Europe's energy policy seen as so much hot air

By bne IntelliNews April 10, 2008

Mike Collier in Tallinn -

Jose Manuel Barroso's goal of a united EU energy policy seems further away than ever after a high-level seminar in Estonia on the subject turned into little more than a list of frustrations and inconsistencies.

A small but influential group of Nordic and Baltic figures met in the medieval splendour of Tallinn's Town Hall on April 9, but not even stained-glass windows and vaulted ceilings could distract from the fact that the region doesn't like the cards it's being dealt by Brussels at the moment.

Even Estonia - usually a staunch backer of most things European - joined in, with Economy Minister Juhan Parts comparing the European Commission's so-called '20/20/20' plan, which looks to increase the use of renewables and cut CO2 emissions, to something from the era of the Soviet-planned economy: "Regarding the 20/20/20 plan, I was too young to have experience of the planned economy, but it's not nothing for me to point out the similarities... it's a typical planned economy."

He explained that such arbitrary targets are particularly annoying for investors, who are finding it almost impossible to plan their future investments with any degree of confidence. "I can see here today the chief executive of one of Estonia's major energy companies. I have to ask him, 'When will you start to make these investments?' He gives me back the ball and says, 'I really can't go to the banks because I don't know who is doing what in the next five to 10 years.'"

The 20% figure is the amount that the EU wants its members to increase the use of renewables, increase energy efficiency and reduce greenhouse gas emissions, all by 2020. But in Parts' view, the figures are just too pat to be justified. They may even conflict directly with the Lisbon Treaty, he believes. "If this climate package will be introduced, then certainly it will not be in accordance with the Lisbon agenda," Parts said. "The new EU regulations shall not influence the right of the states to define their own energy mix. The planned climate package has very direct influence on electricity production options. The only realistic large-scale investment in such conditions would be nuclear power."

Parts went on to explain that part of the problem is that EU members are trying to do too many things at the same time, which leads to internal conflicts, for example by opening up markets at the same time as imposing new restrictions, or encouraging diversity of energy supply while effectively penalising some sources, such as fossil fuels - which includes Estonia's considerable reserves of oil shale.

Carbon leakage

Another concern is what Parts called "carbon leakage."

"If the new emission trading rules will be applied in the EU, it would be attractive for customers to buy electricity from countries outside the EU without CO2 quota cost. This is a special concern strongly influencing investment decisions into new power production facilities," Parts said. "In today's world there are so many uncertainties. It is not very smart for the European Commission - who are, at the end of the day, our servants - to make additional uncertainties in such an important sector as energy," then added hastily, "But don't interpret my words as if I am against their role in energy."

If Parts' political status forced him to remain diplomatic, Timo Rajala, CEO of Finnish nuclear giant Pohjolan Voima had no such qualms. He launched a withering attack on the energy and climate goals, describing them as "too challenging to be credible" and characterised by political decision-making that is "short-sighted and unclear, insufficient to create a secure basis for long term industrial and energy investments."

Even participants more inclined to back the Brussels line were forced to admit that the 20/20/20 plan has serious flaws. Bo Kallstrand, managing director of Swedenergy, pointed out that if the Nordic region did hit the 20% targets on renewables and efficiency, it would actually result in a 40% drop in CO2 emissions. Asked by bne if this amounted to the Nordic region subsidising emissions for the rest of the EU, he replied: "You could express it that way."

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