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SPEECH/11/98

Günther OETTINGER

EU Commissioner for Energy

Energy Security for Europe: The EU Agenda until 2050

Speech of Commissioner Oettinger at King's College

London, 10 February 2011

Minister, Professor Frost, Professor Pflüger,

Distinguished guests,

Europe has been living in peace for the past 60 years. Our founding fathers understood long ago that energy security was key in creating and maintaining a peaceful Europe. Today, with our conventional energy resources becoming scarcer, we have to keep that spirit alive more than ever.

That is what you are doing, here, at King's College where the energy security challenge is well understood. The fact that the European Centre for Energy and Resource Security is located at the Department of War Studies says it all: energy can be a powerful vector of cooperation and integration or a major source of conflict. In my address to you this evening, I will try to show how the EU energy policy is contributing to further integrating our continent and, at the same time, providing international stability through what I would call a "responsible use of energy".

We have just entered the second decade of the 21st Century. It is a challenging decade for Europe. After the economic and financial crisis over the last few years, we have to overcome its effects and steer Europe onto a path towards sustainable growth. Energy is one of the decisive factors to attain this goal.

As President Barroso stated recently in front of the European Parliament, energy policy should be the next great European integration project. Heads of State and Government confirmed this last week on the occasion of the first ever European Council dedicated to energy. It is not hard to see why. A safe, secure, sustainable and affordable energy supply is key to our economic and strategic interests as a global player.

Embracing fully the challenge, the European Commission adopted last November the "Energy 2020" strategy to finally achieve what has long been overdue: a "Europeanisation" of energy policy. In doing so, we are guided by the very same spirit of our founding fathers, 60 years later.

The EU is dependent on imports for over one half of its energy needs. The rate of dependency growth is the highest in the UK. Energy supplies are simply too important to view as a national prerogative. We are dependent on global markets for a large share of our energy supplies. And these global markets, as regular geopolitical events remind us, are far from stable.

In addition to the growing dependence of the EU for energy supplies and the increasing volatility of prices, four critical aspects are calling for a step change in this policy field at EU level:

  • Considerable investments will be needed over the next 10 years to modernise energy generation and transportation (around 1 trillion €; for the UK this means at least doubling the current investment rate). These require a stable and forward-looking policy framework.

  • The growing interdependence between Member States, of which the UK, which has moved from net exporter to major energy importer, is a good example. The optimum energy mix, including the swift development of renewables, secure supply routes and competitive prices needs a continental market at least.

  • The risk of losing our leadership in developing new technologies.

  • The central role of energy production and consumption in our efforts to reduce emissions of greenhouse gases (energy accounts for almost 80% of such emissions).

The EU has made remarkable progress over the last years, notably the headline 20 -20-20 targets (for greenhouse gas emissions, renewable energy and energy efficiency). Much of this has been made essentially under the framework of climate change. Recent supply problems and the economic crisis have reminded us of the importance to keep a broader perspective. Energy security has now come to the fore. But we cannot have energy security without also having sustainable energy supplies and affordable energy prices.

The three mutually reinforcing goals of energy policy - security of supply, competitiveness and sustainability - are now laid down in the Lisbon Treaty. This clear mandate and the recognition by every Member State of the challenge ahead provide us with a unique opportunity to achieve what the founding fathers of the European integration process had conceived (at the time, starting with coal, steal and nuclear matters): security, peace and lasting prosperity in Europe and beyond.

How can we reach this? The Commission has set out the way forward in its new energy strategy. The European Council has endorsed it. Allow me now to go into details of what our proposals comprise.

1. Reducing our overall consumption

According to the International Energy Agency estimates, world primary energy demand is projected to increase by more than 30% until the year 2035. Rising demand in developing countries is diverting energy supplies away from Europe. China alone is expected to use 20% of global energy by 2035. The growing global competition for energy resources will most likely be a cause for conflict in some parts of the world.

Even if we manage to control the most adverse effects, we still will be faced with a sharp increase in energy prices. On the one hand, rising energy prices will diminish prosperity and the quality of life of our citizens as they all are energy consumers. On the other hand, rising energy prices pose a serious threat to Europe's industrial competitiveness. If we do not act now, Europe's industry will relocate to other parts of the world.

Our first aim must be to reverse this trend; we must consume less energy. Energy savings have to be seen as an additional source of supply, reducing all the more our energy dependence vis-à-vis export countries. Decreasing EU energy consumption by 1% means that we could spare us 50 coal power plants or 25 000 wind turbines.

However, while we are on a good way to achieve the 2020 targets for emission reduction and renewable energy, we are seriously lagging behind as far as energy efficiency is concerned. By 2020 we will only reach half of the 20% target if we carry on at the current pace.

All recognise that there is a huge saving potential but there is no clear way to achieve it. In the coming years, energy efficiency must be mainstreamed into other policies. I am convinced that the public sector can lead by example. Each year public authorities are commissioning close to 20% of all services and products. Public buildings and public transport should meet the most energy efficient standards. Therefore one option would be to set mandatory energy efficiency criteria in public procurement. Another option would be to set compulsory energy efficiency targets in certain sectors, notably for public buildings and public transportation.

Beyond the public sector, there is a need to create a European market for energy efficiency. With common standards, targeted incentives and obligations, we would not only see our energy costs fall, we would create a dynamic market for new skills, jobs and businesses.

The Commission's new energy efficiency action plan to be presented early March will propose far-reaching measures to allow achieving our 20% reduction target. On that basis, Member States will be expected to prepare ambitious national energy efficiency plans. If efforts in the coming two years remain insufficient, I am determined to propose mandatory national targets. I believe, however, that concrete measures should come first. The nature of the target (binding or indicative) is more of a distraction at this stage.

2. An integrated Market

After more than half a century of European integration, one would expect to find energy gifted with the same level of integration as for communication or transport systems. The landscape remains largely fragmented.

Just take the example of the gas crisis in January 2009. If the internal market had been functioning and the necessary infrastructure had been in place to transport gas to where it was needed, nobody would have had to stay in the cold.

A popular assumption in the UK, as elsewhere, is that renewable energy is not consistent with energy security. On the contrary, diversifying and opening up our network to these low-cost, indigenous energy resources is a must. But just as with oil and gas, they require interconnected networks to work efficiently, to be produces where t makes economic sense. For this, the minimum scale is an EU-wide market. Grid developments are therefore a key factor for any further deployment of renewable energy production, both small and large scale, on- and offshore.

Although it is important to consolidate the positive developments emerging from the national support schemes put in place, a new dimension is needed to achieve our long term objectives. Large-scale, production of renewable energy implies that it is produced at a considerable distance (sometimes beyond the EU borders) from areas of consumption. This will imply more coordination between national schemes and ultimately some degree of pan-European harmonisation.

At the European Council of the 4th of February, EU Member States set 2014 as the deadline to complete the internal market. It implies removing all technical barriers that still exist before the end of my mandate.

The new European Agency for the Cooperation of Regulators and the European Networks of Transmission System Operators are called to accelerate their work to define the so-called market design rules. Standards for smart grids and electric mobility have to be set before 2012. This is a huge challenge, considering that nearly seven years after enlargement, some countries of Central and Eastern Europe are still largely cut off from their neighbours or rely on a single source of supply. In North West Europe, also, work is ongoing to improve links between the UK and Ireland and the Continent.

This brings me to the infrastructure challenge. Last November, the European Commission presented a new approach to speed-up the necessary investments.

First, we need to identify priorities and strategic projects with a "European interest label" around the five critical axes described in the communication (South-Western electricity interconnections; North / South gas corridor; Southern gas corridor; Central / South-Eastern electricity connections and North Seas offshore grid).

Second, we need greater transparency of decision-making, as well as streamlined permitting procedures. It is simply not acceptable that permitting necessitates on average more than 10 years before work can start. This does not mean overriding environmental or planning rules. It means speeding them up through simplification and short but realistic deadlines.

Third, we need to mobilise resources. In the UK alone, government figures estimate the need for investment at over £110 billion (pounds) in the electricity sector alone. Most of the financing will continue to be brought by the private sector. In addition to the definition of the priority networks, our role in enhancing investment confidence is to allow cross border tariffs to be set at reasonable prices and define efficient cost recovery mechanisms.

For the EU as a whole, out of the € 600 billion required in the coming ten years (transmission and distribution), we estimate the need for public intervention to less than € 200 billion. The bulk will hence come from the private sector.

When the market fails, national governments and the EU will bring the initial funding to cross-border projects presenting particular risk and intended to enhance our security of supply.

Fourth, we should not look at Europe in isolation. Strategic supply routes such as the Southern Corridor for gas is essential to give us access to resources from the Caspian. Plans for new electricity links between North Africa and the European Union are equally important for the development of this region and our future mix of renewable energy.

Setting a level playing field with partners requires a common European approach. The completion of the internal market and a strong external voice are two sides of the same coin.

3. External dimension of the energy market and geopolitics

There is no need for me to remind you, here, at the European Centre for Energy and Resource Security, how much energy security is intertwined with geopolitical security.

Europe is the world's largest energy importer. Energy demand could almost double from emerging and developing countries in the coming decades. China and India alone could represent over half (54%) of the global increase in energy supply by 2035. Globally, demand growth poses a threat to security of supply and, with its impact on prices, our economic competitiveness.

Our challenges are magnified by a growing world population, combined with high levels of energy poverty. Events across the Mediterranean should act as a wake up call.

Energy is clearly one of the greatest geopolitical challenges. Yet, we have dragged our feet on external energy policy. EU States have preferred pursuing national interests rather than use the weight of the EU.

The European Council has understood the urgency of joining forces as a single force in international energy relations. I will come with a set of proposals around the summer.

Our main asset remains the internal market, the world's largest. This means closer cooperation with our neighbours in order to extend the internal market beyond our borders to the East but also to the South. The Energy Community linking the EU energy market with the countries in the south east of Europe, including Ukraine, has increased security and improved investment conditions for countries across that region. This should be both deepened and further enlarged to the Southern Mediterranean. It is particularly important if we wish to promote large-scale investment in renewable energy, for instance in North Africa.

It also implies that bilateral agreements concluded by individual Member States with partner countries such as Russia, should be in line with EU rules. There are a number of examples recently where the EU has helped Member States achieve their ends, such as Poland and Bulgaria in their negotiations with the Russian Federation. Russia clearly understood that there is a European dimension to supply contracts with Member States.

At the moment we lack the permanent mechanisms to ensure effective coordination at the EU and Member States level. This makes us far less effective in dealing with our partners. Based on our recent successes, I will propose to establish a new mechanism to ensure proper ex-ante and ex-post coordination and cooperation for the conclusion of intergovernmental agreements. When strategic "corridors" are concerned such as the Southern gas corridor, for Caspian gas imports into Europe, or the Mediterranean renewable electricity ring, we should be seeking to conclude an agreement at EU level setting the key principles (transit rights, protection of investments, .) and covering all partner countries in one go.

Finally, to exploit the EU's geopolitical potential, we must reinforce our cooperation with strategic partners. Partnerships such as with the Russian Federation, the United States, the Gulf countries or China should be upgraded with the objective of promoting regulatory convergence. Cooperation is foreseen in particular in the areas of market mechanisms, new technologies, energy efficiency and nuclear safety and security.

Where we speak with a single voice, we get results. Look for example at the recent historic gas agreement with Azerbaijan. We have to continue on this successful path.

4. Making a technological shift

The UK has an ambitious carbon reduction objective – 80% by 2050. The Cancun climate change agreement seeks 80% reductions in global emissions. The EU has the ambition to largely decarbonise the electricity and transport sectors by 2050. None of this will happen without a technological revolution. Your minister, Chris Huhne, has called this a "seismic shift".

In view of the time needed for the development and market uptake of energy technologies, the introduction of new, highly efficient and low carbon technologies into the European markets is more urgent than ever before. The European Council has endorsed the key technologies we identified in the 2020 Energy Strategy with a strong focus on electricity storage, second-generation biofuels, intelligent networks, and modernising our cities. A more prominent role to energy has been called for in the next European Research Programme. We also need to stay in the driving seat of international large- scale research cooperation projects like ITER.

Beyond financing, our regulatory tools should be better used to accelerate the market uptake of innovative technologies. Europe has the potential to set world standards. With the completion of our internal market, we have the best asset to accelerate change. In this respect, particular emphasis will be given in the coming months to energy efficiency solutions (eco design), smart grids and meters and electric mobility.

5. Providing a long- term view: the 2050 Roadmap

The Energy 2020 strategy is just a first step. In order to transform our energy systems, we need a longer term perspective. Under the so-called "Energy Roadmap 2050", I want to present different paths to meet not only our greenhouse emission reduction target (80-95% compared to 1990) but also secure the provision of energy at competitive prices. Based on different scenarios, it will aim at presenting the policy measures needed in the coming years to firmly set the energy sector on the right track.

Conclusions

Your Director, Friedbert Pflüger, warned us recently against the risk of energy nationalism or imperialism, in a context of growing population and increasing energy demand.

Now is time to pave the way for another European integration project of vast potential: a true European energy policy. An energy policy which ensures secure social and economic development both in the EU and globally. One which assures a low-carbon energy future in a stable, predictable and smooth manner.

Leadership will be of the essence. Europe’s Heads of State and Government have recognised the opportunity and sent a clear signal last week.

We can now look forward to:

  • Accelerate our efforts on energy efficiency, the particular responsibility of the public sector and an invitation for a far-reaching energy efficiency plan.

  • Deliver more and targeted investments in the area of energy research and the full implementation of the Strategic Energy Technology plan.

  • Remove all technical barriers for the completion of the internal market by 2014 and the interconnection of all Member States by 2015.

  • Build swiftly the required networks and storage facilities.

  • Develop the external dimension of the internal market, notably through effective coordination and the promotion of strategic corridors.

With this, we can lay the foundations for a European energy system equipped to face global competition. At the same time Europe would provide a valuable contribution to sustainable growth and prosperity around the world. What best example of constructive global leadership?

I thank you for your attention.


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