Energy for a Changing World: The New European Energy Policy
Speech at the EPP seminar "Europe's Energy Challenges"
Brussels, 7 February 2007
Ladies and gentlemen,
The world today is facing a massive energy and environmental challenge, a challenge that is particularly acute for Europe.
Let me first consider energy security. According to the IEA, on a business-as-usual scenario, world energy demand is set to increase by more than 50% by 2030.
As the IEA states: "the ability and willingness of major oil and gas producers to step up investment in order to meet rising global demand are particularly uncertain....rising oil and gas demand, if unchecked, would accentuate the consuming countries' vulnerability to a severe supply disruption and resulting price shock". It is becoming increasingly clear that without real and effective action we will simply end up consuming more, polluting more and emitting more CO2.
The potential effects of this on Europe must be cause for concern - our dependence on imported oil and gas is growing. Today we import about 50% of our energy. By 2030, if we do not act, it will be 65%.
The potential effects of this on our economy are serious.
And this continual increase in energy consumption is not just a threat to the global economy. Climate change is serious and it is happening today. The scientific evidence is unanimous and is overwhelming.
On present trends, the world's output of CO2 - which accounts for 75% of all greenhouse gases, will increase by 55% by 2030. The EU's emissions are set to increase by 5% during this period. If we let this happen the results on or environment, on our economy, and our way of life will be tremendous; not only for developing countries but also Europe. The evidence is clear:
If we allow this to happen, we will leave a legacy to our children and grandchildren. CO2 that we emit today stays in the atmosphere for 100 years. Climate change is real, it will affect us all, and it will damage the lives of our children and grandchildren. We have caused it, but now have to prevent it. Acting now is a moral and economic obligation, not an option.
Furthermore, the present direction of Europe's energy policy will fail to contribute to Europe's competitiveness. The EU today is world leader in many energy technologies, but we are now being out-spent in research in new, low carbon technologies. This is a missed opportunity.
Today, the EU does not have a common energy policy fit to deal with these challenges. Once again, without such a vision and a coherent European framework, we will end up using more energy, importing more energy, emitting more CO2 and we run every risk of having fragmented national electricity and gas markets dominated by a single or handful of companies.
In many respects, this is surprising, because energy is at the very origins of the creation of the EU. The original Messina Declaration, of 1955 stated that "To these ends, the ministers have agreed on the following objectives: ...putting more abundant energy at a cheaper price at the disposal of the European economies..." The first EC Treaties dealt with coal and then nuclear - the key energies of the time. Yet the present EU Treaty has no specific provisions on energy at all similar to those for agriculture, fisheries and transport.
The need for a new European Energy Policy is self-evident. These are challenges that no Member State can deal with alone. Indeed, in many respects they are challenges that Europe cannot deal with alone - climate change and exploding energy demand are global problems, requiring a global response.
This has been recognised by the EU's Heads of State and the European Parliament, asking the Commission to put forward exactly such a European Energy Policy, which the Commission has tabled on January 10th. This proposes the most wide-ranging reform of Europe's energy policy ever attempted, fundamentally changing the direction in which we are heading. The energy package put forward by the Commission contains a core strategic energy objective contained in the Strategic Energy Review and is accompanied by a concrete Action Plan to achieve it, based on 7 main documents:
The point of departure is a key objective: we redirect our energy policy to enable the EU to achieve a 20% reduction of the greenhouse gas emissions that it produces by 2020 compared to 1990 levels.
This unilateral 20% target needs to be seen in the context of the need for international action on climate change. When such a commitment will exist, the EU will need to do more, with an increased target of 30% reduction by 2030 and 60-80% by 2050. But we cannot do this alone.
We need however, in our own interest, to take the steps to achieve the 20% target today. Even without global warming, we should be making such a step: the 20% objective can limit the EU's growing exposure to increased volatility and prices for oil and gas, bring about a more competitive EU energy market, and stimulate technology and jobs.
It is however a huge challenge: in energy specific terms, meeting this overall greenhouse gas target will require the EU to reduce the amount of CO2 from its energy use by at least 20%, and probably more, in 13 short years. It means therefore progressively transforming Europe into a highly energy efficient and low CO2 energy economy. It is means nothing less than a new industrial revolution.
The Commission therefore proposes not just a new strategic target to shift the direction of Europe's energy policy. It has equally tabled a concrete, coherent Action Plan: 7 inter-linked measures that will put us on course to achieve all three underlying objectives - competitiveness, sustainability and security of supply.
The first of these concerns the Internal Energy Market.
Without an Internal Energy Market that is truly characterised by intense European-wide competition, none of the EU’s core energy objectives will be achieved. Prices will be higher than necessary, the emissions trading mechanism will fail to work properly, and companies will have the ability and incentive to limit investment in new infrastructure, inter-connection capacity and generation, increasing the risk of black-outs and unnecessary price surges.
So far, the present rules and measures have not yet achieved our objectives. The lack of progress is leading Member States to impose generalised caps on electricity and gas prices. This situation cannot continue. I consider that a coherent series of measures now need to be taken.
The first of these measures concerns unbundling. Without effective separation of networks from competitive activities there is an inherent risk not only of discrimination, but possibly more importantly, of a disincentive on vertically integrated companies from investing adequately in their networks.
There are two options that might be considered to redress this: a full Independent System Operator or ownership unbundling. Of this two, I believe that ownership unbundling is clearly the preferable option.
Secondly, the Commission proposes an improvement in the effectiveness of energy regulation. Regulators must be given not only the task of promoting the effective development of their national market, but also that of promoting the development of the Internal Energy Market.
In addition, despite the creation of the European Regulators' Group for Electricity and Gas (ERGEG), insufficient progress has been made in harmonising the technical standards necessary for cross-border trade to function. A step change is necessary, and formal decision-making powers should now be given to a new body set up at Community level, with the power to adopt binding decisions on technical issues and mechanisms relating to cross border trade. An alternative possible, but less ambitious approach, would be to significantly strengthen the existing ERGEG.
It is worth noting, however, that these changes would not seek to create a “European Regulator”, national regulators would remain individually responsible for the core regulatory tasks such as tariff setting.
Putting these proposals into practice requires difficult decisions to be taken. But this has to happen if we to are guarantee the development of a European Energy Market that really meets the needs of Europe’s citizens. The Commission will table formal legislative proposals – the third liberalisation package - during 2007.
The second key area of the new European Energy Policy concerns solidarity between Member States and security of supply for oil, gas and electricity.
The Commission will monitor implementation of the Gas Security Directive recently transposed by Member States and assess its effectiveness and examine ways to strengthen existing crisis solidarity mechanisms. In addition, it will consider how the EU's contribution to the IEA's strategic oil stocks mechanism could be improved.
The third area for concrete action proposed by the Commission concerns an ambitious programme of energy efficiency measures at Community, national, local and international level. Of all the proposals put forward in the new European Energy Policy, efficiency has the potential to make the most decisive contribution to the EU’s sustainability, competitiveness and security of supply.
On 19th October 2006 the Commission adopted the Energy Efficiency Action Plan, to achieve a 20% improvement in energy efficiency by 2020. This would mean the EU using approximately 13% less energy in 2020 than today, saving €100 bn and around 780 millions tonnes of CO2 each year.
This is truly ambitious, and we should not underestimate the difficulty in achieving it. The challenge will be now to take this forward.
In addition, in the coming months the Commission intends to put forward the basis of a new international agreement on energy efficiency. This could bring the OECD and key developing countries (such as China, India and Brazil) together to agree common approaches to saving energy. We should aim at signing such an agreement during the Beijing Olympic Games. The potential energy saving and CO2 reduction is enormous - improved energy efficiency alone could cut around 20% of current global CO2 emissions.
It is a simple fact that if we do not shift in our energy mix in a major way towards renewable energy over the next 13 years and beyond, we will have no chance whatsoever of reducing greenhouse gas emissions by 20%.
So a major increase in renewable energy is a precondition for meeting our core energy objective. But we should be doing this even if climate change was not happening. Together with energy efficiency renewable energy is practically the only way that we can limit our increasing dependence on imported hydrocarbons. Sweden has produced very interesting ideas on how to make Sweden an oil free society.
To meet these challenges the Commission proposes that a commitment is made to increase the level of renewable energy in the EU's overall mix to 20% by 2020. Targets beyond 2020 would be assessed later in the light of technological progress.
This is tremendously ambitious. Despite agreeing an EU objective of ensuring that 12% of our energy mix is renewable by 2010, we are unlikely to exceed 10%. There has been real progress, particularly in wind and biofuels, but this has been concentrated in a few countries. So the Commission is proposing nothing less than a new industrial revolution in energy policy.
It is however also possible, with major increases in wind and the development of a major off-shore European supergrid and more biomass for heating. Biofuels will also need to become a real and every day part of the lives of European citizens. Today I visited a petrol station here in Stockholm with biofuels – we need more!
However, to make it a reality, it requires three things.
A new Umbrella Directive will be put forward by the Commission in 2007 to make this a reality. Until this is adopted, the current rules and targets will remain in place.
I would now like to return to research, the next key part of the European Energy Policy. It is a regrettable fact that Europe is not the clear leader in research into the next generation of low carbon and renewable technologies. In 2007 the Commission will therefore table a European Strategic Energy Technology Plan.
This will set clear objectives and targets for Europe’s energy research and technology, such as developing second generation biofuels and getting large scale offshore wind competitive. These are just examples, in 2007 we shall propose a concrete programme to better coordinate existing resources, to use them in a more targeted and focussed manner and, where necessary, invest more. The European Spring Council of 2008 will need to conclude on this.
A related issue concerns the next area where the Commission believes progress needs to be made: moving towards a low CO2 fossil future. The IEA expects twice as much electricity to be produced from coal by 2030. That would release around 5bn tonnes of CO2, representing 40% of the expected increase in global energy-related CO2 emissions.
Put quite simply, without clean coal and capture and storage, the most pessimistic scenarios regarding global warming put forward by scientists – an increase of 6°C above current levels – look practically certain to occur. This would be truly disastrous.
For Europe as well, without these technologies from 2020 onwards, we will not be able to meet our greenhouse gas emissions objectives. In our own interest therefore, we need to take world leadership in this area. In addition to clean coal and sequestration being key elements of the Strategic Technology Initiative, the EU needs to provide a clear vision for the introduction of CO2 capture and storage, to establish a favourable regulatory framework for its development, and to take international action. Vattenfall is involved in one of the first CO2 capture and storage facilities in Europe.
In 2007, therefore, the Commission will start work to design a mechanism to stimulate the construction and operation by 2015 of up to 12 large-scale fossil fuels demonstration plants in the EU. The Commission believes that, in principle, by 2020 all new coal-fired plants will need to be fitted with CO2 capture and storage and existing plants should then progressively follow the same approach.
I would now like to turn to the role of nuclear in the European Energy Policy. First, some facts. At present nuclear electricity makes up 30% of EU electricity, 50% in Sweden. It raises important issues regarding waste and decommissioning, but is the largest EU low-carbon energy source today, and also one of the cheapest. It has relatively stable costs, uranium reserves are sufficient for many decades and they are widely distributed around the globe.
It is for each Member State to decide whether or not to rely on nuclear electricity. However, in the event that the level of nuclear energy reduces in the EU, it is essential that this reduction is phased in with the introduction of other low-carbon energy; otherwise the objective of cutting Greenhouse gas emissions will be doubly difficult to meet. In short, the EU needs an objective debate on this issue; there are no longer – aside from energy efficiency – any easy energy choices and the challenge we face is enormous.
At EU level, the role should be to develop further the most advanced framework for nuclear energy in those Member States that choose nuclear power. This should include nuclear waste management and decommissioning. In order to make progress the Commission proposes to establish an EU High Level Group on Nuclear Safety and Security.
Finally, I would like to consider the need for a common External EU Energy Policy. Global warming is a global challenge and improved security of oil and gas supply will only result from real international action. The EU can set the pace on these issues, but it needs to bring other partners onboard. We can only do this if Europe speaks with one voice.
In addition, the energy developments that will take place in Europe over the next two decades represent real opportunities for improving the lives of the world’s poorest. The recent oil price rises have effectively cancelled the effect of development aid in some countries. Africa in particular offers a unique opportunity to use renewable energy technology in a competitive manner. This is a real "win-win" opportunity, increasing the penetration of clean renewable energy and bringing electrification to some of the world's poorest citizens. A special effort will be needed in Sub-Saharan Africa.
Ladies and gentlemen,
Taken together, these 7 areas represent the Action Plan, the concrete basis for a new European Energy Policy. It is truly ambitious. It is a vision of Europe with a thriving and sustainable energy economy, that has grasped the opportunities behind the threats of climate change and globalisation, gained world leadership in clean, efficient and low-emission energy technologies and become a motor for prosperity and a key contributor to growth and jobs. It is the beginning of a new industrial revolution in energy. To achieve this vision we need to act jointly and urgently.
As I stated many times during this presentation, this is not just a challenge, it is an opportunity, and I am convinced that for those who seize it, the rewards will be great.
Let us do so. Thank you.
 Directive of the European Parliament and the Council 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply OJ L 127, 29.4.2004, p. 92–96
 Action Plan for Energy Efficiency: Realising the Potential COM(2006)545 of 19 October 2006