Ladies and Gentlemen,
I am pleased to be here with you today, speaking at this prestigious institution.
Since its opening in 2005, Bruegel has not only become a world reference in economic policy circles; its reports and well-founded economic analyses also shape and influence political decisions and strategies at the national and the European level.
Your genuine policy proposals, such as your input on the Energy Union published at the beginning of the mandate of this Commission, are extremely important in a rapidly changing world, where decisions have to be taken with speed and determination.
The threat of climate change and the current uncertainty in the energy markets are probably the clearest examples of the difficult challenges that lie ahead of us.
Yet with the historic Climate Agreement reached in Paris last December, we have begun an unprecedented journey towards a low-carbon and sustainable world.
In this context, I would like to talk with you about the Paris Agreement and its implications for the EU's climate and energy policies, focusing on three key points:
- first, the EU's assessment of the Paris agreement;
- second, the international dimension of the deal and the steps that the international community will need to take to implement it;
- and third, the EU's legislative measures that the Commission will put forward in 2016 to meet our international commitments, with particular reference to the Energy Security Package that we will launch in a few days.
The Paris Agreement has been an unprecedented historic success. It is the first purely multilateral agreement on climate change, covering 195 countries and 98.5% of global greenhouse gas emissions.
The deal has been a great success for the EU's climate diplomacy. The EU has built a broad coalition of developed and developing countries in favour of the highest level of ambition – a "High Ambition Coalition" – that has been a game changer in Paris.
The Agreement is very ambitious in its scope and includes most of the EU's demands:
- first of all, it sends a clear signal to investors, businesses, and policy-makers that the global transition to clean energy is here to stay and that resources have to shift away from fossil fuels;
- second, it sets out a long term goal to put the world on track to limit global warming to well below 2°C – and pursue efforts to limit the temperature increase to 1.5°C;
- third, starting from 2023, governments will come together every five years in a "global stocktake" to consider emissions reductions, adaptation and support provided;
- fourth, parties have a legally binding obligationto pursue domestic mitigation measures with the aim of achieving the objectives of their contributions;
- fifth, it sets up an enhanced transparency and accountability framework, including the biennial submission by all Parties of greenhouse gas inventories, an expert review and a facilitative, multilateral consideration of progress;
- finally, the solidarity package includes notably provisions on climate finance and on addressing needs linked to adaptation and loss and damage from climate impacts.
However, Paris has left a wide range of technical issues open, including detailed provisions on transparency and accountability, low-carbon strategies for 2050, the follow-up of the Lima-Paris Action Agenda and technology mechanisms.
We will have to work hard in 2016 to overcome the last hurdles of the agreement. In this context, COP22 in Marrakesh will be very important to ensure the deal's successful implementation.
Reaching the Paris deal has been an arduous and challenging task.
Now all signatories have to live up to their responsibilities and implement the agreed provisions.
This is why the EU is committed to maintain the international momentum in order to ensure the full and timely implementation of the Agreement.
We are also preparing with the EEAS an action plan on climate diplomacy for this year, which will be discussed at the Foreign Affairs Council of 15 February.
The objective is to maintain our international leadership in climate diplomacy, increasing our efforts in sharing our own experiences on designing and implementing climate and energy policies.
In line with this, the EU intends to sign the Paris Agreement early in 2016 at the high level ceremony on 22 April in New York.
The Commission has already started working on several legislative packages to implement the EU's Paris commitments.
First of all, last year we put forward a proposal to revise and strengthen the European Emissions Trading System (ETS), the flagship of the EU's policy to combat climate change, which covers around 45% of the EU's greenhouse gas emissions.
Discussions on the ETS review are now ongoing in the Council and the European Parliament. A well-functioning ETS is key to drive emission reductions in the energy sector as well as in energy intensive industries, as recognised by European leaders and stakeholders alike.
In Paris, many business leaders have called for a carbon price to be put in place at global level. And as countries move to implement their INDCs, it is likely that more and more carbon pricing systems will be put in place.
That is particularly encouraging as regards industry because we should see a gradual levelling of the global playing field.
But we are not naïve, this will not happen overnight. That is why in its proposal, the Commission has done its utmost to provide adequate protection to European industry. This approach is built on several elements and I commend both institutions for taking the necessary time to understand the different building blocks of the proposal and their cumulative implications.
As the next step, the European Commission is working hard on proposals for a new Effort-Sharing Decision (ESD) to put in place national targets for the sectors not covered by the ETS, including land-use and forestry (LULUCF). The two initiatives are closely interlinked, and we are on track to deliver the legal proposals in the first half of 2016.
I will be visiting many Member States in the coming months to have a dialogue with the national authorities on these proposals. I started in Poland, tonight I will go to Finland, and soon I will visit the UK, France and Germany.
As for the ETS, here as well the Commission is helped by the detailed guidance of the European Council of October 2014, which already set out the overall reduction target to be achieved by these sectors (-30% by 2030) as well as the methodology to share this target among Member States in a fair manner, while maximising cost-efficiency.
This means higher-income Member States will continue to carry a higher share of the effort. However, it is clear that to meet the 2030 target all Member States will have to make serious efforts to step up emission reductions.
That goes for all Member States, and it goes for all sectors. That is why we are also looking in detail at how the land-use sector can contribute.
Having been agricultural minister, even I am still on a learning curve, and am sure to learn a lot during my visit to Finland tomorrow.
This is why we are still examining a number of options, in close cooperation with Commissioner Hogan for agriculture, to see how the land-use sector can contribute to reaching the 2030 target while safeguarding the environmental integrity of the overall system.
Together with the proposals on effort sharing, the Commission will present a Communication on the decarbonisation of transport
The Communication on decarbonisation of transport will indicate how the transport sector can contribute to achieving the 30% objective.
It will also provide Member States and stakeholders with an idea of the different options available, both at European and at National level, to achieve that target.
The communication will be organised around the main three levers:
- improvements in efficiency of vehicles: mainly through the setting of emissions standards for cars and vans and the review of the test cycles;
- management of road transport activity (including the shift to other modes, charging systems, intelligent transport systems, etc.);
- decarbonisation of fuels,including alternative fuels and an electrification strategy.
Later this year, we will also make an ambitious set of proposals that will fully reflect the key role that energy efficiency and renewable energies will play in decarbonising our economy.
We will strive to come forward with a framework that enables reaching the 2030 targets, tapping the huge potential to increase efficiency across the economy and reduce demand and that can deliver a continuous growth of renewables.
And at least as important, the Commission will make proposals to reshape the design of today's electricity markets to put consumers at the centre of the energy system, enabling demand response and enhancing flexibility.
More flexible power systems that are much better integrated with a truly European electricity grid are needed to allow an efficient integration of renewables in the system. Moreover, as Bruegel has called for in the past, we need to at least set a stronger European framework for national policy decisions, such as on security of supply measures.
In addition, in a few days we will launch our Energy Security Package, which is composed of:
- a Security of Gas Supply Regulation;
- a Decision on Intergovernmental agreements in energy (IGAs);
- LNG and Gas Storage Strategy;
- Heating and Cooling Strategy.
It is no coincidence that we launch the Energy Security Package at this time. The developments in the international energy context and the post-Paris scenario are posing new challenges that need to be addressed without delay.
Energy Security context and the geopolitics of energy
One of the key priorities of the Energy Union strategy we presented in February last year was the energy security dimension.
After the gas crises of 2006 and 2009, we took a number of measures to prevent these situations happening again:
- we adopted a Security of Supply Regulation in 2010
- we increased interconnectivity and infrastructure
- we created reserve gas flow options
- and we introduced rules for network use to avoid cross-border infrastructure congestion
But the stress tests of 2014 showed that a number of Member States are still far too vulnerable to major disruption of gas supplies, especially those in Central and South-Eastern Europe which rely on a single supplier. And with current political tensions on our borders, this problem is not just going to go away. So it is clear that we need a well-functioning gas market, we need more competition and a market to bring down prices and reduce dependencies on one source of supply, in particular Central and South Eastern Europe.
At the same time, the global energy market is experiencing important shocks. The plummeting of oil prices to a new low (around $30 per barrel), is leading to changes in gas prices which, in turn, is leading to further reductions of the import bill.
Moreover, new players are coming into the global energy market, opening new opportunities for the EU's diversification and security of supply strategies:
- Iran has the potential to become a major new market player soon after the lifting of sanctions;
- Australia will become the world's largest LNG supplier by 2020 covering demand in the Asia-Pacific market and freeing up production from the Middle East and Africa to Europe, whilst the US is giving more and more LNG exporting licenses;
- new gas fields have been discovered in the Leviathan basin and in Egypt;
Finally, LNG and pipe gas prices are converging, and renewables are becoming increasingly competitive.
At the same time, the Paris Agreement has sent a strong signal to businesses and policy-makers that the path to clean energy is irreversible and that a global energy transition is underway.
This global transition will require more energy efficiency and renewables. But this has to be a managed transition: we simply cannot switch to a clean and sustainable energy model overnight.
Gas will therefore play an important role in Europe's energy transition towards clean and more sustainable societies and economies because:
- natural gas pollutes half as much as coal, and will therefore serve as a bridge between more polluting fossil fuels and cleaner sources of energy;
- gas serves as a back-up to renewable energy sources;
- finally, it plays an important role in the decarbonisation of the transport sector as an alternative to fuel for trucks and ships.
It is in this changing international context that the Commission will launch the following measures:
1) A revised Security of Supply Regulation
The objective of the new Security of Supply Regulation is simple: to prevent and mitigate possible security of gas supply crises.
We have seen that national policies do not always account for the security of supply situation of their neighbours. Crucially, the stress tests have shown that if Member States cooperate during a crisis, it would be much easier to avert supply disruptions. Another lesson that we have drawn is that commercial gas supply contracts are not transparent enough to allow preventive measures to be put into place.
Now, what is the European Commission proposing?
With the revised regulation we introduce a new more efficient approach to overcome these limitations, creating a conscious cross-border approach to security of gas supply.
- First, the Regulation will explicitly include a solidarity principle among Member States to ensure the supply of households and essential social services in case their supply was affected due to a severe crisis.
This means that Member States will be obliged to help each other in ensuring the supply of households and essential social services, such as healthcare and security services, in the case of a severe crisis.
In practice, we will require Member States to give priority to protected customers in a neighbouring Member State in crisis over non-protected customers at home.
- Second, it proposes a shift from the existing national approach to a regional approach when designing security of supply measures. Such change is necessary to ensure a better coordination of Member States, including a more accurate assessment of common risks, possible simultaneous crises and available resources.
This way Member States will be much better prepared for an emergency situation and will be able to address such situation more effectively if they conduct regional risk assessment and draw up regional preventive action plans and emergency plans.
- Third, we will change our approach on enabling the use of pipelines bidirectionally (reverse flows), which has proven one of the most efficient means, e.g. for helping Ukraine.
We will make it more difficult for operators to block such reverse flow based on their own interests. For each interconnection point, we will involve in the procedure all other Member States who could potentially benefit along the supply corridor.
- Fourth, the new regulation will also contain additional rules to improve transparency:
o The Commission and national authorities will get direct access to specific commercial contracts with a duration of more than 1 year, which have a direct relevance for security of supply of a whole country or region. This will be the case when contracts with the same supplier cover a very high share of the total market.
o Under duly justified circumstances, Member States may request natural gas undertakings to provide, additional updated information on gas flows already before an emergency in order to assess the security of supply situation at national, regional or EU level, information that will be shared with the Commission.
- Finally, the new Regulation reinforces cooperation with EU neighbours, as Energy Community countries will be included in preventing and tackling possible supply crises.
2) A Decision on Intergovernmental agreements in energy:
The objectives of this mechanism are:
- to make energy agreements more transparent and fully compatible with EU law;
- and to ensure that energy IGAs do not jeopardise the EU's security of supply or the functioning of the internal market.
Past experience, in particular in relation to the Southstream IGAs, has shown the deficiency of the current approach of ex-post control. Once concluded, Member States are often unable to unwind IGAs, even if they contravene EU law, as they are bound towards third countries.
The Commission’s analysis of all notified IGAs (124) showed that around one-third of the agreements related to energy infrastructure or energy supply contained provisions that were not compliant with EU law. To date no such agreement has been successfully renegotiated.
Now, what will the new IGA decision entail?
The main change, compared to the current IGA Decision, is the introduction of a mandatory ex-ante compatibility check by the Commission.
The Commission needs to have the possibility to assess and express its opinion on IGAs before they are concluded and Member States must be prevented from signing IGAs before this analysis has been concluded.
When concluding the proposed intergovernmental agreement or amendment, Member States will have to take full account of the Commission's opinion.
The new IGA Decision covers all agreements between one or more Member States and one or more non-EU countries which have an impact on the security of the EU’s energy supply and the functioning of the EU internal energy market.
It includes intergovernmental agreements and non-legally binding commitments, such as joint political declarations or memoranda of understanding that include interpretations of EU law, set conditions for energy supply (i.e. prices) or for the development of energy infrastructure.
Taken together with the proposals on reinforcing transparency with regard to commercial contracts we will therefore be able to enhance our oversight over relations with third country producers as the European Council had called for in 2015.
3) LNG and storage strategy
The goals of the LNG and storage strategy are:
- to improve the access of all Member States to LNG as an alternative source of gas;
- and to improve access to storage as an additional source of flexibility.
Europe is the biggest importer of natural gas in the world. Our overall LNG import capacity is significant – enough to meet around 43% of total current gas demand.
However, important regional disparities exist in Europe: while in the North-West of Europe markets are competitive and well-connected, with access to several sources of gas – including a number of terminals with substantial capacity to import LNG –, gas markets in the Baltic, central-eastern, south-eastern and south-western regions do not have access to LNG and are heavily dependent on a single gas supplier. These countries would therefore be hardest hit in a supply crisis.
The lack of choice in these regions also means that these countries often pay uncompetitive prices. Access to LNG is therefore one of the easiest and fastest ways to end with monopoly rents for foreign suppliers.
In order to improve the access of all Member States to LNG and storage as an alternative source of gas, our strategy will help us to speed up the building of the necessary infrastructure to complete the internal market, allowing all Member States to access international LNG markets, either directly or via other Member States. The goal is to remove bottlenecks, diversify supply sources and bring price competition to under-developed gas markets in the Baltics, Central and South Eastern Europe and South West Europe.
Most of the infrastructure is already there. Now we have to connect it.
The LNG strategy identifies a number of projects that would end single-source dependency and give all Member States access to LNG, either via terminals or indirectly via interconnectors and/or access to liquid hubs. These projects would bring real gas security and price competition to EU markets.
o the Central East South Europe Gas Connectivity group (CESEC) identified six key priority projects along two main corridors from the Krk terminal in Croatia and from Greece to the north;
o the Baltic Energy Market Interconnection Plan (BEMIP) group identified six key priority projects that will connect the three Baltic states and Finland to the European network; and
o the South-West Europe high level group identified two projects that would serve to eliminate bottlenecks and connect regional markets.
But we also need to reinforce our efforts to complete the internal gas market so that it sends the right price signals — to attract LNG to where it is needed and to facilitate necessary infrastructure investments.
Finally we need to work closely with our international partners, to promote free, liquid and transparent global LNG markets. This means engaging with current and future suppliers and with other major consuming countries to ensure that LNG can be traded freely on global markets, both under normal market conditions and in the event of external shocks.
The Commission will hold regular discussions on LNG with Australia and continue to work closely with other current and potential suppliers such as Qatar, Nigeria, Egypt, Angola, Mozambique, Tanzania, Israel, Lebanon, Iran, Iraq and Libya. Priority should also continue to be given to high level energy dialogues with Algeria, the US and Canada.
Finally, 4) a Heating and Cooling strategy
The objective of the Heating and Cooling strategy is to combat energy waste by saving energy in the heating and cooling of buildings and industry.
Energy efficiency is central to our Energy Security Strategy. For every 1% increase of energy efficiency, gas imports fall by 2.6%.
The EU Heating and Cooling strategy is the first ever EU initiative addressing a sector that consumes half of the EU's energy and is 75% powered by fossil fuels. It also accounts for three quarters of our total gas consumption and 13% of oil consumption. And most of that energy is used inefficiently.
Approximately 90% of our buildings in the housing sector are energy inefficient. And almost half of those are fitter with old boilers with efficiency rates lower than 60%.
Our strategy focuses on removing the barriers to decarbonisation in buildings and industry with three main actions:
- Better implementation of current legislation and promotion of the use of EU funds.
- Legislative reviews of EU legislation to make sure that the heating and cooling sector is fully taken into account (i.e. Energy Efficiency Directive, Energy Performance of Buildings Directive, Renewable Energy Directive and new electricity Market Design).
- Non-legislative actions such as: awareness rising for consumers building owners; training of professionals to use the most modern technologies (e.g. architects, installers); support innovation through e.g. the SET plan; and support actions developed by the Covenant of Mayors, amongst others.
Ladies and gentlemen,
The Paris Agreement will have important repercussions on our energy and climate policies.
We have already taken the first steps in this ambitious transition to less polluting and more sustainable energy models.
The legislative package that the Commission will launch in a few days will complement the EU's efforts to enhance our energy security and to deliver on our Paris commitments. It will also promote energy efficiency and allow us to move away from polluting towards cleaner and sustainable sources of energy.
I look forward to your comments and feedback and to a productive discussion.