EU faces a long battle on climate change

Since the emergence of broadly pan-European worries about energy supply security and the obviously menacing issue of climate change, rhetorical enthusiasm for the idea of a new and potentially more common European energy policy has grown apace, and is even heard sometimes in the UK.

In this context the title of the new European Commission statement on energy policy is interesting. Entitled An Energy Policy for Europe, this is linguistically carefully placed between the potentially still inflammatory idea of a ‘Common Energy Policy’ and the historically more accurate notion of energy policies (one for each member state).

While almost all member states are now deeply suspicious of virtually any proposals to expand Community powers into new areas, energy could offer a major exception. Climate change commitments — all essentially to be delivered by the energy system — are already negotiated at EU level, and trying to improve supply security is the kind of issue that could lead to common action because of the commonality of the apparent threat, especially from Russia and Algeria.

So the new Commission document on future energy policy is more than usually interesting. Understandably, much of it trawls old and familiar ground. In particular the three ‘pillars’ of energy policy are intact: sustainability (interpreted in a mostly environmental context, and mainly focussing on climate change), security of supply and competition.

The main theme of the proposal is stated baldly and clearly in the context of climate change and necessary carbon emission reductions: ‘The present energy policies within the EU are not sustainable’ (p.3). There is also somewhat loose talk of the need for a new global industrial revolution, led from Europe, in which the end-result would be a highly efficient and low carbon energy economy.

But before moving to the Commission’s ideas for carbon emission reductions, the mutual compatibility of the three pillars of policy needs to be considered.

Perhaps inevitably the Commission tries to argue that climate change, security and competition are all mutually consistent objectives. The potentially problematic objective is competition or ‘competitiveness’. The Commission continues to pursue the Internal (single) Energy Market and is quite realistic in analysing the substantial shortfalls in member state performances in the achievement of this goal.

But the Commission wavers between an idea of competition defined (wrongly) as low prices to consumers, and the proper definition of competition as prices closely matched to costs. With this latter definition, the conflict between objectives is minimised: if prices reflect costs, including environmental costs, they will not necessarily be low and they will certainly need to rise, probably appreciably over time.

However the political necessity of trying to keep the lid on energy prices keeps cropping up: ‘a competitive market will cut costs for citizens and companies and stimulate energy efficiency and investment’ (p.6). This is rather like hoping that water can be made to run uphill — lower prices (which is what the Commission must mean here) will reduce the incentive for energy efficiency and investment as both will inevitably be less profitable than before.

Rising energy prices (via emissions trading, carbon taxes, renewables support, public sector technology programmes etc.) will never be sufficient alone to achieve large carbon emission reductions — but they will certainly be one of the necessary conditions. If European energy policy is to include the idea that consumer energy prices will be low, there will be no serious hope for radical carbon emission cuts.

However there are places where, more realistically, the Commission seems to accept that high, or higher, energy prices are at least inevitable: ‘the days of cheap energy for Europe seem to be over’ (p.3).

So what of carbon emission policy? The Commission now calls for a 20% European cut in carbon emissions by 2020 (from what baseline is not clear) in the context of a need for 60 to 80% carbon emission reductions in the industrialised world by 2050. This long-term objective is welcome because it effectively accepts the now very strong scientific case for stabilisation of atmospheric concentrations of carbon dioxide as soon as feasible. However there is ambiguity around the policy for 2020. The EU ambition is achievement of 30% reductions in all industrialised country emissions by 2030 of 30%, and a hint that Europe might also go for 30% if this broader objective could be realised.

This might be seen as part of a negotiating strategy not to over-commit in advance of negotiation but big problems lurk beneath. First 20% is almost certainly too limited an aim if 60-80 per cent is to be realistic by mid-century.

But second, recent European performance in carbon emission reduction has been poor: even after the Kyoto commitments of 1997 and the flagship European Emissions Trading Scheme since 2005, European carbon emission are at best stagnant and the apparently modest 8% emission reduction commitment at Kyoto for 2008-2012 now looks highly problematic.

All this suggests that a common policy for energy must be centrally focussed on more radical policies to reduce carbon emissions. The Commission gives some space to policies in this area but nothing in the document suggests the kind of step-changes that will be needed.

The centrality of the European Emissions Trading Scheme is re-emphasised, but without suggesting how it can make real progress from its slow start. Otherwise the recipe is much as before: emphasis on energy efficiency policies, reiterating the October 2006 Energy Efficiency Action Plan, but (ominously) warning that its achievement will require ‘significant efforts in terms of both behavioural change and additional investment’ (p.11) — effectively code for saying that the chances of success are slim. There is also a renewables target of 20% of electricity supply by 2020, again without much indication of how it might realistically be achieved.

However the Commission should not be castigated too much for the relative lack of focus on how more ambitious cuts in carbon emissions might be achieved — it is in practice aware that despite the rhetoric about common policies, member states still show virtually no appetite for giving up any significant part of their national control over strategic energy decisions.

Member states also in practice show little enthusiasm for the Commission’s hope that ‘external’ energy policy might become the core of a common energy policy. And in being timid about the need for higher energy prices the Commission reflects widespread member state sensitivities — the battle to get most member states acting on the need to cut carbon emissions, as opposed to endorsing the overall principle, is a long one. The Commission’s proposals, despite their occasional ambiguities, at least signal some effort in that direction.

Professor Gordon MacKerron is Director, Sussex Energy Group, SPRU, University of Sussex.