Commission bids to reduce the risk of future energy crises

Date: 26/10/00

Last month's blockades by truckers protesting over high fuel prices has underlined the need for the EU to ensure a stable and affordable supply of energy. As the European Commission prepares to publish a Green Paper on this issue next month, Renée Cordes explores its approach

WHEN truckers brought traffic in several EU countries to a standstill last month to protest against high petrol prices, there was little that could be done at the Union level to solve the problem.

To get things moving, some member states caved in to demands from national truckers' unions, with a few going so far as to cut fuel taxes. By the time EU transport ministers gathered to discuss the situation at a meeting in Luxembourg, lorries were back on the road, petrol stations were open for business and politicians were left with nothing new to say.

But even if they had been able to meet while the crisis still raged, Union ministers would have been powerless to do very much, given that governments rejected the European Commission's attempts to create a common energy policy during the negotiations which led to the 1997 Amsterdam Treaty.

The action taken by individual countries may have eased the situation in the short run, but there are no guarantees that an energy-related crisis will not happen again.

The Union is a net importer of oil, which accounts for 40% of total energy consumption and is the only source for several types of transport. By 2020, the EU could be importing as much as 90% of its oil, with most of it coming from the politically-volatile Middle East.

That scenario alarms Energy Commissioner Loyola de Palacio, who is on a mission to increase cooperation between member states on energy issues and to reduce the Union's dependence on imports from the Middle East - either by looking to other regions to help meet demand or by emphasising alternatives to fossil fuels.

She will make the case for diversifying energy sources in a Green Paper to be published in the middle of next month, addressing the issue from both an economic and an environmental point of view. This big-picture survey will be a first for the Commission, which has until now generally taken a piecemeal approach to energy policy. "Energy is a key issue," De Palacio told a conference this summer. "It must be tackled as a whole."

Although the Commissioner's aides began working on the communication a year ago, this year's oil crisis has underlined the need to ensure a stable supply of affordable energy. Member states will get their chance to weigh into the debate when energy ministers meet again in December.

"If there was a central buyer of fuels for Europe and they were looking at what to buy, they would certainly consider the risk of over-dependence on supplies from a particular source," says a London-based energy consultant. "This is a valid concern."

The Union gets about half its energy from outside its borders. Some countries, such as Belgium, import most of their energy while others, such as the UK and the Netherlands, are net exporters. Under a business-as-usual scenario, the Union may rely on imports to meet 70% of its total energy needs by 2020.

To reduce Europe's dependency on imports, De Palacio has several strategies in mind: increasing oil imports from non-Middle Eastern regions; delaying the expected decline in production of gas and other hydrocarbons from the North Sea; and looking beyond Russia for supplies of gas. She will also reiterate the need to develop renewable energy sources and boost overall efficiency.

Within the Union, the Commission is preparing to speed up liberalisation of the gas and electricity markets to ensure that energy is supplied to consumers at the lowest possible price. At the request of EU leaders, De Palacio intends to unveil new proposals next spring for achieving this.

Although most member states have passed the national legislation necessary to comply with the Union's energy liberalisation directives, in practice many of the markets once dominated by state monopolies remain closed. They are increasingly dominated by a handful of big players, which are merging to slash costs amid plunging prices.

This has not gone unnoticed by anti-trust officials, who approved the merger between Germany's Veba and Viag only after forcing the country to abandon a pricing system designed to keep out foreign rivals. Earlier this month, Commission officials also opened an in-depth investigation into Electricité de France's takeover of German utility Energie Baden-Württemberg, and experts are predicting a rough ride for the planned merger between Spain's Iberdrola and Endesa.

In the gas market, the Commission opened infringement proceedings against four member states - Germany, France, Portugal and Luxembourg - earlier this autumn, accusing them of failing to properly implement EU legislation which took effect in August.

Competition chief Mario Monti has warned that he is keeping an eye on possible anti-competitive practices in the energy sector, although he insists this vigilance is not a response to the recent crisis. Peter Claus, secretary-general of industry lobby Eurogas, predicts De

Palacio might also use her paper to propose requiring companies to separate power-production and distribution from their marketing and selling activities.

Regarding nuclear power, De Palacio has repeatedly insisted that she is neutral on the controversial issue, but her report will emphasise its value as a tool in the fight against global warming and will argue that it should be part of the overall energy mix.

As well as diversifying the EU's energy sources, a shift to nuclear power also has an environmental dimension. Its supporters argue that if the Union wants to come anywhere close to meeting its pledges to reduce greenhouse gas emissions, it will have to limit demand for fossil fuels such as coal and gas.

But nuclear energy is not without its problems, and De Palacio will insist in her forthcoming paper that the Commission must continue its research into nuclear safety and radioactive waste.

The Green Paper comes as the EU finds itself at a crossroads concerning its future energy policy, and the ensuing debate is likely to throw up as many roadblocks as the truckers did last month.

"Diversification of supply is a laudable goal," says Christian Egenhofer, an analyst at the Centre for European Policy Studies. "But in the end, it will have to come down to hard choices."

The recent blockades by truckers protesting over high fuel prices has underlined the need for the EU to ensure a stable and affordable supply of energy. The European Commission is due to publish a Green Paper on this issue in mid-November 2000.