Hinkley Point briefing

Following is the text of my two-page briefing sent to the European Commissioners (28 private offices) yesterday. It is also available here in PDF.

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At-a-glance: HINKLEY POINT C (HPC)

Mark Johnston, 28-IX-2014

UK PROPOSAL

Thirty-five years operating aid for two new 1600 megawatt nuclear units side-by-side at one location in Somerset, SW England. An index-linked fixed ‘strike’ price on all output at approximately double the current wholesale power price. Up to £17.6bn (€21.8bn) NPV total revenue to EDF spread across all UK customers. Loan/credit guarantee. Political shut-down guarantee. Options to vary & potentially increase operating aid levels after 15 and 25 yrs operation, without re-notification. HPC output = ~7% of UK power supply. Twelve-unit total programme around 35% of UK supply. In February 2013, VP Oettinger described the concept as “Soviet” (link).

OBJECTIONS

No tendering process

Infringement of electricity common rules (Art 8(1) of Directive 2009/72; ‘3rd package’) and therefore unfair exclusion of all alternative providers of those capacity options that continue to be permitted by UK consents policy under same framework rules (Art. 7, Ibid.) This includes e.g. gas-fired generation, which continues to be consented thus also demonstrating no market failure in (interconnected) UK power or gas markets.

Incomplete state aid notification, two aspects

First, UK policy is to give aid for upto 12 reactors, not just the 2 units in this notification. This includes two more (same-size, same-type) EDF-planned stations at Sizewell C, Suffolk. Second, a foreseen UK-wide radioactive waste transfer scheme, whereby some long-term risks of managing used nuclear fuel would be covered by the state, has still to be notified to COMP. This extra measure will, in effect, provide additional aid to HPC over its life-time.

No net greenhouse gas (GHG) reductions (i.e. no climate benefit)

(Cost-effective) GHG reductions in electricity sector i.a. are already provided for at EU level by harmonised emissions cap and trade scheme, EU ETS. Today’s ETS ‘carbon price’ already benefits nuclear for its absence of GHG emissions. This market-based reward is and will grow over time, both for existing and for new plants. The EU ETS law is an open-ended instrument with its current cap reaching zero GHG emissions around 2070. Granting aid to new nuclear (a mature technology) will, in GHG terms, only increase ETS allowance supply everywhere else, thus reducing the costs of burning fossil fuels in large installations, weakening key incentives for EU-wide change, and making no net contribution to the EU’s total GHG pollution cuts.

Substantial negative legal precedent with long-lasting damage to single market

HPC is a critical test case for Europe realising a harmonised single market or not. Long-term operating aid for new investments in mature energy technologies – nuclear, coal and gas – are already frequently mooted in other member states based on the proposed UK model. The key principle is if, following the Hinkley precedent, an MS can arbitrarily buy any large [low[er]-emitting] energy project, there would no longer be a single market to speak of in electricity, gas or carbon reductions. National governments would have taken over the role normally played by companies in judging the latters overall commercial strategies to provide energy.

EU LAW ISSUES

“Consistency, effectiveness and continuity” of EU policy and action

The above are obligations on all Union institutions under Article 13 TFEU. Under Article 17 TFEU the EC in particular “shall ensure the application” of the EU Treaties, laws adopted thereunder, and ECJ judgements. In other words, EC shall be the ‘guardian of the Treaties’.

Shared competences and uses thereof

Energy, environment and internal market (‘approximation of laws’) are all shared competences (Art. 4 TFEU). National decisions on energy mix necessarily must be in accord with common rules adopted at EU level. (Art. 4 TEU), i.e. “energy mix” is not as such a national competence. Moreover, in shared competences, national authorities may only act to the extent the Union has not already done so (Art. 2 TFEU), in particular in this case with regard to the IEM provisions and GHG emission reductions described above.

Euratom is not ‘carte blanche’ for subsidies

Article 2 Euratom states its tasks shall be carry out “as provided in this Treaty”. Chapter 4, entitled “investment”, in fact only provides for the Commission to issue illustrative scenarios and to monitor activities. Where Euratom makes no provision, the Union acquis applies, i.e. all relevant TEU and TFEU provisions, legislation adopted thereunder, and ECJ judgements.

Please do not abandon Europe’s internal energy market rules for electricity,
gas and carbon to rescue one expensive failing technology.

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Hinkley Point and South Stream are alike

Berlaymont buildingWhat is the job of the European Commission?

Often it is said to be the “guardian of the treaties“. While true, this is only a summary of the full job description (link) that includes upholding the rule of law as one of Europe’s fundamental values. The rule of law beats the rule of war.

In this context, law means also all the legislation and court judgements arrived at under the Treaties as well as Treaty provisions themselves. EU rules also have precedent over member state law.

So what happens when such a basic constitutional principle breaks down? Perhaps we are about to see.

South Stream

On 28 May, the Commission formally called for construction of the Russia’s South Stream gas pipeline project to be suspended (Conclusions, point 2) while key legal issues are addressed, in particular infringements of single market rules contained in the third energy package. The EC also opened new member state legal cases.

According to common market rules, use of gas transmission infrastructure across EU territory must generally always be open to competition. The EC can however allow certain exemptions for new pipelines on a case by case basis, after a project developer makes such an application.

The principle of non-discrimination means that, on EU territory, third-country firms and projects are treated by the same rules as those as those arising in member states.

So on South Stream, even if not supported by all member states, the Commission is essentially trying to do properly the job it has been assigned by member states (in the Treaties) and by the legislator (Parliament &/or Council).

Hinkley Point

Like South Stream, the proposed two new nuclear power plants at Hinkley Point in UK, will also infringe single market rules on the internal energy market, if the £16 billion mega-project proceeds on its present basis.

By its own admission, the UK gov’t has not respected chapter 3 of the electricity market common rules (Directive 2009/72) in particular by failing to conduct a tender in accordance with Article 8(1) of that law. This omission was already noted by the Commission last year when it asked the UK to explain its failure.

Unlike the rules for gas transmission described above, the tendering requirement in electricity generation is an absolute requirement with no possibility to use a derogation.

Almunia

During a decade in office Joaquín Almunia has been a effective Commissioner who typically strives to do his job well. When he leaves on 31 October, he will not want his political legacy to be as the man who launched the beginning of the end for the internal market for electricity, gas and carbon in Europe.

Such a legacy would arise not just by allowing chapter 3 of the electricity common rules to be set aside but also, more fundamentally, by accepting the implied principle that member states, third-countries and big companies can ignore EU common rules whenever it suits them to make large anti-market energy investments.

So a lot rest of Almunia’s game over the next weeks.

Oettinger

Compared to Almunia, Gunther Oettinger on the other hand has been less than impressive in five years as energy commissioner. Recent energy successes have been in spite of him rather than because of him. As Oettinger has the main responsibility for upholding the internal energy market rules, so in the case of Hinkley Point and its lack of tender, he could have chosen to inform the UK authorities as early as 2011 that the planned approach on Hinkley was incompatible with the common rules. He failed to do so and his omission puts the Commission in a more difficult position today.

Game over for single energy market?

The EC cannot credibly hold Russia to our single market rules if it allows EU member states to disregard the same rules. Gazprom will not hesitate to point out a Hinkley precedent in order to defend its monopolistic South Stream ambitions.

In the longer run, the precedent set by allowing Hinkley Point to proceed unlawfully will be catastrophically damaging for the rule of law across the whole European energy sector. It would unleash a free-for-all spending-spree among member state governments and effectively be game-over for the single energy market (electricity and gas) and render the ETS carbon market redundant.

Final EC decisions on state aid cases have no time limit, and so October (end of mandate) is an arbitrary deadline. Any decision effectively to keep or to abandon the single energy market is so big it must not be taken in a hurry. As a minimum, Barroso must hand the big questions of our energy strategy — including any ‘Hinkley precedent’ — to the new Juncker College for it to considered as part of the “energy union” project.

If however this college gets the Hinkley decision wrong, there seems little point in our retaining “guardians of the treaties” or in having a common market for energy. In that case, would the last person leaving the Berlaymont please turn out the lights?

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What is “energy union”? Part 1

fotosearch_electrician-standing-solar_k3800204_SMALL

So now a “resilient energy union with a forward-looking climate agenda” is on the table and a new EC VP is almost in the hot seat, we start to work-out what might go into such a thing. At the present time, certainly it’s far from clear. Since I expect I’ll post quite a few times about this set of questions, I’ll use numbered titles (as above). For Part 1, I simply share the key source texts in one place.

Treaties & legislation

First to note is that NOTHING substantially new has been published in the Official Journal*. The only relevant EurLex provisions are the Treaty provisions, as last amended by Lisbon five years ago, and all pre-agreed legislation, e.g. the 2009 third internal energy market package. (I’ll come back to the associated issues in a later post.)

“Strategic Agenda” 2014-19

On 27 June, EUCO agreed a strategic agenda” for the next five years, which it “invited” other institutions and MS to implement. The full PDF is here and the text of part 3 is extracted here.

All translations can be found annexed to conclusions of same date here. On the same day EUCO also nominated Jean-Claude Juncker as EC president.

Juncker’s political guidelines 2014-19

On 15 July, just ahead of his EP confirmation vote, Juncker (now President-elect) presented to Parliament his political guidelines also for the next five years. The full document in all languages is here and the extract re energy union is here.

Mission letters

On designation (10 September) Juncker sent a mission letters to each nominee. The letters do not add much to the main documents above, but they do help identify which Commission is charged with what responsibility, how the extended project team(s) fits together and therefore how “energy union” might fit in.

College mapping (‘Team Bratušek’)

Without forgetting Parliament and Council also have responsibilities for implementation of EU objectives (see Treaties etc. above), the Commission and in particular the Berlaymont becomes the first destination to discover or help arrange what ideas have half a chance of emerging into the daylight.

In that context, it will help to keep this College map at hand. The responsible vice-president will coordinate no less than seven portfolio commissioners and liaise with a further six. This means that, not even counting the President and first VP Timmermans, exactly half the College will be somehow involved.

Mission letters

On designation (10 September) Juncker sent a mission letters to each College nominee. The letters do not add much to the main documents above, but they do help identify in detail which person is charged with what responsibility, how the project team(s) may fits together and therefore how an “energy union” concept might form.

The Polish Non-Paper

Circulated informally in March this year, and subsequently supported by a PL PM Tusk speech in April, the Polish non-paper was the main pre-cursor document to the political texts cited above. Eventually Poland found the confidence to put the document on-line here in May.

Notre Europe’s Energy Community

Paris-based think-tank Notre Europe first floated the idea of new initiatives on energy in this 2010 study.

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* Often in the EU institutions, unpublished texts are referred to by the appropriate technical term “blah blah blah” (BBB). ;-)

The President’s brain is missing

juncker_brainPresident-elect Juncker today enacted a long-rumoured move to combine the Climate Action and Energy portfolios in the new European Commission.

There is no strategic rational for this and, if confirmed, it reduces our capacities to respond adequately to the global climate crisis both at home and abroad.

With the merger of the environment and fisheries portfolios, environmental protection overall has also been weakened by the new line-up.

Everywhere else in the European political arena environment and energy matters are with good reason handled separately. Greenhouse gas pollution and energy systems are quite different phenomena and so are measured and regulated in different ways.

In the Treaties, there is an environment chapter and there is an energy chapter. The environment chapter was specifically amended by the 2009 Lisbon treaty so as to make explicit reference to climate change and to frame this as an global issue.

The energy chapter, introduced only in 2009 also by Lisbon, is recognised as being the weakest of all treaty provisions governing European energy systems, that also includes e.g. provisions on single market, competition, free movement of goods and research.

In Parliament, there are two well-established committees, one for each set of issues. In the Council of Ministers, there two well-established ministerial configurations, one for each set of issues. In neither institution is there any suggestion of changing these arrangements.And in the Court of Justice, cases will judged in both areas on their respective constitutional provisions, which may be similar (both shared competences) but are not the same, as well as specific legislative acts.

Today’s wrong-headed move therefore will only create more confusion, further slow climate action and make Europe’s overall response to the global crisis weaker. Moreover, Miguel Arias Cañete, the Spaniard nominated to lead the new combined portfolio, will — if for other reasons he survives Parliamentary scrutiny — find himself facing twice the amount of inter-institutional and external representation and double the amount of interest group lobbying.

This could however be mitigated with the help of the new vice-president Slovene Alenka Bratušek for an as yet undefined “energy union”.

With the possible exception of energy savings, Juncker’s mission letters to Bratušek and Cañete are vague, leaving agenda priorities still to be determined at a later date, for example in next month’s European Council.

People matter most

The failures of the second Barroso commission to make adequate headway on the climate crisis were mostly down to people and not structure.

Barroso was first and foremost for ten years a weak president, disinterested in environmental issues, and toadying-up to the European Council (of which formerly he was a member) instead of leading an independent institution as guardian of the treaties. Juncker may lack excitement, but he is a little more his own man than Barroso was.

Second, the odd couple – Hedegaard and Oettinger – were never a team and generally set-out to undermine each other. Both were sent to Brussels by national leaders that for domestic reasons wanted to get rid of them. Both were conservatives too. In the case of Oetti, this meant he was simply captured by German heavy industry, while Hedegaard was too conservative to take any real risks or speak truthfully about the seriousness of the climate situation. She also to some extent was steered by Danish energy priorities.

Third, and less obvious but perhaps most important for climate as a global threat, the new External Action Service since 2009 has also had weak leadership and an agenda crowded-out by short-run crises such as the Iranian nuclear stand-off. Even though EU foreign ministers gave EEAS a mandate for climate diplomacy, so far it has hardly used it. With the continued failure of the technocratic UNFCCC to reach any meaningful agreement on its ultimate objective (Article 2),  the only way to change this dire outlook for the world will be with concerted efforts in the international diplomatic arena.

The ghost in the machine

But who is to blame in the Berlaymont for Juncker aiming so low today? The rumour of a potential CLIMA-ENER merger has been going around for years, long before Juncker was ever mooted for the job he is now about to assume.

Previously I thought the merger idea was a deliberate false rumour by BUSINESSEUROPE (or some such bad-guy outfit) as a way to damage DG CLIMA’s influence. While this may still not be untrue, I think now the main culprit is the EC’s long-serving secretary general Catherine Day.

Previously the director general for DG Environment, in the days when it was responsible for climate action, Day has been in the SG hot seat for almost nine years, two years long than the maximum allowed under the Commission’s own senior staff rotation policy.

Day has already been accused by others this year of being the main mover behind shaping the inconsistent and inadequate 2030 climate-energy framework proposals tabled in January and in particular for her preference for climate measures (such as ETS) over energy measures (such as efficiency or renewables).

Day will retire from her post next year, leaving Juncker and his colleagues to manage her legacy. Recovery in a policy sense from the Barroso-Day years will take time. Meanwhile the extent to which Juncker and his new colleagues might act in teams and might think for themselves remains to be tested in the months and years to come.

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EC secret-voting policy revealed

juncker132~_v-videoweblThe European Commission has recently “declassified” its internal policy on secret voting and keeping “special minutes” in which such votes are recorded.

Unchanged since its adoption by the Prodi Commission in 2000, the in-house policy document can accessed here for the first time publicly, albeit only in French.

There is no change in the institution’s policy of confidentiality, so far at least. Results of individual votes remain secret, as does (normally) the fact of votes occurring.

Treaty does not require College voting secrecy

The choice to maintain voting secrecy is however one made by Commissioners alone. Each incoming College assumes the policies of its predecessor unless it decides differently.

Treaty provisions do require the College to decide matters if necessary by majority voting (Article 250 TFEU) and to adopt rules of procedure (Articles 249).

However it is only within these self-determined procedural rules, first adopted in 1963 (link) and renewed most recently in 2010 (link) that the policy basis for confidentiality in the College is today maintained.

Public access to 9 April voting record denied

In April this year, the College adopted new state aid guidelines covering environment and energy. The public minutes (link) record only that the President “noted that a majority [...] supported the approach put forward by Mr Almunia“.

Yet in reality the voting result was 18 for, 1 against, and 3 abstentions, according to the Vice-President’s remarks in the press room later the same day and also broadcast on EBS.

Subsequently, while the EC’s secretariat general confirmed the special minutes for the 8 April College did record a voting result on the state aid file, it refuses to release the document which records what the vote’s outcome was in any detail.

Roll-call votes?

Roll-call votes are normal for new EU legislation, in Parliament for MEPs and in Council for national delegations. Why is it not so also in the Commission, at least for legislative and major policy proposals?

One answer maybe that individual Commissioners could come under greater pressure to be influenced by the national administrations that first nominated them. (E.g. “If you don’t support our national line then no more patronage when your current term of office is over!“)

While I have some sympathy for such a claim, each and every new commissioner has pledged an oath before the Court of Justice not to take any instructions and only to act in the common interest.

However, even if a Commission decides roll-call votes should be kept confidential, I see no reason why only the numerical voting results (such as in the Almunia example) cannot normally be made public by inclusion of this data in the ordinary minutes rather than kept secret the special minutes.

A new mandate, a new openness?

I think these issues are worth discussing by the wider EU policy community. Surely it is a significant anomaly that Parliament and Council normally vote in public while the Commission votes in secret. Europe would function better, progress further and be more accountable if the Commission and indeed all institutions operated more openly.

As I’ve shown, the Commission is not bound to be secret, it is its own choice. At the time of a new incoming College led by Jean-Claude Juncker from 1 November, isn’t now the best moment to start afresh?

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Ed Davey says not thief-in-waiting

Davey DECC has replied to my 17 July question Is Ed Davey a thief in waiting? The letter says the UK is not advocating the confiscation of private property by way of cancelling ETS allowances already in market circulation. Full text herewith. Screenshot 2014-07-31 at 1.36.45 PMSome questions remain however.

First, why did the UK issue a vague policy paper when it could (or should) have issued a clearer one? Existing ETS allowances owners would have been reassured their property will retain its value. In turn, those in EU institutions could not be asked to vote against ETS reforms based allowance owners’ fears of being cheated.

Second, if the allocation of fewer ETS allowances needs new legislation (as most expect) wouldn’t it be helpful to say so now in clear terms so that different specific options can be compared?

  • For example, is the UK concept compatible with the EC proposal for a Market Stability Reserve (MSR)? (I suspect not.)
  • Is the EC MSR plan the right instrument with the wrong parameters? (I suspect so.)
  • How do the years up to and then after 2020 relate to each other?
  • Could the Linear Reduction Factor (Article 9) be adjusted in effect to soak-up the surplus in the market and if so from when?
  • Will UK table MSR amendments in the Council working group? If so saying what precisely?
  • What new legal provisions are best left for the main legislative proposal to be tabled in the new mandate?

Finally, if the UK reconsiders and changes its position, will it revise or replace its 16 July policy paper? I hope so.

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At-a-glance: Italy Council agendas

event-cat-council-sessions

Lasting until end 2014, the Italian presidency of the EU Council of Ministers follows a familiar pattern. The main meetings and main agenda points at each are listed below, based on a longer Council source document here.

Informal ENERGY Council, 6 October, Italy

  • Agendas for informal Council meetings are not published in advance. Italian presidency website here. The informal Environment Council was on 16-17 July.

EUROPEAN COUNCIL, 23-24 October

  • 2030 framework

ENVIRONMENT Council, 28 October, Luxembourg

  • Climate UNFCCC COP21 Lima - conclusions
  • Greening European Semester & Europe 2020 strategy – Exchange views/conclusions
  • (AOB) 2030 framework – follow-up to EUCO 23-24 Oct

ENERGY Council, 9 December, Brussels

  • 2030 framework – policy debate
  • Internal Energy Market – conclusions
  • Europe 2020 – mid-term review
  • External relations – info from presidency & EC

ENVIRONMENT Council, 17 December, Brussels

  • Maritime MRV Regulation – political agreement
  • Waste Package – orientation debate
  • Post-2015 Development Agenda – public debate
  • (poss) Plastic Bags Directive – political agreement
  • (poss) Medium Combustion Plants Directive – general approval
  • AOB – NEC Directive – International – Incoming Presidency