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EU energy union: first year’s achievements and next steps

Eugene Eteris, European Studies Faculty, RSU, Latvia, 03.03.2016.Print version
A year ago, the Commission presented the Union Energy Strategy, a project for a long-term transition to stable EU’s energy status. Commission Vice-President for energy union, Maroš Šefčovič described four positive steps reached: transition to low-carbon economy; having “centered” on socially fair energy consumption; putting energy issues on top of the political challenges, and initiating the governance process in energy issues.

The Commission is seeing the EU energy union program is a “transformation process”, i.e. as a major project which ambition is compared to that of the “founding” Coal and Steel Community Treaty of the 1950s, or the Single Market Agenda in the 1980s – both have shaped the European Communities and later the Union in a great extent for years to come.

 

See: European Council, Conclusions on 2030 Climate and Energy Policy Framework, 23-24 October 2014, in:  http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/145356.pdf.


Four major achievements

The first year of the energy union was a very challenging one, with great expectations but also a head start, functioning within a difficult context of geo-political turbulences. Looking back at what has been achieved since the EU adopted a framework strategy four conclusions could be highlighted beyond mere adoption of the "summer" or "winter" energy packages.

 

First, the member states showed sustained leadership in the transition to low-carbon economy. The role of the EU in Paris was widely recognised: under the leadership of the EU’s chief negotiator, Commissioner Arias Cañete, the EU helped in developing the "high-ambition coalition". As a result, unprecedented historic success has been reached: an ambitious legally binding and universal deal to cut greenhouse emissions.

 

However, a lot more remains to be done: at EU level some efforts shall be worked out towards reinforcing European emission trading system (ETS system), i.e. the EU proposal to have a “market carbon price”, which would send the right signal to polluters.

 

The EU will support other countries (e.g. China and South Korea) in building carbon markets, and work towards their linking-up at global level. An environment must be created to enable companies to invest in the most promising low carbon technologies. With this idea, the Commission intends to adopt a new Strategic Energy Technology (SET) Plan in September 2016.

 

Second, the member states managed to be “centered” towards transition to socially fair energy consumption. In summer 2015, the EU adopted a communication on the electricity market design and a "new deal" for consumers. “Vulnerable consumers” shall be looked at as a “matter of priority” making sure that they are not left behind. About 10% of consumers in the EU states are in the “energy poverty” category, which is an urgent EU institutions and the member states. In the same way the transition to stable consumption will create jobs and benefits to greatest number of people, not only those who can afford it.

 

Third, the states managed to put energy issues on top of the political challenges. With the recently adopted energy supply package, the EU has set out a wide range of measures to strengthen Europe’s resilience to gas supply disruptions thus reducing EU’s external vulnerability.

 

At the same time, the principle of solidarity enshrined in the Treaty must be “operationalised”: neighbors should cooperate to break energy dependence and increase competition. To this end, the Commission has recently adopted proposals on IGA and an LNG strategy, as well as Heating and Cooling strategy to address consumers’ needs in this sector.

 

Fourth, the EU formulated the political agenda on energy issues: in November 2015, the Commission presented the first annual State of the Energy Union. It was the first step to initiate the European energy union governance process which is anchored into legislation and make sure that EU states, through their Climate and Energy Plans, are also closely involved.  


Situation in Latvia

Latvia was granted a derogation from the Third Energy Package as an emergent gas market. In March 2014 amendments to the Energy Law were adopted by Latvian Parliament (Saema) in the third and final reading. The gas market in Latvia will not be opened before April 2017, but a gradual liberalisation of the gas market will be implemented in several stages starting from 4 April 2014. The liberalisation of the electricity retail market envisaged for 1 April 2014 was postponed until 1 January 2015. The market for industrial users is already fully liberalised since November 2012.

 

Latvian national gross final energy consumption in 2012 amounted to 4.538 Mtoe; Latvian energy consumption mix has the highest renewables share (35.8%) in all three Baltic States. The main renewable sources in Latvia are hydropower and biomass. The country’s renewables target for 2020 is 40%, which is twice as high as the EU average of 20% and Latvia is currently on track to achieve it.

 

Natural gas, oil and petroleum products also played an important role in gross energy consumption in 2012 with a share of 30% and 27% respectively.

See: http://ec.europa.eu/energy/sites/ener/files/documents/2014_countryreports_latvia.pdf


The vision of the Energy Union: next steps

Commission Vice-President for energy union, Maroš Šefčovič underlined that 2016 shall be “the year of delivery” on the Energy Union Strategy. With this in mind, he revealed a transition program called “5Ds model”.   

 

The 5 "D"s transition means: (1) decarbonisation of member states economies; (2) democratisation in energy production and consumption; (3) digitisation in order to optimise energy use and energy efficiency; (4) diversification of EU energy supplies while helping innovators to deliver on new technologies and to speed up the diversification process; (5) disruption of traditional energy cycles. The fifth “D” seems critical: according to Maroš Šefčovič, disruptive technologies would speed up and ease up the optimal transition. He said that changes “would not be achieved through one single revolutionary invention”, but rather through continued technological breakthroughs in the field of energy generation and storage, in integration of renewables, in home automation, fuel cells, clean engines and intelligent transport, energy efficiency in buildings and industry.

 

To a large extent, the 5D model owes its existence to a broader paradigm change that the member states have been witnessing in the past years; mostly through the digital revolution.

This year's World Economic Forum in Davos reaffirmed the Energy Union challenges: e.g. breakthrough technologies in energy, transport and communication creating smarter and more collaborative society.

 

The 4th industrial revolution (4IR) with digital agenda, internet and new technologies has already “disrupted” many existing business models. For example, the digitisation of industrial production processes, smart infrastructures in energy or transport, home automation, driverless technologies, or the new generation of drones. Such technologies are about to allow fully-automated logistics which can save costs and cut down CO2 emissions.

See: Davos proclaims the “fourth industrial revolution”

 

Up to the end of 2015, the Commission will prepare a comprehensive strategy for research, innovation and competitiveness for the Energy Union, with due attention to international cooperation. At COP-21, twenty leading economies (some of them with the highest CO2 emission) launched the “mission innovation” to step up their clean energy research and innovation over the next five years.


Socially fair energy transition

In order for fundamental energy transition to be successful, Maroš Šefčovič argued, it has to be socially fair and consumer-centered. This is important because societies are not measured only by the greatest achievers, but by most successful researchers and entrepreneurs.

 

A society is also measured by its ability to care for its weakest and most vulnerable. That is why all throughout everlasting race to grow the European economy, transforming technologies, and “smarten” development system, the member states have constantly look back and see who is potentially or actually left behind.

 

In practical terms, Maroš Šefčovič argued, there will be sectors or regions in Europe, which will have difficulties and where jobs will be lost. And there will be others that will grow and benefit from the transition. The member states must deal with several challenges: make sure that the jobs of the future are created in Europe, that clean technologies are exported around the world, that education systems would target future technologies and skills.

 

At the same time, the states must make sure that workers and employees get the skills which they need for the future; that regions are supported in their transition to a low-carbon economy.

 

Decision-makers across Europe must make clear that this transition includes everyone, and not only a few.

 


Focus on innovation and consumers

During the first year of the Energy Union, the member states have chosen to focus on both innovation and the role of consumers: the two issues go hand in hand as innovative solutions will empower citizens, allow them to take greater ownership of this transition. Consumers should benefit from new technologies and from more competition and be more active in the market to get these benefits. It is known that household consumers have too little choice (of suppliers), too little control (on their consumption) and too high a constraint (on their bill). Thus, a high percentage (about 10%) of European households cannot afford to pay their energy bills. In some countries, up to 5% of households are disconnected from electricity. One of the solutions is a market structure which is more competitive and pays more attention to consumer empowerment and consumer protection.

 

Consumers are also the first to benefit from cross-border flow of energy as they gain access to more suppliers and can choose the best service and price. In order to get there, the states will need to remove obstacles to cross-borders energy flow such as missing infrastructure, or regulation which is inconsistent or unstable.

 

Citizens are no longer passive consumers; they are becoming 'prosumers' – consumers who can also produce energy and supply it into the energy grids. This will allow individuals to generate revenues from their private energy production; but more importantly, to benefit from lower prices of energy produced by their neighbours. With smart grids in place, a sunny day in Madrid should lower energy prices in Lisbon; and a windy day in Warsaw should lower energy prices in Vilnius or even in Kiev! (as the Energy Union does not stop at the EU borders).

 

In listing last year's proposals, the Commission suggested in the summer's consultation the new electricity market design which will be followed by this year's legislation. This initiative goes along the same line of:

 

·         better integrating renewables into the grid;

·         ensuring national interventions do not distort the market;

·         and increasing competitiveness with the aim of reducing prices.


Smart Cities

Vast majority of Europeans live in cities; the cities are responsible for most CO2 emissions and are also the first to suffer from air pollution or congestion. Urban policy is therefore an area where the states can make significant progress, serving both quality of living and the EU climate targets.

 

Most of the existing urban infrastructure systems were built independently of one another, whether water, electricity, gas, waste, transportation, heating, and etc. But to achieve real efficiency gains and make European cities more sustainable, the member states need to connect them so that they complement each other. Integrating and linking up energy, transport, water, waste, and ICT will create environmental and social impacts through resource efficiency, better air quality and better waste management, while developing new skills in the population or local job creation.

 

In fact, the EU states must work across policy fields in order to be efficient which gave birth to both the Energy Union (which brings together 14 commissioners and services) and Smart Cities agenda, such synergies must be created at urban levels.

 

The Commission is currently elaborating a new strategy to ensure that urban regions make “smart use” of the latest innovations to make cities more resilient and sustainable (Commission uses the word 'smart' in numerous occasions, e.g. smart houses, smart grids, smart cities, etc. to make smart use of existing resources.

 

In this endeavor, the Covenant of Mayors has proved indispensable; for example, during the COP21 Summit, the Commission announced covenant’s expansion from a European to a global scale, i.e. a global alliance of cities which are dedicated to the well-being of their citizens, with a direct link to climate-action.

 

Following main EU objectives: progressing towards more sustainable, more competitive and more secure system is widely shared by the EU states. The balance between these three objectives is different in different EU regions: in some Nordic countries the emphasis is more on sustainability and innovation whereas in central and eastern European countries there are legitimate concerns related to security of supply. Some of the remaining energy islands are very keen to connect to the internal energy market, to increase competition.

 

Europe is ready for change: working together with all Commissioners on board, with the EU states, with the European Parliament, the national parliaments, the stakeholders, the EU-28 can break energy dependence and harvest the environmental and economic benefits for the EU energy union.

 

Growing public debate on energy issues is a good sign of broad member states’ support for the Union’s energy union. Thus, the Commission is making the first anniversary a signal of acting together “across and beyond the EU, across policy fields, and across governance levels”, concluded Maroš Šefčovič.  

 

Note: Commission Vice-President for energy union, Maroš Šefčovič delivered his ideas in “Jacques Delors Institute”, which has been constantly engaged in EU policies in general and the energy transition in particular. Institution’s work includes numerous publications, e.g. the report published in 2015, even before the energy strategy was revealed, titled: "From the European Energy Community to the Energy Union", with Jean-Arnold Vinois and Sami Andoura as co-authors.

 

Reference: Speech by Vice-President for Energy Union Maroš Šefčovič on "Energy Union – 1 year on" at the conference organised by Jacques Delors Institute, Brussels, 25 February 2016, in:

http://europa.eu/rapid/press-release_SPEECH-16-424_en.htm?locale=en.  






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