids and rewards for flexibility.

*ENTSO-E and ENTSO-E will be “strengthened” to ensure greater cooperation between national transmission system operators (TSOs). “Currently decisions in these bodies still reflect national views,” the Commission notes. It believes “regional operational centres” will have to be created. ACER also requires a “significant reinforcement of powers and independence”, the Commission says. It plans for these revisions to the regulatory framework in 2015-16.

*The Commission will develop guidance on regional cooperation, as a step towards full EU-wide market integration. It believes this could be useful to launch new market arrangements for short term markets in gas and electricity or to integrate the operations of TSOs. It looks to build on existing arrangements such as the Pentalateral Energy Forum and the Baltic Energy Market Interconnection Plan (BEMIP).

*The Commission will seek to phase out below-cost regulated prices and encourage Member States to establish a road map for phasing out of all regulated prices. It recognises that this will have to go hand in hand with a mechanism to protect vulnerable consumers.

Efficiency and renewables 

*Energy efficiency must be “fundamentally rethought” and treated as an energy source in its own right, says the Commission. As part of its new market design, it will “ensure that energy efficiency and demand side response can compete on equal terms with generation capacity”.

*The Commission will link energy to the circular economy with a paper on waste-to-energy in 2016.

*It will issue a new strategy to drive investment in heating and cooling this year still.

*In 2015 and 2016, the Commission will review all relevant energy efficiency legislation and propose revisions where needed. This means: the 2012 energy efficiency directive, the 2010 energy performance of buildings directive, and energy efficiency legislation for products (eco-design and energy labelling laws).

*Two areas will get special attention: 1) buildings and 2) transport. On buildings, the Commission wants to ease access to financing. It will develop a ‘Smart Financing for Smart Buildings’ initiative. There is a long list of initiatives for transport – often pinpointed as the black hole in EU climate and energy policy to date. The Commission will propose a “comprehensive road transport package promoting more efficient pricing of infrastructure, the roll-out of intelligent transport solutions and enhancing energy efficiency.” It foresees a tightening of CO2 emission standards for cars and vans and measure to cut emissions from heavy duty vehicles. It will promote road charging schemes based on the polluter pays and user says principles, and remove barriers to cleaner forms of transport such as rail. It will take “further action” to promote alternative fuels and their infrastructure and to promote public procurement of clean vehicles. Electromobility will be key but also biofuels, for which the Commission envisages an action plan for second and third generation biofuels in 2017. In a nutshell, the Commission foresees a “gradual transformation of the entire transport system… which is still essentially running on oil products” i.e. an Energiewende for transport. The Commission plans a stakeholder conference on decarbonising transport for 18 June.

* The Commission will propose a new Renewable Energy Package in 2016-2017. This will include a new policy for sustainable bioenergy as well as a proposal for a new Renewable Energy Directive for 2030. The Commission will seek to drive more cooperation and convergence among renewable energy support schemes. A next review of state aid guidelines for energy and environment is foreseen for 2017-19.

*The Commission will propose further legislative reforms to the EU Emission Trading Scheme (ETS) by June and legislation to meet the non-ETS part of the EU’s 40% greenhouse gas reduction target for 2030 after Paris. The latter will include bringing LULUCF into the 2030 climate and energy framework.

*For Paris, the EU foresees a “transparent and dynamic legally binding agreement, containing fair and ambitious commitments from all Parties based on evolving global economic and geopolitical circumstances.” It wants a “Paris Protocol” to put the world on track to reducing global emissions by at least 60% below 2010 levels by 2050. The new protocol should enter into force as soon as countries representing 80% of current global emissions have ratified it.

*Finally, Europe needs a new strategy for Research and Innovation (R&I). The Commission will propose an “upgraded” Strategic Energy Technology (SET) Plan and a strategic transport R&I agenda in 2015-2016. It will explore how public procurement can do more as a catalyst for industrial and business innovation and use EU trade policy to improve access to foreign markets. The Commission will develop an initiative on global technology and innovation leadership on energy and climate to boost jobs and growth.

RESPONSES

Positive

Geode, the Voice of Local Energy Distributors across Europe, “welcomes the EC Communication on Energy Union, setting the framework for a “resilient Energy Union with an ambitious climate policy” that “puts European citizens – households and businesses – first”.

The European Alliance to Save Energy (EU-ASE): the Commission’s vision describes an “Energy Union in which energy efficiency is seen as a key driver of energy security, and an energy source in its own right.” It “opens the door to an ‘energy efficiency first’ approach, in which demand side resources would be systematically considered in energy system planning, purchasing and investing, and given priority wherever they cost less or deliver more value to society than supply side alternatives.”

Friends of the Supergrid (FOSG), an industrial alliance for a pan-European electricity grid: “welcomes with enthusiasm the comprehensive Energy Union package that appears very much in line with FOSG’s vision and objectives.” It “paves the way for faster and better development of the European Supergrid.”

Gas lobbying group GasNaturally “welcomes the Commission’s initiative for a revised design of the electricity market to allow gas and renewables to better partner in electricity generation. ‘Gas is ideal to support the variability of renewable energy such as wind and solar. We are looking forward to engaging in a discussion for an improved design of the electricity market that would reward flexibility and low-carbon solutions,’ said François-Régis Mouton, Chairman of GasNaturally.

European Distribution System Operators for Smart Grids (EDSO), the European association of leading electricity distributors, “welcomes the well rounded Energy Union package delivered today by the European Commission (EC), aimed at ensuring a “resilient Energy Union with an ambitious climate policy at its core is to give EU consumers – households and businesses – secure, sustainable, competitive and affordable energy”.

Frederik Dahlmann, of Warwick Business School, Assistant Professor of Global Energy at Warwick Business School, who researches competition in the European energy sector: “Despite member states’ traditional reluctance to cede power on energy issues, the Energy Union plan would improve co-ordination between national policymakers, increase technical and market integration, drive competition, and strengthen security and resilience. In times of economic and political volatility along Europe’s borders, transforming and integrating individual power and gas markets across the 29 member states and beyond is an important measure to address high prices, inefficiencies, and environmental concerns.”

Mixed 

Sustainable transport group Transport & Environment (T&E): “The European Commission’s Energy Union strategy for cleaner cars and electrification of transport is welcome but the removal of CO2 standards for trucks and buses is a disappointing concession to special interests. The inclusion of aviation and shipping in the 2030 reduction commitment – which covers all sectors and sources of emissions – is now clear, and the call for the Paris climate conference to set a 2016 deadline for action by ICAO and IMO is timely.”

Howard Chase, Director of Government Affairs at Dow Chemical EMEA: “Progress towards a more connected and competitive natural gas market is producing clear benefits but much more can be done. (…) Unfortunately the position in electricity markets is much less clear, where lack of interconnectivity and national subsidy schemes are breaking up the market and failing to deliver the benefits that could be available for consumers. It’s an issue that needs urgent and continued attention.”

Tony Long, Director of the WWF European Policy Office: ““The Energy Union plan could be the roadmap for a much-needed reorganisation of the EU’s energy system around renewables and efficiency. Or it could be a recipe for maintaining the status quo. Everything depends on follow-up. The plan is currently marked by inconsistencies, such as the focus on fossil fuels for energy security, despite pledging to move towards renewables.”

Jonathan Gaventa, Associate Director of consultancy E3G: “The Energy Union paper sets out a strong vision for Europe’s energy transition to a low-carbon economy, through an active role for citizens, an integrated EU-wide energy market, and by moving away from dependence on fossil fuels and outdated business models. This vision is the right one for safeguarding Europe’s energy and climate security. But you can’t move an economy off of fossil fuels by spending more EU money on gas import pipelines and LNG terminals. EU gas demand has fallen by 14% since 2005 and will continue to fall as Europe continues to deliver on energy efficiency. There is a serious risk that this new infrastructure will become expensive stranded assets.” 

Critical

The renewable Heating & Cooling industry (represented by the European Solar Industry Federation, the European Geothermal Energy Council, and the European Biomass Association): “We regret that the Commission’s proposal: lacks reference on renewables for heating and cooling to improve security of supply; fails to see the synergies between energy efficiency and renewable energy, notably in the building sector; fails to propose a strong, separate governance for renewables and energy efficiency to  ensure consistency and comparability of Member States’ policies; fails to recognise that the internal energy market cannot be completed if only based on electricity and gas. A true internal energy market should cover heating as well.”

Cedec, which represents the interests of 1500 local and regional energy companies with a total turnover of €120 billion: “While the European Commission also promotes a vision of the Energy Union ‘with citizens at its core’, the communication then falls short of addressing in detail the role citizens and local actors, such as local energy companies, play today in Europe’s energy system and addressing this role with targeted actions.   (…) We regret to see that citizens and local actors are only marginally addressed in the Communication.”

Josh Roberts, lawyer of environmental group ClientEarth, said: “The Energy Union Communication is a step towards decarbonising the EU energy system. In it the Commission promises to bring forward binding legislation on renewable energy, energy efficiency and greenhouse gas emission reductions. Unfortunately, it steps back from agreeing the division of roles and responsibilities for how to achieve the 2030 climate and energy targets, due in large part to the influence of the UK. As a result, it is not clear whether the process will be governed under the rule of law. We applaud the Commission’s intent to decarbonise and increase cleaner energy. However, to make these commitments work in practice, they need binding legislation on climate governance.”

WWF: “The Commission strikes many of the right notes, such as being explicit about moving away from fossil fuels, reorganising energy markets around renewables, and giving efficiency a central role. But it also focuses in on the need to bolster fossil fuel supply, and piles up idea upon idea: diversifying uranium supplies, supporting CCS, and nuclear fusion all come in for a positive mention. The word ‘gas’ appears dozens of times, while ‘coal’ does not turn up once.

Arnaldo Abruzzini, Secretary General of Eurochambres, the European chambers of commerce: “All in all, the package looks rather like old wine in new bottles.  Priorities might have shifted, but none of the strategies presented today are really new.  The Commission has drawn the right conclusions from recent economic and political developments in some areas, but in others, there seems a lack of resolve to challenge Member States or come up with new approaches.”

RESPONSES TO THE CLIMATE COMMUNICATION

On behalf of over 120 organizations, Climate Action Network Europe “welcomes the push for the legal form, but calls for more clarity on the amount of greenhouse gasses the EU will emit between 2021 and 2030. Legally binding outcome of the Paris negotiations will provide greater certainty that countries deliver their commitments. At the same time, the Commission does not specify Europe’s contributions to bridging the gaps in international climate finance and short-term emission reductions. Without addressing these, getting any deal in Paris will be very difficult”.

Lies Craeynest, Oxfam’s EU policy advisor: “The European Commission says it knows how a climate deal should be made, but it is not adding enough staple ingredients. We need deeper emissions cuts and more climate finance if Paris is meant to be the recipe for success it must be for curbing catastrophic climate change. The current EU offer on emission cuts falls too far short of Europe’s fair share in preventing runaway climate change hitting the world’s poorest hardest. European leaders must heed the growing calls from the public and from businesses, and stress that this is a starting bid of “at least” 40% cuts, not a best and final offer.”

IETA (The International Emissions Trading Association): “The EU’s Roadmap to Paris is a good start on the process to reaching an international climate agreement at the end of this year – but more work needs to be done to ensure a role for markets in the final deal. IETA is disappointed that the EU’s text does not have any specific market provisions – despite overwhelming support for a price on carbon globally and that its pioneering emissions trading system, now in its 11th year, forms the cornerstone of Europe’s climate change response.”

Jason Anderson, Head of EU Climate and Energy Policy at WWF European Policy Office: “The EU is painting a pretty impression of the Paris Protocol, but with a limited palette – its own commitments are in muted shades of grey. While it is contributing positively to a view of the overall process and design, Europe doesn’t deliver the needed clarity or ambition to be in line with its equitable share of global responsibility.”

Chief Executive Nick Mabey of consultancy E3G: “The EU’s announcements are good on vision but deeply confused on delivery priorities. The Energy Union has put Europe’s domestic transition to a zero carbon economy front and centre, but perversely this ambition is not reflected in its international strategy. To get the best value from its own low carbon transition, Europe must have a clear plan to drive radical change at the global level.”