Solving the EU energy equation

By Andrew Beatty

Date: 09/06/05

With the EU's dependence on hydrocarbon energy destined to continue and its ailing economies struggling to meet environmental targets, Andris Piebalgs, European commissioner for energy, argues that new technology is the only way to square the circle.

Five years ago the European Commission issued a stark warning that energy imports could amount to 70% of the Union's total needs by 2030.

At that time, with oil costing $25 (20.33 euro) a barrel and much of the world's known energy reserves lying in the "arch of instability" that runs from the Middle East round to Central Asia, the prospect was terrifying. Piebalgs's predecessor, Loyola de Palacio, warned that the EU needed to look again at how it secured its energy supplies.

Much has changed in the world since 2000.

Oil prices now hover above $50 (40.66 euro) a barrel and the "arch of instability" seems a timid description. Iraq and Afghanistan are in turmoil, Saudi Arabia is struggling with insurgents and Central Asia is being overtaken by unrest (with questionable elections to come in gas-rich Azerbaijan and Kazakhstan).

Today, forecasts put the Union's import dependency at 90% for oil and 81% for gas by 2030. Far from going down, import dependency is increasing.

Piebalgs says that it is time to look again at the EU's security of supply.

"Things have changed," says the 47-year-old Latvian. But his reasons for initiating a new report, which he hopes will be adopted by the Commission before the end of this year, are not all geopolitics.

"We now have the Kyoto targets which are also influencing energy policy and its long term commitments, so we should reflect on this," he says.

It is Kyoto and its goal of reducing carbon dioxide emissions that, according to Piebalgs, could be the deciding factor in how Europe balances its energy needs in future.

"This definitely makes a lot of difference as to what the [energy] mix should be because it should correspond to our goals, we cannot just say whatever happens is fine."

Although Piebalgs predicts that gas is set to become a bigger factor in Europe, he says hydrocarbons will remain vital in the next 20-30 years.

To reach environmental goals of reducing greenhouse gas emissions, the Commission looks set to promote techniques such as carbon sequestration - where emissions are dumped into deposits under ground or sea, instead of entering the atmosphere. The Commission's critics argue that such techniques do not address the underlying structural dependency on hydrocarbons.

But it is the economic pressures caused by meeting these environmental goals that may become the overriding concern.

"We are living in a new global situation, not only in terms of energy but also Europe's growth is weak now and the report should look at how we can increase competitiveness from an energy point of view," he says.

The implication is that, in the end, energy policy may be dictated by Europe's economic malaise.

Asia and America's thirst for energy is at once heightening competition for resources and squeezing uncompetitive European companies, exacerbating the short term costs of going green.

"It is not only goals for industry, but political goals, in the post-Kyoto period. I don't see how they can be achieved without carbon sequestration policy," says Piebalgs.

One technology, nuclear energy, heralded by some as a clean alternative to hydrocarbons, has its own enduring problems. "We are living under the shadow of Chernobyl," says the commissioner, "next year we have the commemoration of the Chernobyl catastrophe, the boundaries are there."

A way out is being sought. In the next few weeks the Commission will produce its report on how to improve energy efficiency which it hopes will increase competitiveness in the medium term.

"We need to address the issue of demand, what the Union would like to need [and] we should justify this demand. You can say whatever the demand is there will be enough supply, this is true in normal markets, but with energy resources like gas and oil and even with coal and uranium, resources are limited. With global economic growth there is global competition for these resources. The market can deliver but for how long and on what scale?

"I think for the European Union and for any other partners it makes a lot of sense to very quickly predict the growth of demand… and take all the necessary measures to curb the growth of demand."

But, he says, the effects of continuing to rely on fossil fuels extend beyond the environment and economic growth.

Piebalgs, while stressing the need to exploit more effectively Norwegian, Azeri, Iranian and Algerian resources, acknowledges that dependence on OPEC oil and Russian gas will increase, leaving Brussels with its hands tied in attempting to democratise the Middle East and Russia.

But he denies that the EU keeps quiet about some unsavoury countries for the sake of importing their oil and gas: "We cannot compromise on some things even if there are natural resources [involved]."

In the end, Piebalgs says, demand is crucial: "Citizens are not yet ready to give away some of the privileges that they have, I think, for example that car pooling at this stage is out of the question."

The Latvian's message is that if we want a strong economy, a safe environment and the spread of human rights, we have to remember to switch off the lights.

Comments by the European Commissioner for Energy, Andris Piebalgs, on his plans regarding energy supply and energy efficiency.