Complicated and cross-sectoral energy issues in modern national political economy occupy presently a very important place. Being a shared competence, the EU institutions are making their share of the work. Five main issues were discussed at the informal Energy Ministers Council with the member states last week. It seems that it is not so easy to arrive at final decisions which would satisfy all the EU member states…
During last six months the EU institutions have elaborated three main new directions in the EU-wide continental energy policy: first the EU demanded a drastic reduction of fossil fuel and energy in the member states, alongside saving gas in order to adequately fill in existing storage (with creating a joint storage). Presently, the EU, on average, has already filled by over 80 percent the joint storage capacity in Europe.
Secondly, the states have to diversify supply of external energy resources (mainly in order to reduce Russian fossil fuels supplies) and diversify energy mix towards other reliable suppliers, like for example the US, Norway, Azerbaijan, Algeria and others. Actually already presently, Norway is delivering more gas to the EU than Russia. In fact, the Commission thinks, the member states can compensate completely Russian gas import through other more reliable suppliers.
The third direction has been towards massive investments in renewables: initially by adopting this spring the REPowerEU plan, the Union of 27 underlined a basic concept: renewables are cheap, home-grown and they can make the states independent. Thus, the states will have to deploy renewables by the end of this year in the amount that is equivalent to about 8 billion cubic meters: it makes renewables in reality the EU’s “energy insurance” in future.
Besides, due to negative effects of climate change, several states experienced severe drought: hence, hydropower has been reduced by 26% in the EU (by 46% only in Portugal); besides, the electricity from nuclear stations has been reduced too. It all means that the EU states are now confronted with growing electricity prices for households and companies, followed by enormous market volatility.
Five measures for a “bright future”
The Commission has put forward a set of different immediate measures for the member states governance concerning new vectors in national energy policy.
= The first one is about electricity savings: partly, due to global scarcity of energy the states have to save electricity, though “in a smart way”. For example, the cost of electricity depends on peaks of demands when the prices are higher and during peak demands the expensive gas comes into the market. So, the idea is to flatten the curve and avoid the peak demands; i.e. Commission proposes a mandatory target for reducing electricity use at peak hours. But it’s up to the states the ways they would achieve the target.
= The second proposal is to cap revenues of the low-cost electricity producing companies: low-carbon energy sources are making presently big revenues as they have low production costs but high prices on the market. It is time for the consumers to benefit from the low costs of low-carbon energy sources like, for example, the renewables. The proposal is to re-channel these unexpected profits in the member states so they can support vulnerable households and companies.
= The third measure is about dealing with the unexpected profits of fossil fuel companies: oil and gas companies have also made massive profits. The proposal is about a solidarity contribution for fossil fuel companies into national budgets. Consequently the states’ governance should invest these revenues both to support vulnerable consumers (households and companies) and also invest in clean home-grown renewable energy sources.
= The fourth proposal is addressing the support for energy utility companies to help them to cope with the volatility of the markets, mainly securing futures markets, for which the liquidity is needed. These companies are currently being requested to provide unexpected large amounts of funds now, which threaten their capacity to trade and shaking the stability of the futures markets. The liquidity problem will be solved through both facilitating the liquidity support for energy companies and updating the EU’s temporary framework to enable quick delivery of states’ guarantees.
Note. This issue has acquired a particular attention recently when the Commission approved a Romanian scheme worth €1.5 billion to partially compensate energy-intensive companies for higher electricity prices resulting from indirect emission costs under the EU Emission Trading System, ETS. The European Green Deal (from December 2019) sets the goal of making Europe the first climate-neutral continent by 2050. The EU ETS is a cornerstone of the EU’s policy to combat climate change and a key tool for curbing greenhouse gas emissions cost-effectively. In September 2020, the Commission adopted revised ETS State Aid Guidelines in the context of the system for greenhouse gas emission allowance trading post-2021, as part of the modernisation of all carbon leakage prevention tools related to the EU ETS, such as free allocation of CO2 emission allowances. In June 2021, the EU legislative institutions adopted the European Climate Law endorsing the binding target to cut emissions by at least 55% by 2030, compared to 1990 levels. Revised ETS State Aid Guidelines entered into force in January 2021 signifying the start of the new EU ETS trading period; they will apply until 2030, with a mid-term update of certain elements foreseen for 2025. https://ec.europa.eu/commission/presscorner/detail/da/ip_22_4927
= The fifth proposal is about the lowering the costs of gas: first to put a price cap on Russian gas. During all previous decades the EU imported about 40 percent of Russian gas; presently the consumption was reduced to about 9 percent. The proposal’s objective is clear: to avoid Russian’s partial buffering through fossil fuel revenues and reduce Russian military funding.
Note. Our Institute will follow closely the outcomes of the Commission efforts to streamline the EU-wide energy strategy; final decision will be very important for the member states perspective development.