EU's Energy Review leaves continent's consumers cold

By bne IntelliNews January 10, 2007

Derek Brower in Brussels -

The European Commission on Wednesday unveiled a package of energy reforms that it said would guarantee the continent's energy security, bring "coherence" to the internal energy market and direct its economy towards a carbon-free future. It was strong on promises, and weak on the practicalities.

On the most pressing matter – the EU's security of energy supplies – the Commission's report was strangely muted.

The news in the afternoon that Minsk and Moscow had come to an agreement to resume oil supplies through Belarus to EU countries was welcomed by Commission President Manuel Barroso and the commissioner for energy, Andris Piebalgs. But the Commission's response to that spat – which saw Germany, Poland and other countries having to draw on their strategic reserves of crude – was characteristic of the EU's incoherent strategy on Russia.

Barroso talks reform

It was "unacceptable" that Russia did not warn the EU before cutting its exports through Belarus, said Barroso. That message – essentially: fine, turn off our energy, but please tell us first – will hardly force Moscow to rethink its own strategy.

In advance of the energy review, Brussels promised to find a policy that would enable Europe to "speak with a common voice" in negotiations with Russia and other suppliers.

Such a show of unity, the Commission argued, would help persuade countries like Germany and Hungary – two countries Russian gas monopoly Gazprom has targeted as "hub states" – that the interests of the EU should prevail over their instinct to deal bilaterally with Moscow to secure their own energy supplies. But if today's review represents the new common voice, its weak falsetto will convince no one.

The Commission's limp wrist was also evident over issues, ranging from nuclear energy to the need for large electricity and gas companies to "unbundle" their distribution and generation assets. Nuclear power could be key to the continent meeting its new greenhouse gas targets, proclaimed Barroso. But the Commission will leave it up to the individual countries to decide whether they pursue that strategy.

Likewise, unbundling would be the Commission's "preferred option." However, Neelie Kroes, the commissioner for competition, said an alternative would be a beefing up of "regulation" – without unbundling taking place. In practice, that means that the rhetoric of the past months promising that the Commission would crack down on offending utilities like Germany's E.ON and the Czech Republic's CEZ has become, instead: unbundle if you like. Or, if you'd prefer, just leave things as they are.

Whether that equates to a genuine policy to correct a European energy market that Barroso, Piebalgs and Kroes all confessed "is not working as it should" is debatable.

The impression left in Brussels on Wednesday was that the Commission had missed an opportunity to do something bold. Even the 20% reduction in emissions, say critics, is in fact only a 2% increase on the existing targets to 2020. But given that no one expects the continent to meet those targets – and certainly not while the Commission leaves nuclear policy in the hands of member states – that policy looks doomed, anyway.

In the meantime, Europe's dependence on imported energy will rise from 50% to 65% by 2030. "We have an addiction to energy," sighed Barroso. "And like any addiction, it's even worse when you depend on someone else for that addiction."

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