Europe’s Energy Union: Mission Impossible?

Written by | Thursday, December 11th, 2014

Europe’s energy policy has become the pinnacle of both political and economic agenda on the old continent. The importance of energy has risen naturally from the confluence of three problems that Europe is currently facing – declining competitiveness of European firms, Russia’s geopolitical rise, and climate change. EU’s energy policy has thus become an overarching issue that has a lot to do with each of these three challenges. Therefore, designing a long-term strategy to reinforce the position of the energy sector in the context of these complex challenges is absolutely crucial. Thus, European leaders are pressured to come up with such a strategy that will combine reliable supply of energy with sensible pricing and environmental sustainability.

A tangible framework seems to be already emerging. The crux of this proposed framework is the European internal energy market that was only recently brought up again by Poland in response to the deteriorating situation in eastern Ukraine. When – or if – completed, this EU energy union will allow for unrestricted flow of energy and related investments across the EU. Such a form of an energy market is believed to lead to major savings – the most ambitious estimates speak about as much as €40 billion per year by 2030 – which should in turn boost competitiveness in the sector.

However, although the European Council has already recognized the energy union as the most likely form of the future energy policy in Europe, EU leadership again lacks a more precise vision of how the union should be constructed. The new EU Commission chief, Jean-Claude Juncker, has appointed Slovakia’s Maros Sefcovic to be “vice-President in charge of energy policy”. Job description has apparently not been yet drafted for this position as many find it unclear what Mr Sefcovic will be actually responsible for. He himself has so far only presented five vague pillars on which the energy union should be based on.

The challenge of building successfully an internal energy market is twofold. Not only must the energy union establish predictable community rules and cost-sensitive policies, it must also take into account three crucial issues – competitiveness, environment, and energy dependence. Given these, the task of setting up a sound energy union seems daunting as these three issues are profoundly intertwined. It is not by accident that the world’s largest economy, the United States, has never been bound by treaties such as the Kyoto Protocol. Despite having good intentions, similar environmental treaties do pose a major obstacle to economic growth and thus competitiveness, the two things the EU needs the most now.

Boosting competitiveness and growth while also massively switching to renewables to protect the environment might be very difficult to achieve when both are attempted at the same time. Moreover, Russian revisionism puts Brussels under pressure to achieve all of these goals in the shortest time possible. Although EU leadership has recently managed to broker an agreement that ought to secure Russian gas supplies during the upcoming winter, nobody can be sure about the degree to which Moscow considers this deal as really legally binding. There are plenty of excuses it can choose from to halt the supplies and “plunge Europe into darkness” again as Mr Sefcovic referred to the 2009 halt in Russian supplies when recently speaking to the EU Parliament.

Given the political developments beyond the eastern Schengen border, price dynamics in international energy market, and general push towards environmentally friendly energy options, Europe is probably motivated – like never before – to make its ‘energy union’ dream happen. The first steps have been taken and a rough vision has been presented. Yet, in the absence of a long-term strategic vision, we should not be too ambitious again: perhaps, we should only pick one goal and one challenge at a time – the most important goal and the most imminent challenge – to begin with.

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