What energy union isn’t

EU flag held aloft

Perhaps it helps to remind ourselves what energy union isn’t? Energy union isn’t a new thing, such a new European treaty or agency. It isn’t a new single legal framework, or a new single package of laws or a new single structure of any kind. For these reasons I prefer to avoid to writing energy union with Capital Initials, as Donald Tusk did last year in the FT (cf pic).

FT Tusk

So what is energy union then?

In a single sentence, I see energy union as Europe doing more of the same things as we did before only (hopefully) better.

For me this means continuing to apply the EU treaties in general and the energy chapter objectives in particular. We should modify existing framework rules (EU laws etc) where there is a good case to do so.

The fields of energy, environment and internal market all remain shared competences under EU basic law. Based on the principles of proportionality and subsidiarity in Article 5, this means there are natural limits to Union-level actions towards other levels. There is e.g. no EU plan to harmonise mains plug sockets.

To do more of the same only better relies, as one would expect, on the same European institutions, the same rules of procedure and the same or similar framework conditions that, in turn, shape how people and companies obtain, use and conserve various forms of energy.

The energy union work programme that the Commission set out in February comprises 43 initiatives to be undertaken over the next four years or so. Some are big, some small, some will be binding, some not, some may be dropped, others may emerge. Parliament and Council got their hands of the first two bills in July.

The quality of the outcomes as a whole (affordable, clean, reliable energy systems) relies on the quality of each of the component parts, before, during and after the present activities. We need to ensure our objectives are met today as well as in the future. Moreover, the foreseen energy union legislation will for the most part only amend existing rules rather than create new ones.

Lastly, one could see energy union also in communications terms as a slogan! or a #tag or both. This helps unify the many initiatives, including e.g. 2030-framework actions, into a more cohesive policy narrative, in Brussels at least.


The scope of energy union risks being confusing as the formal work programme excludes much environmental rule-making and most competition matters. However due the significance of these later two policy areas, it helps to see them as at least overlapping with the energy union‘s work programme, for example as regards pollution from large combustion plants and the situation of Gazprom operations in the EU market. The key Commissioners certainly see these areas as relevant to or even a part of energy union based on public statements they have made.

Is energy union transformational?

It should be transformational but it isn’t so far. The global climate crisis and the linked need for our societies to exit fossil fuels over 1-2 generations, starting with coal, ought to make it a radical programme for change. However under its present leadership – not just the two EC principals, but the fractious debates and outcomes in all institutions, it’s far from there today.

More of the same only better. Hopefully.

Existing governance

Berlaymont flags outside

The Commission has released four working papers that list “existing reporting obligations” in energy and related EU policy fields. “Two hundred” such obligations were first cited by VP Šefčovič on 18 May, when he suggested some or all could be merged.

The obligations include both those upon member states to report to the Commission as well as obligations on the Commission to report to other EU institutions.

Access to these tables now presents a chance for interested parties, alongside officials, to consider which of the legal provisions listed may be candidates for “simplification” as the “energy union” work programme and related rule-making moves forward.

The EC’s cover letter stresses ~ and readers should be aware ~ that the tables are only work-in-progress and in themselves say nothing about any particular new policy.

I will only make my own analysis of the tables’ content after the summer break, which for me starts tomorrow. :-)


EU Energy Diplomacy Plan


Update 2.45pm: It has been pointed out to me that the June EEAS text was in fact rejected by Council delegations and subsequently re-written. The final July version can be found in an annex to Council conclusions on energy diplomacy, link below.

The 22 June Foreign Affairs Council endorsed an Energy Diplomacy Action Plan, which however still remains unpublished. In the interests of transparency, I post the 2.5 page text here. Also on 20 July, the same group of EU ministers drew conclusions on both energy and climate diplomacy. These documents are public via:


Five reasons EC power plan will fail

elec_newsdetail Those of you who know me know that I’m not sold on the idea of new EU electricity legislation. Why is it needed? Would Parliament and Council vote for it? What are the real motives of those who call for it?

Some EC officials have been talking-up the issue since at least 2011 but to my mind none have made a convincing case for any specific changes in the near term. Electricity is changing, for sure, but the third package rules adopted in 2009 are in my view still fit for purpose.

So, here below are my five reasons why I expect and predict that EC consultations launched tomorrow (15 July) will not result in a legislative outcome during this mandate (up to 2019 elections).

First, misplaced priorities. If Russia is our main concern, then our priority must be heat not electricity. Far more imported gas is used for heat than for anything else. Organising less use of that fuel, e.g. though improving building performance, is the most effective way to hedge potential supply disruptions from Russia or indeed anywhere else. Also, our import bills fall, balance of payments improve and we create more jobs at home.

Similarly if climate is our main concern (it is mine) then the priority should be organising steeper cuts in greenhouse gas pollution. Here the EC is at least on the right track, since the ETS legal proposal (amending act) will be adopted tomorrow too, with a further legislative proposal covering non-ETS sectors due early in 2016.

Second, too much generation capacity. The EC says the EU has around 135% of the generation capacity it needs today. In such an over-supplied market, with power demand at best flat and power prices falling, why do we need to invest in even more conventional plant? (Low prices is the main reason the legacy power industry is so grumpy.) Even after allowing for a decent adequacy margin plus improved interconnections, we need to organise targeted closures before pushing investment in conventional new build.

Ongoing application of the 2010 Industrial Emissions Directive will help to ensure the closure or more sub-standard coal plants (those choosing not to upgrade) particularly if the EC stays firm in the soon-to-be-adopted implementation rules.

Third, shared competences. Under the EU treaties, energy, environment and internal market are all shared competences, which means the power to act is divided among the Union’s institutions on the one hand and national administrations on the other. Europe can only act (make rules) when it makes a good case for doing so. The EC must apply the Treaty’s Article-5 principles (conferral, subsidiarity, proportionality) during the preparation of any pre-legislative Impact Assessment to show that EU action is really justified. This will be the point in the process where abstract theories meets political realities.

Fourth, the 3rd package is OK for now: Those advocating for a fourth electricity directive must say specifically what measures are NOT already provided for in the third directive of 2009. So far none have. All previous electricity directives have provided for flexibility by way of system services such as balancing (short-run) and capacity tendering (long-run). Demand-side measures were introduced explicitly in the 2nd electricity directive 12 years ago (now re-cast as Article 8) and strengthened further by the EED in 2012. The 3rd package does not limit the number and type of EU-wide Network Codes (EC-adopted tertiary rules) that can be adopted. Intra-day cross-border trading, an example cited recently by EC officials, is already being set-up within the framework of the 3rd package. It doesn’t need a 4th.

Internal market rules have always been complemented by competition rules. Those countries and companies cheating under existing common rules are already policed by DG Competition using different legal powers, the best example of which is now the state aid sector inquiry opened by Vestager in April. I often wonder how much COMP, ENER, SG and Cabinets really talk to each other. COMP is doing the most important work but often appears to be acting alone.

Finally, horses for courses: The 3rd electricity and the 2nd renewables directives may have been adopted in the same year (2009) but they are not the same thing. They have different purposes and different legal bases (read the long titles and preambles) and so should not be confused one with the other. While it’s not impossible in the future to merge a 4th electricity law with a 3rd renewables law, we must be clear about what goes in them. Only when we are sure what we want should we venture to legislate on it. In any case, news laws (including amendments to existing laws) needs a reasonable expectation of majorities in both legislative houses, which given the vagueness in EC positions today is far from certain.

I’m not against debate, and I’m not in principle against further harmonisation, rather the opposite. The EC consultations will help more people to see issues more clearly, which will help the EC itself to decide in this mandate on proceeding to a new directive/package or not. Given that “energy union” is said to be for the benefit of consumers, it’s a worry that the electricity part seems so far to have been captured by producers, some benevolent and some not. Let’s hope consumers get a proper look in before this debate about EU electricity is over.


EPS Failure


Recently a number of interest groups have called for “emission performance standards” (EPS) to be applied some large combustion plants across Europe with the aim of reducing or limiting the amounts of CO2 pollution that these installations could emit.

Such a move would be via an amendment to one or more of the exiting EU pollution control directives (ETS and/or IED). Typically the stated goal is to prevent new coal-fired power plants from being built and/or ensuring existing ones are closed where they do not use carbon capture and storage (CCS) equipment.

The impacts of any such rule-making would depend in practice on the specific scope (emission level, start date/s, size threshold/s etc.) and an EPS could also be applied to combustion plants using other less-dirty fuels such as ‘natural gas’.

Are these calls a good idea? The short answer is no. My reasoning is as follows.

Any legislative act by the European institutions first requires a legal basis in the EU treaties, the particular choice of which must reflect the primary purpose of the intended action. In the case of environmental protection measures, this means Article 192 TFEU.

However Article 192 contains two main options. Under paragraph 192(1) legislation is adopted using the ordinary legislative procedure in which Parliament and Council both decide and ultimately agree a common text by majority voting in each chamber. This provision is used today for most if not all environmental legislation.

However under paragraph 192(2) legislation is adopted using the special legislative procedure in which Council acts unanimously while Parliament is limited to a non-binding consultation. Given the difficulty of obtaining a unanimous Council decision and especially on contentious issues, Article 192(2) is rarely if ever used.

Nonetheless Article 192(2) lists the three areas where it must be used. These are:
(a) ecological taxation
(b) land-use and water resource planning and
(c) “measures significantly affecting a Member State’s choice between different energy sources and the general structure of its energy supply”.

It is I hope clear that any intention to effectively ban the use of unabated coal in large combustion plants across the Union would fall under paragraph 2. Consequently any single Council delegation wishing to continue using unabated coal within its energy mix could lawfully deploy a veto to prevent any provisions in that area from being adopted. Poland is not the only example of a delegation that, today at least, would not hesitate to use such a veto.

While EU environmental legislation adopted under 192(1) has led to the closure of many sub-standard coal plants, this has only been where the individual operators of those plants have chosen, usually for economic reasons, not to install the required air pollution control equipment that is available to be used. Under the IED regime, carbon capture continues to be regarded as not commercially available (instead it is said to be ‘an emerging technique’). In effect, until CCS is available, EU legislation cannot be require it to be applied.

Given that a single Council delegation could veto a prohibition of new or existing unabated coal plants via an EPS rule-making and that there are several who would do so, so there is practical zero point in attempting such legislation at least at the present time.

Much more important, at least for the next 2-3 years, is the legislative focus on a stronger and longer EU ETS regime and the carbon pollution pricing that flows from that. A proposal on ETS reform is now expected soon (probably 15 July).

EU only

This blog entry only discuss EPS at the European level. It does not discuss potential national measures to limit coal use – e.g. additional taxation, removal of operating permits, or national EPS – for which under EU law there is significant flexibility. Indeed Article 193 TFEU clearly allows member states, should they so wish and subject to certain conditions, to adopt more stringent environmental protection measures.


Electricity sector inquiry


Last week it emerged that Competition Commissioner Margrethe Vestager is proposing to investigate the various ‘capacity’ payments paid by national authorities to EU electricity generators. See e.g. Reuters report.

This is significant. If confirmed, it will mark a positive shift in the ‘electricity chapter’ of “energy union” plans announced by Vestager’s colleagues earlier this year. Then in February Šefčovič and MAC spoke of legislation on new (but as yet unspecified) electricity market arrangements being tabled in 2016, preceded only by a consultation exercise this year.

A sectoral inquiry is a necessary and more rigorous approach, since without a solid evidence base there could not be an adequate impact assessment justifying legislative proposals. The inquiry in effect provides the basis for internal market legislative changes to 3rd package common rules (and/or network codes) only to the extent these may be justified under the acquis. (And if none are justified then there’ll be no changes.)

The evidence gathered could (and should) also lead to specific case-by-case decisions under competition law in particular state aid, e.g. the 2-yr-old non-notified incompatible Polish scheme.

Overall the situation is similar to the energy sector inquiry (then electricity AND gas) in 2005-07 prior to the passage and adoption of the 3rd internal energy market (IEM) legislative package in 2007-09 and the conclusion of several company-specific anti-trust cases that ran in parallel. The difference now is that this inquiry will concern state aid issues (capacity payments) rather than anti-trust issues (structural unbundling).

So, what are the legal bases for such a move? First, Article 108(1) TFEU reads:

“The Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the internal market.”

It’s also worth reading all of Articles 107-109 if you have not already done so. Article 109 provides basis for Council to adopt/amend procedural rules i.a. which it last did in 2013.

Second, and more specifically, the 2012-14 ‘State Aid Modernisation’ (SAM) reforms under VP Almunia finally introduced an explicit provision for sector inquires into the basic state aid procedural rules. So Council Regulation 659/1999 Article 20a as amended now reads as follows:

State aid Article 20a new 659-1999Notable in this rule is the option to target some but not all countries (‘choice of addressees’) and the power to target specific companies (‘undertakings’) and associations as well as member states. DG Competition is already wrestling with a number of cases including those from France and Poland. An inquiry with the force of law will force the hand of uncooperative member states.

The new inquiry may be the first time that this new provision is used since its 2013 enactment. (However the FT reports today that a similar inquiry in the banking sector is under preparation (link).