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Tusk’s rude awakening

What's coming for Tusk's energy union? | European Commission

Tusk’s rude awakening

The energy union as we now know it is far from Donald Tusk’s initial pitch. It’s a turf war between states, sector and Commission that’s bound to happen.

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4/20/15, 4:46 PM CET

Updated 6/2/15, 9:56 AM CET

Exactly one year ago, Donald Tusk, then Poland’s prime minister, called for an energy union to break Russia’s energy stranglehold on Europe — but the scheme now being promoted by the EU is very different from what he had originally suggested.

The EU’s current policy retains little of Tusk’s grim warnings about being too dependent on Russia, and his language extolling coal and shale gas has been slashed. Instead, the text says, “we have to move away from an economy driven by fossil fuels and shale.” But Tusk can claim at least one victory — energy policy is all about reducing dependency and diversifying, which means that Russia’s importance is set to shrink.

Writing in the Financial Times on April 21, 2014, Tusk made it clear he was driven to act by the growing threat from Russia, which had just annexed Crimea and was fomenting trouble in eastern Ukraine. “One lesson is clear,” Tusk wrote, “excessive dependence on Russian energy makes Europe weak.”

His ideas revolved largely around breaking Russia’s gas monopoly, developing a mechanism to jointly negotiate energy contracts with Russia, better linking gas networks and bolstering gas storage, encouraging gas deals with other European neighbors and emphasizing the “full use” of fossil fuels.

Although Tusk’s idea grabbed headlines, his ideas weren’t new to Brussels insiders. Concepts like joint gas buying or mandatory transparency of energy agreements had been floated before but hadn’t made it past EU countries, which had pushed back on Brussels attempts at greater centralization.

“There’s nothing in the proposal that can be considered totally new or unknown,” says Walter Boltz, deputy chairman of the Agency for the Cooperation of Energy Regulators (ACER), a body aimed at completing the EU’s internal gas and electricity markets.

Tusk has in the meantime gone on to become president of the European Council, leading to a first formal commitment to the energy union by EU leaders in March. While many of his ideas did not fully survive their first encounter with his former EU peers, the Commission has used the scheme to try to seize more power from national governments.

“Every bureaucratic institution wants to grab ever more competencies,” says Boltz, adding “of course it’s about centralization.”

While supply security and infrastructure still feature prominently in March’s energy union strategy, the concept now also includes priorities such as reducing energy demand and decarbonizing the bloc’s energy mix.

Still, that strategy is merely a top-level paper structured in a way to avoid ruffling feathers. It leaves out crucial questions related to governance and enforcement, especially how to implement the target of reducing emissions by 40 percent over 1990 levels by 2030. That is a politically thorny issue for a country like Poland, which still overwhelmingly relies on coal to generate electricity.

The Commission now has to follow up with concrete proposals, expected after the summer, something likely to open rifts between EU countries. Suggestions include empowering ACER, introducing greater transparency in storage use, or allowing the Commission to check energy agreements with external suppliers before they are signed. Those steps would promote greater energy policy coordination, strengthen the Commission and weaken national control over energy policy.

However, that would revive a long-running conflict between northern and western Europe and their newer central European counterparts. In the former Soviet bloc, energy policy is largely about security from Russia and access to cheap energy; the wealthier half of the continent is more interested in climate and environmental policies like CO2 abatement, renewables and energy efficiency.

The current push for an energy union is also necessary, Boltz adds, to actually complete the internal market and for the Commission to more forcefully press the application of agreed energy rules aimed at liberalizing markets. “Across the EU, member states haven’t implemented even fundamental rules at times,” he says.

While collective commitments by EU leaders in March broadly reflected Tusk’s original suggestions, they also showed what concepts were or weren’t acceptable to national capitals as well as adding a host of other energy policy priorities.

In one case, global climate talks in Paris at the end of this year drove a push to include stronger wording on the issue.

The joint gas purchaser now features as a voluntary option only. West European countries including Germany and the United Kingdom had been skeptical about its compatibility with free market principles.

An industry source told POLITICO that the west European energy industry had solid long-term contracts with Gazprom, and so neither needed nor wanted greater Commission involvement in their business dealings. By contrast, some CEE governments and energy companies hoped the Commission would increase their bargaining power against the Russian company.

According to ACER’s Boltz, the joint gas purchasing facility is a regional option “for countries that feel they can be blackmailed by Gazprom,” but a mandatory Europe-wide facility “was from the start never realistic.” West European countries and their energy companies wouldn’t need to resort to joint purchasing to deal with Russia, he explains, being less dependent on Russian gas.

EU leaders however did sign up to greater transparency of gas contracts with external suppliers to ensure compliance with EU rules. Because of concern in countries like Germany, Hungary and Greece, wording was carefully adjusted, evolving from “safeguarding” the confidentiality of commercially sensitive information to “guaranteeing” it.

A source close to the Commission told POLITICO it is still unclear how the Commission aims to guarantee commercial secrets if it can’t even prevent frequent internal paper leaks.

Still, the energy union proposal has been broadly welcomed by industry. A greater focus on diversification toward Europe’s Mediterranean neighborhood — the destination of frequent trips by Energy Commissioner Miguel Arias Cañete — also brings commercial opportunities. “Africa is an energy-rich continent only few miles away from Europe’s shores. It’s affordable and it’s available, it’s now for us to make best use of this great opportunity,” CEO Claudio Descalzi of Italy’s ENI writes in an emailed statement.

The agenda now before the EU differs sharply from what Tusk suggested a year ago. The next months will show if the energy union is simply a more glamorous brand for a slightly upgraded status quo, or if it will usher in a new energy policy era for the bloc — and weaken Russia’s grip on EU energy markets, which was Tusk’s goal all along.

Authors:
Kalina Oroschakoff