Originally published on Energy Post.
By Douglas Fraser and Stefan Bößner
The EU is trying to improve its energy security by building more infrastructure to facilitate gas imports, but the concentration of its gas suppliers keeps increasing, write Stefan Bößner and Douglas Fraser of the Stockholm Environment Institute. According to Bößner and Fraser, it makes more sense to shift the focus of EU energy policy to creating a low-carbon energy system. That will not only help Europe meet its climate targets, but also improve security of supply.
Two years ago, the European Commission launched its Energy Union initiative with much fanfare. Consisting of five dimensions – energy security, energy efficiency, the internal energy market, climate action and research and development – the idea of having a much more collaborative approach to European energy and climate policies seemed to make sense. 28 Member States would have more clout when negotiating with external energy suppliers, and energy freely traded across borders in a truly integrated European market would make the allocation of resources economically efficient and would bring cheap energy to European consumers.
The EU has the capacity to source almost 50% of its gas consumption via LNG terminals, but those terminals are heavily underused while more terminals are expected to be constructed regardless of tepid EU gas demand
Alas, national interests and diverging views have made this endeavour much easier in theory than in practice. For example, while some Member States, particularly in the East, depend entirely on Russian gas to fuel their economies and thus see the Energy Union as a way to enhance energy security (often to the detriment of more stringent climate policies), others emphasise that the energy transition under the framework should create a low-carbon economy. This divergence of views and priorities has led to some significant shortcomings, particularly when it comes to energy infrastructure and energy security issues.
Slow (and sometimes painful) progress
True, the EU has made some progress in updating their energy transport networks, such as building more LNG terminals and making gas pipelines bi-directional, but this has come at a cost and serves as an illustrative example of what happens when Member States pursue individual instead of collaborative energy policies.
For instance, the EU has the capacity to source almost 50% of its gas consumption via LNG terminals, but those terminals are heavily underused while more terminals are expected to be constructed regardless of tepid EU gas demand. Germany’s initiative to increase the capacity of the Nord Stream pipeline has infuriated Member States like Poland. Likewise, the Southern Gas Corridor has been riddled with difficulties for years both abroad and at home.
All those diversification policies and natural gas investments have not helped the EU to diversify its energy sources significantly nor have they led to a more competitive fossil fuel energy market
What is more, all those diversification policies and natural gas investments have not helped the EU to diversify its energy sources significantly nor have they led to a more competitive fossil fuel energy market. As the Second Report on the state of the Energy Union, released on 1 February, shows, the concentration of gas suppliers has increased, meaning that fewer companies now provide gas to European consumers than before (see page 38).
Moreover, reliance on external suppliers of mainly fossil fuels has also increased, as has the share of Russian gas imported into the EU, despite diversification away from Russian gas being one of the major rationales behind the Energy Union. And in the end, one might wonder whether countries like Azerbaijan or Turkey, pivotal to the EU’s diversification strategy for supply and transit, would offer a more frictionless energy relationship than the current one with Moscow.
Building on the EU’s strengths
Certainly diversification of energy supply is a necessary objective, particularly in Eastern Europe, where over-reliance on Russia causes geopolitical unease since Russia has cut off pipeline flows through Ukraine on multiple occasions. Also, it is of great importance to finally achieve a truly common and flexible internal energy market to further renewable energy uptake.
However, building ever more fossil fuel infrastructure to facilitate the consumption of even more oil and gas can’t be the solution, especially not if the EU also wants to meet its climate ambitions and stay with the leaders on climate change – an imperative that has become all the more pronounced following the election of Donald Trump as US president. Is there another way, then, in which the EU could meet the different objectives of the Energy Union?
What the EU could do instead is to refocus its Energy Union initiative from prioritising supply security through new fossil fuel infrastructure to delivering a truly sustainable energy system. Here is where a lot of the EU’s strength lies – and such an approach could also serve to enhance diversification and security of supply.
Already in 2014, the European renewables industry employed more people than the coal industry even compared to optimistic estimates, while in Germany, revenues from the renewables industry surpass those from the coal industry.
The EU has already reduced its emissions by 24.4% compared to 1990 while at the same time increasing its share of renewable electricity in gross consumption from 14.4% in 2004 to an impressive 27.5% in 2014. At the same time, the EU consumes less and less energy per economic output and seems to have decoupled economic growth from emissions, while overall remaining competitive compared to other OECD countries.
Moreover, the EU remains an innovator in the area of low-carbon solutions, holding about 40% of global high value patents in the climate mitigation sector. Finally, already in 2014, the European renewables industry employed more people than the coal industry even compared to optimistic estimates, while in Germany, revenues from the renewables industry surpass those from the coal industry.
Stepping up the game
But while these are commendable achievements, the EU can benefit from reinforcing its climate and energy policies instead of resting on its laurels. The Paris Agreement, which demands keeping global warming to well below 2°C above pre-industrial levels, should form the start of a comprehensive transformation of our energy systems. And although the EU has taken important first steps in this direction, the road ahead is littered with challenges.
Even though renewable infrastructure is expanding, there are signs of waning national support and fluctuating investment levels. Moreover, notwithstanding untapped potential, energy efficiency policies remain difficult to implement on a national level according to experts. And without reducing the European power sector’s dependence on coal, the EU’s emissions will remain higher than demanded by the Paris Agreement. In other sectors like transport, responsible for 31% of the EU’s energy consumption, progress has been slow and insufficient, while China is increasingly positioning itself as a research and development champion in the area of renewable and low-carbon technologies, thus challenging the EU’s position as a low-carbon innovator.
Each kWh produced from wind, solar or biomass decreases the amount of fossil fuels imported from elsewhere.
Stepping up the game and building on past achievements can only be beneficial for the EU. Besides the economic and environmental gains, furthering the transition towards a low-carbon economy based on a renewable energy system has the additional value of increasing Europe’s energy security. Each kWh produced from wind, solar or biomass decreases the amount of fossil fuels imported from elsewhere and, ultimately, the cheapest fuel is the one not consumed at all.
There are still of course significant challenges to the transformation of any energy system. Most importantly, shortcomings on the internal energy market should be addressed, such as better market design to provide greater flexibility. But the EU has the legal and technical experience of dealing with those issues internally, while its influence on external partners to play by European rules is less assured as the rocky relationship with Gazprom illustrates.
Shifting from a fossil fuel-intensive to a low-carbon energy system is a major challenge. But progress is urgently needed and might come easier and at a lower cost if the EU builds on its past achievements and strengths, rather than desperately looking for more fossil fuels beyond its borders.
Stefan Bößner is a research fellow at the Stockholm Environment Institute, Oxford office. He works mainly on EU climate and energy policies and global energy transitions.
Douglas Fraser is a graduate from the University of York with a BSc in Environmental Geography, and an intern with the Stockholm Environment Institute, Oxford office.
Reprinted with permission.