After June’s European Parliament elections the new Commission will be tasked with setting the agenda for EU energy and climate policy. What should its priorities be? Maciej Jakubik at Forum Energii summarises their paper that sets out six. Energy security, improving access to data and therefore planning, energy market reforms and grid development, protecting and supporting vulnerable citizens, establishing an Energy Transformation Fund, global climate and energy policy. Jakubik also summarises their solutions for each. He opens with a run through the overarching challenges the EU faces that set the scene. These include the differences in wealth between nations, current institutional weaknesses, wars abroad and their consequences for the EU, the future of industry, the danger of polarisation within societies, public acceptance of transformation, necessary institutional changes, and EU enlargement.
The term of office of the current European Commission is slowly coming to an end and the final touches are being put to the initiatives and regulations started a few years ago. After the European Parliament elections in June, a new Commission will be appointed to propose new priorities, a work agenda and thus open a new chapter in the EU energy and climate policy.
Differences in wealth between nations. Institutional weaknesses
The coming years will be a time of dynamic changes in the energy sector and in the European economy related to the implementation of the wide regulations of the Fit for 55 package. The EU has pledged to make a major effort to reduce greenhouse gas emissions by 2030, but also to set interim targets for 2040. Achieving them in a cost-effective and socially just manner will strengthen the EU’s energy independence, reduce fuel import costs and improve the quality of our continent’s environment. However, the challenge remains the different levels of wealth e.g. in Central European countries, but also institutional weaknesses related to the implementation of complex legislation.
…and much more
Meanwhile, the situation in and around the community is far from stable. Due to the Russian aggression against Ukraine and conflicts in the Middle East, the attention of European societies and politicians is increasingly directed towards security and defence issues. Other challenges are rising energy prices and inflation, polarisation of societies, acceptance of transformation, the future of industry, but also outlining institutional changes and EU enlargement.
What energy and climate policy priorities should the new Commission set to successfully deliver the energy transition? In the new Forum Energii paper, we propose six areas:
1) A new energy security strategy for Europe
The EU needs a new approach to energy security. The last European strategy was drafted in 2014 and focused mainly on gas and oil supply, as well as building new fossil fuel infrastructure. This is an outdated approach. The energy system is changing rapidly, with a growing role for electricity due to the expanding use of heat pumps and electric cars – creating new challenges and risks, including cyber risks.
In turn, the need to reduce the role of coal or gas in economies makes environmental and sustainability issues more important. In building the energy security of the future, it is also necessary to look at the new minerals and raw materials needed for batteries or solar panels, and to plan for their use so as to avoid the trap of over-dependence on non-European suppliers.
2) Improving access to data, energy and climate policy planning
One of the bottlenecks of the transition is insufficient access to data or a high dispersion of data – especially in new sectors that are yet to be covered by climate policy (buildings, transport, agriculture). This problem is particularly acute in Central European countries.
Without access to reliable data on energy consumption and heating in buildings, it will be difficult to diagnose the actual scale of, for example, necessary thermo-modernisation or to plan investment support programmes. This is why it is so important to collect data and analyse it at European level and to prepare transformation plans in the energy, heating, but also buildings and transport sectors accordingly. This is crucial to increase transparency and support the implementation of the necessary changes, which is not progressing at the same pace in all countries. Lack of reliable information can increase resistance to proposed reforms and can be a source of conflict and social unrest.
We therefore suggest the creation of a specialised unit at the EU level that could help to improve knowledge and information management. We recommend the establishment of an EU Energy Transition Agency or the creation of a dedicated unit within the already existing Joint Research Centre (JRC) or European Environment Agency (EEA).
3) Further energy market reforms and grid development
With the changing electricity system, further reforms are needed to ensure that the market allows consumers to benefit from RES development while providing investors with a stable, long-term regulatory framework. The phasing out of conventional units is making the system increasingly difficult to control, while flexibility needs are growing rapidly. The market is evolving and adjustments are needed.
On the one hand, there is a necessity to simplify the introduction of capacity markets that allow for the investments needed to maintain the critical capacity required for stable operation and balancing of a system based primarily on RES. On the other hand, the rapid development of flexibility markets is required, which should complement the energy and capacity market and ensure that supply and demand adapt to rapidly changing system conditions. It will also be important to strengthen locational signals, which would allow efficient allocation of generation sources in specific areas, better use of the grid and optimal location of new large consumers. Locational pricing would save European consumers money spent on infrastructure that will not be needed in a distributed system.
In order to achieve the decarbonisation of the European energy system, grid development is also essential and is the basis for a successful energy transition. Strong emphasis should be placed on accelerating the deployment and modernisation of networks by encouraging their construction, revising administrative procedures and facilitating financing. It is important to make optimal use of existing resources and to manage network assets efficiently. Adequate planning is also necessary, taking into account the different energy carriers, but also integrating networks on land and at sea.
4) Protecting vulnerable citizens through well-designed and implemented mechanisms
In the coming years, the EU will enter an era of accelerated energy transition that will affect not only industrial sectors but also societies. The social dimension of climate policy will become increasingly important, and the interaction will be through energy prices, jobs and incentives to change – which may be of concern – especially if there are no ready alternatives and sensible solutions. The citizens, affected by the energy crisis, will fear an increase in energy costs – the role of the new Commission will be to counter this effectively by directing the necessary assistance to various social groups, especially the poorest.
Negligence and a lack of response to emerging problems and the rise in social unrest will hit the reputation of climate policy in the EU and radiate to countries outside the EU. The Commission should therefore pay particular attention to the functioning of the Social Climate Fund (SCF) and the Just Transition Fund (JTF). They should be treated as EU flagship projects and given due prominence.
5) Establishing an Energy Transformation Fund to support investment
The energy transition requires a combination of private and public investment so that the necessary projects can be realised. The European Green Deal should evolve into an economic agenda, with a strong financial and industrial component. Global competition for new technologies and resources is fierce and the pace and scale of the transformation must be supported by dedicated financial mechanisms if the EU wants to achieve its goals and not fall behind in the global economic race.
A special fund is needed to support clean technology companies in the EU, to support them in scaling up their products. The structure of such a fund could be similar to the already known Next Generation EU, but its rules should be much more flexible, and financial support should cover not only capital expenditures, but also include operational costs. It should be ensured that the money is distributed in balanced manner to all countries in the community – without overlooking poorer countries or favouring richer ones.
6) The external dimension of climate and energy policy
The geopolitical energy landscape is undergoing significant change, and priorities, definitions and challenges in the EU are also changing rapidly. The role of traditional energy resources is declining, while other raw materials and technologies are gaining importance and their roles will grow rapidly.
An appropriate adaptation of policies and relations with external partners is necessary to strengthen the EU’s position on the global stage. It will be important to pursue balanced energy and climate diplomacy that supports transition efforts in the neighbourhood and in developing countries through alliances and partnerships and support investments directed to sustainable development.
Enlargement of the EU, which is of a strategic, geopolitical nature, will also be an important topic. In the case of Ukraine, it is directly linked to maintaining security in the region. However, the strategic dimension should not overshadow the need for the pragmatic benefits and challenges of enlargement. An important factor should be the creation of uniform conditions for the operation of energy companies in the new EU countries and the definition of conditions for the integration of energy markets. While conducting accession negotiations, it will also be necessary to define the most important partnerships in terms of, for example, the use of green gases, hydrogen, the development of RES, gas storage, and common strategic reserves.
The coming years will be a time of major transformations in the European economy and in the energy sector in particular, so what priorities the European Commission sets for the new term until 2029 will largely determine the further direction of the European energy system. In our recommendations, we try to include a broad view of how to conduct relevant energy and climate policies so that the energy transition is efficient, economically sound and socially just.
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Maciej Jakubik is the EU regulations and policy coordinator at Forum Energii