Energy Union: Can Europe learn from Japan’s joint gas purchasing? CEPS Commentary, 11 December 2014

Japan’s two major electricity producing companies reached a preliminary agreement recently to establish a joint venture for the procurement of fossil fuel resources, primarily liquefied natural gas (LNG). The authors of this commentary ask whether this commercial initiative could serve as an example to Europe of how to increase the negotiating power of individual EU member states. They conclude that a private joint gas procurement company may indeed offer a solution for EU member states in Central and Eastern Europe, instead of yet another source of confrontation. Given the political volatility in the region, it could well be the key to balancing out the need for security of supply with an offer to guarantee security of demand, thereby creating the climate for stable commercial relations.

Renewables: The great uncertainty of the EU energy strategy. Egmont Paper No. 71, November 2014

Summary. For more than two decades, the development of renewable energy sources (RES) has been an important aim of EU energy policy. It accelerated with the adoption of a 1997 White Paper and the setting a decade later of a 20% renewable energy target, to be reached by 2020. The EU counts on renewable energy for multiple purposes: to diversify its energy supply; to increase its security of supply; and to create new industries, jobs, economic growth and export opportunities, while at the same time reducing greenhouse gas (GHG) emissions. Many expectations rest on its development. Fossil fuels have been critical to the development of industrial nations, including EU Member States, which are now deeply reliant upon coal, oil and gas for nearly every aspect of their existence. Faced with some hard truths, however, the Member States have begun to shelve fossil fuel. These hard truths are as follows: firstly, fossil fuels are a finite resource, sometimes difficult to extract. This means that, at some point, fossil fuels are going to be more difficult to access in Europe or too expensive to use.1 The problem is that you cannot just stop using fossil fuels when they become too expensive; the existing infrastructure is profoundly reliant on fossil fuels. It is thus almost normal that a fierce resistance to change exists. Secondly, fossil fuels contribute to climate change. They emit GHG, which contribute greatly to climate change. As a consequence, their use needs to be drastically reduced. Thirdly, Member States are currently suffering a decline in their own fossil fuel production. This increases their dependence on increasingly costly fossil fuel imports from increasingly unstable countries. This problem is compounded by global developments: the growing share of emerging economies in global energy demand (in particular China and India but also the Middle East) and the development of unconventional oil and gas production in the United States. All these elements endanger the competitiveness of Member States’ economies and their security of supply. Therefore, new indigenous sources of energy and a diversification of energy suppliers and routes to convey energy need to be found. To solve all these challenges, in 2008 the EU put in place a strategy based on three objectives: sustainability (reduction of GHG), competitiveness and security of supply. The adoption of a renewable energy policy was considered essential for reaching these three strategic objectives. The adoption of the 20% renewable energy target has undeniably had a positive effect in the EU on the growth in renewables, with the result that renewable energy sources are steadily increasing their presence in the EU energy mix. They are now, it can be said, an integral part of the EU energy system. However, the necessity of reaching this 20% renewable energy target in 2020, combined with other circumstances, has also engendered in many Member States a certain number of difficulties, creating uncertainties for investors and postponing benefits for consumers. The electricity sector is the clearest example of this downside. Subsidies have become extremely abundant and vary from one Member State to another, compromising both fair competition and single market. Networks encountered many difficulties to develop and adapt. With technological progress these subsidies have also become quite excessive. The growing impact of renewable electricity fluctuations has made some traditional power plants unprofitable and created disincentives for new investments. The EU does clearly need to reassess its strategy. If it repeats the 2008 measures it will risk to provoke increased instability and costs.