The Conflicting Goals of the European Energy Union

Jasmina Energy

by Jasmina Hodžić

In the year behind us, for the first time, more electricity in Germany was supplied by renewables than by any other energy source. Nevertheless, the report by the Berlin think thank Agora Energiewende shows that Germany’s coal consumption in 2014 reached the highest level since 1990, resulting in unprecedently high carbon dioxide emissions. This trend is particularly worrisome because Germany’s Energiewende has been used as a model for the wider European Union (EU) energy policy. Indeed, a draft of the EU Energy Union Strategy recently leaked by European Voice gave no mention to nuclear energy as part of EU’s projected transition to a low-carbon economy.

Born last April at the height of the crisis between Russia and the West over Ukraine, the Energy Union was introduced by Maroš Šefčovič, vice president of the Commission in charge of the Energy Union, as a project that aims “to make the European energy system greener, cheaper, and more secure.” Yet the ambition of this project suffers from the same fundamental flaw as the Energiewende: meeting either of its three policy objectives entails tradeoffs that compromise the remaining two, especially if one is to take nuclear energy out of the equation.

Take renewable energy, for example. Germany’s success with green energy was made possible by a feed-in tariff, which requires distributors to buy electricity from renewable generators at fixed prices before buying any other form of energy. The intervention ended up having the opposite effect. The decrease in revenues made distributors try and recoup the costs by burning coal, the cheapest fuel out there, whenever they had the chance. Although it improved profit margins of utility companies, the increased coal use also expectedly compromised Germany’s ability to meet its carbon dioxide emissions targets. Der Spiegel estimated that the subsidy surcharge for renewables cost German consumers a hefty €20 billion in the year 2013. These extra charges increased the price of electricity to the point of encroaching on the country’s economic competitiveness and compromising the ability of its manufacturing sector to compete with their U.S. counterparts, as opined by the energy consultancy IHS.

So, pursuing green objectives comes at the expense of competitiveness. But pursuing security of supply, the third pillar of the Energy Union, is also a controversial policy issue that few have managed to define. In Poland and other Eastern European countries the term is basically interpreted to mean reducing Moscow’s dominance over European energy markets. But most Western EU members do not share the same anxieties over the possible instabilities in their power supply. As Stefan Meister of the European Council on Foreign Relations put it, for western European utility companies “it is a question of business not solidarity; they don’t see European cooperation as necessary to improve their bargaining position with Gazprom.”

All of these inconsistencies speak volumes about the flimsy foundations of the Energy Union, which ultimately lacks political support. The impetus for it came mostly from Donald Tusk, former prime minister of Poland and now president of the European Council, who has been urging for more energy solidarity ever since the Ukraine gas crisis in 2009. Over the course of the past year he managed to get sufficient support to actually have the Energy Union endorsed as one of the priorities for Juncker’s Commission. But with the Monetary Union and closer economic integration being subjected to ever closer scrutiny, the political viability of the project is questionable.

Underneath the urge of Eastern European countries to pursue an Energy Union lies the reality of a severely fragmented energy market in which those countries that are most dependent on Russian gas also happen to be geographically and historically most vulnerable to Kremlin’s machinations. Pierre Noel of the International Institute for Strategic Studies (IISS) describes the existing divide as a “Berlin Wall of gas,” in which inherited energy infrastructure exacerbates contemporary geopolitical concerns. Given the current absence of a single pan-European wholesale market for gas or electricity what we have is a patchwork of inefficient energy islands. If a supply cut similar to the one from 2009 were to be replicated, countries of Eastern Europe would be left to their own devices once again.

Ultimately, the EU Energy Union is trying to reconcile a set of three diverging national energy priorities into a single policy platform. The three-pronged target focused on sustainability, competitiveness and security of supply, and the omission of nuclear energy, is an attempt to give small concessions to each block of member states without proclaiming any single victor. Like in the case of Germany’s Energiewende and coal, consequences may come up where we least expect them.

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