52011SC1023

The Commission Communication "Energy 2020 - A strategy for competitive, sustainable and secure energy" highlighted the need to strengthen the external dimension of the EU energy policy as one of the key priorities in the coming years. A coordinated, efficient and prioritised external energy policy is necessary to pursue Europe's energy objectives and interests.

The Commission initiated on 21 December 2010 a public consultation[1] on the external dimension of the EU energy policy in order to seek stakeholders' views on possible priorities and initiatives in this field.

A total of over 90 contributions were received. These came from a wide range of interested parties. Seven Member States responded, together with four regulators' associations and two Transmission System Operators. Furthermore, contributions were submitted by industry players and associations, NGOs, think tanks, social partners, individual citizens, academia, and consumers' associations.

In addition to the formal consultation process, targeted discussions were undertaken with a number of stakeholders. A specialised event was organised on 6 April 2011 by the Commission services, bringing together external energy and foreign policy experts to debate key challenges and policy options for the EU external energy relations.

The following sections of the document summarise the views expressed by stakeholders throughout the consultation process.

1.           Integrating energy markets and regulatory networks with our neighbours

Question 1: Should the EU promote further energy market integration and regulatory convergence (notably as regards energy market regulation, environmental and safety standards) with its neighbours? Is there a need for a differentiated approach between the Eastern and Southern neighbours or between countries?

The majority of contributors expressed the desire for further energy market integration and regulatory convergence in the EU's neighbourhood and beyond. Most acknowledged that cross-border investment and trade can flow more easily with compatible market rules, strengthening energy security in Europe.

There was a broad agreement that a stable, reliable and transparent legal framework was required in third countries and for the EU approach towards them. This would ensure the necessary conditions for EU investment and its protection in third countries. A sizeable number of contributions drew attention to the need for compatible environmental and safety standards in the neighbourhood, in order to ensure a true level playing field.

Regarding electricity markets, a number of contributions mentioned the need for a common approach on issues like capacity allocation, congestion management and balancing frameworks, based on the principles of liberalized markets. Another suggested solution was for imported electricity to be traded through power exchange mechanisms that "filter away" energy produced under environmentally unsound conditions.

A substantial part of the contributions pointed towards a differentiated approach to promoting the energy-related acquis in the Eastern and Southern neighbourhood. Political environment, legal heterogeneity, energy policy, degree of energy market liberalization and availability of domestic resources were underlined as criteria influencing the approach with each country.

It was noted that the EU is in a position to assist third countries with regulatory, financial, training and R&D programs. It is necessary, however, to better explain the EU's offer, as well as to increase synergies with other institutions active in the region, in particular with the European Bank for Reconstruction and Development (EBRD). It was suggested that cooperation with neighbouring countries be based on three thematic dimensions – general security, innovation and market access. Specific cooperation instruments could include: (i) energy innovation pacts, (ii) efficiency and sustainability partnerships, (iii) bilateral renewable energy platforms, and (iv) twinning projects.

Most of the contributors acknowledged the Energy Community Treaty (EnCT) as the best available instrument for collaboration with external partners, to drive infrastructure expansion to the East and South of Europe and raise environmental standards. Full accession of Turkey and Georgia was mentioned as a short-term priority, whereas a medium/long term aim would be the extension to Armenia, Azerbaijan, Belarus and countries in the Middle East and North Africa (MENA) region. Some respondents argued that the EnCT should include market integration as a goal, rather than a recommendation. Others believed that it must integrate clear procedures and new acquis on renewable energy sources and the third energy market package. The existing collaboration between regulators should be continued, a number of stakeholders answered, as information exchange and twinning projects have been successful so far.

States without free trade agreements with the EU should be supported to adhere to WTO rules and to make use of structures like the Eastern Partnership or the Energy Community Treaty. Respondents acknowledged that third countries cannot be pressured, but can be supported to voluntarily adopt the EU energy acquis, should they consider it necessary.

Question 2: Should the EU take concrete actions to foster greater investment in renewable energy sources in its neighbouring countries? What actions?

Many stakeholders agreed that the EU should promote investment in renewable energy sources in its neighbourhood, particularly in the MENA region and also in countries like Russia. Such action would stimulate the EU energy industry, contribute to reaching the 2020 goals in a more affordable manner and strengthen the Union's energy security.

Some respondents noted that by promoting decarbonisation agenda abroad the EU will expose itself to higher energy prices and related domestic political pressures. Others emphasized that that renewable energy generation is less politically sensitive than fossil fuels and, consequently, collaboration might enhance trust between the EU and its external energy partners.

Another view was that primary focus must be on the EU's internal potential for renewable energy, particularly solar energy in the Iberian Peninsula and offshore wind power in the UK, complemented with some degree of cooperation with neighbourhood countries (e.g. dissemination of best practices and R&D results in the field of renewable generation).

To promote investments in renewable energy in the neighbourhood, several challenges were outlined. Most notable was the necessity to provide a common legal ground, based on the EU Renewables Directive (2009/28/EC). There was a clear message that greenhouse gas emissions reductions and renewable generation projects in third countries need to count towards the Member States' sustainability targets. Enhanced transmission possibilities, especially interconnection capacity, are also needed.

Large investments in renewable energy generation in the neighbourhood countries could only take place in the long-run and would require non-discriminatory treatment for investors, regulatory coordination, as well as convergence of environmental and safety standards. A number of contributions also emphasized that due to high costs entailed by renewables and due to economic possibilities of neighbouring countries such projects should be initiated if proven profitable for both sides in the short and long-term. It was highlighted that diminishing regulatory risks associated with renewable generation can act in the same way as financial incentives, by reducing the risk premium paid for investments. Concrete activities such as training of electricity experts or twinning projects, through the Technical Assistance and Information Exchange Instrument (TAIEX), and collaboration with the Association of the Mediterranean Regulators for Electricity and Gas (MEDREG) and MEDELEC (the Liaison Committee of Electricity Associations around the Mediterranean Basin) were considered as useful to promote regulatory cooperation and common projects. It was also suggested that a decarbonisation provision be included in the acquis covered by the Energy Community, so that it can better frame investments in renewable energy.

A few respondents indicated energy efficiency as a priority for strengthening economic competitiveness in the neighbourhood. Others saw energy efficiency as a natural complement to renewable energy, needed to ensure sustainability both in the EU and in the neighbourhood. Insulation of buildings, efficient appliances and more efficient transport were the types of measures highlighted.

Financial support from the EU for renewables-related investments in the neighbourhood was considered by many respondents as contingent on the existence of a common legal framework. The stakeholders suggested that the EU ought to ensure more support via the European Investment Bank (EIB) and the EBRD, in order to develop small-scale, distributed renewable generation in the neighbourhood. The European Neighbourhood and Partnership Instrument (ENPI) should be used to move renewable energy and energy efficiency projects higher on the agenda of international financial institutions. Potential financial instruments that were suggested included an EIB investment fund for initial investments, a feed-in-tariff scheme for EU imports from solar thermal electricity plants in MENA countries, guarantee bonds for "first-of-their-kind" projects in case investors do not wish to assume the risk, binding contributions for bankable projects, and public-private partnerships with EU utilities. The latter would have the EU rather than individual Member States as the public counterpart.

2.           Strengthening partnerships with energy suppliers and transit countries

Question 3: What measures should the EU take to reinforce and focus its partnerships with key suppliers (of hydrocarbons and other energy sources) and transit countries? What should be the focus of such enhanced partnerships? (What countries? What topics?)

A considerable number of respondents suggested that Europe's long-term reliance on fossil fuels needed to be clearly reaffirmed in order not to mislead energy suppliers. As the oil market is global and fairly liquid, it was suggested to focus on enhanced partnerships on the provision of natural gas, as the EU is within commercial reach of around two thirds of known resources. Others noted that oil security is just as important as natural gas and electricity security.

Many contributions advocated that the role of the EU is to promote a reliable legal and institutional framework in order to achieve mutually advantageous relations with its main energy supplier and transit countries. Furthermore, stakeholders urged for reciprocity in bilateral relations to ensure access for the EU to upstream resources in third countries and access to the EU market for third countries.

Even though national bilateral arrangements are the basis for cooperation, a few stakeholders indicated that the EU should step in to eliminate common barriers to investment and trade. While most of the respondents were of the opinion that markets and companies should be the motor of the EU energy security, they also admitted the role of foreign policy. The European External Action Service (EEAS) needed to gain weight in ensuring coherence between political dialogue and legislative provisions with energy suppliers and transit countries, it was stated. Additionally, a common energy crisis management system was advocated for.

A number of stakeholders indicated that the EU should further promote existing multilateral frameworks. The Energy Charter Treaty (ECT) modernisation can be used as a platform in this respect. WTO accession for suppliers that have not yet joined should be supported by the EU, stakeholders generally agreed.

Priority should be given to efforts to stimulate export capacity in neighbouring countries, including in the Southern Mediterranean region. To deepen relations, the EU should offer Russia, the Organization of Petroleum Exporting Countries (OPEC) and other important regions for oil supply (West Africa, Iraq, Kazakhstan) a bundled package of energy and broad economic development related measures, it was underlined. There was a broad agreement that the EU-Russia Energy Dialogue and the Early Warning Mechanism are examples of good practice, which should be extended to other countries and regions.

The renewed European Neighbourhood Policy should leverage closer relations with countries in Central Asia and South Caucasus. Private initiatives for development of gas import routes within the Southern Corridor were considered of high importance. Furthermore, LNG suppliers are gaining importance for EU supply diversification.

Stakeholders identified Ukraine and Turkey as main transit countries, noting that their effective integration into the Energy Community was necessary.

Whereas some stakeholders advocated that no derogation should be made from the rules of the EU internal energy market (on transparency, liquidity, free transit and investment), others acknowledged that key suppliers of hydrocarbons will inevitably require some flexibility.

Importance of transparency to reduce corruption in resource-rich supplier-countries was underlined and support was expressed for the EU to adopt an equivalent of the EITI,[2] requiring listed oil, gas and minerals companies to declare accurate values of financial flows between them and governments of the countries they operate in.

Question 4: How can the EU best support complex infrastructure projects outside the EU that can contribute to enhancing the EU security of supply and diversifying its supply sources and routes? For instance, should the EU seek to coordinate or be party to intergovernmental agreements (IGA) which concern projects of European interest?

Most of the contributors saw the EU as a provider of knowledge, funding and/or political support for complex infrastructure undertakings outside its borders. At the same time, a number of respondents thought that the EU should focus on internal interconnections to match already existing external infrastructure and only then on promotion of new projects. There was a clear call to further strengthen the role of the private sector in materialising complex external infrastructure projects. This was seen as closely intertwined with the need for transparent investment laws in supplier/transit countries, thus facilitating a level playing field for effective competition.

The EU could sponsor construction costs but should not contribute to commercial risk mitigation, several stakeholders agreed. While the rule of thumb for such infrastructure projects is to find financing on the market, there was a general view that the EU could provide funding if a number of conditions are fulfilled (compliance with the related EU acquis, ensuring individual Member States' interests, accounting for the public good value of the infrastructure concerned, difficulties in accessing other funds, and no market price distortion due to such support). Finally, the EU was called upon to encourage the EIB to provide additional funding for infrastructure projects, which were seen as a way to address the impacts of the current economic downturn.

Different views were expressed regarding the EU involvement in negotiating intergovernmental agreements. The most prominent was that the Union ought to become party to agreements regarding the free passage of goods and long-term guarantees, but not become involved in commercial agreements between companies. Others were of the opinion that rather than becoming party to intergovernmental agreements, the EU should act as a mediator. A third suggestion was a supervisory role for agreements referring to supply/transit routes diversification, under a common set of rules. Finally, a few stakeholders declared themselves satisfied with the current state of play regarding the EU's involvement in agreements for complex external infrastructure projects, noting the provisions on information exchange of the recent Gas Security of Supply Regulation.

The Southern Corridor and particularly Nabucco were regarded by many stakeholders as priority projects to secure gas imports into the EU. Stakeholders believed that the EU should act to neutralise political rivalries between major external infrastructure projects, and noted that visits of high-level EU officials to the countries concerned have already lead to positive results. Part of the respondents called for centralized EU energy raw materials procurement, to achieve synergies from large scale purchases. In this respect, the Caspian Development Corporation model of a single purchaser of gas from Turkmenistan was generally supported, even though a few contributions felt its' concept contradicts market principles.

Opinions regarding the development of the Mediterranean Energy Ring diverged, as some stakeholders insisted it was not financially feasible, while others believed it would be a cornerstone for grid stability in the region. A few responses asked for caution regarding increased interconnection with Ukraine, Belarus and the Kaliningrad region of Russia.

Some stakeholders were of the opinion that to be sustainable, future electricity grids should be extended and made to incorporate low carbon sources. Not only would this strategy permit the EU to enhance electricity security, but also to export new technologies, spearheading a global grid upgrade. A few players suggested that building the interconnections with the Southern Mediterranean region can only be mediated via intergovernmental agreements, setting the framework for cooperation between the Agency for Cooperation of Energy Regulators (ACER) and local regulators, and between grid operators.

Complex infrastructure should not diminish energy security of the third countries concerned, nor should they harm human rights, social development or the environment. A few stakeholders considered that several external large projects had a strong impact on such aspects. Additionally, others drew attention to the need to enhance public acceptance of such infrastructure projects.

3.           Promoting the EU role in setting the global agenda for safe, competitive and low carbon energy

Question 5: What focus should the EU give to its energy cooperation with major consuming countries? In what topics and countries could the EU action bring most added-value?

The shift towards a low-carbon economy is seen as unavoidable in the long-run. The EU should take advantage of its advanced legal and institutional framework to speed up the process and to be in a position to promote, export and exchange best practices with large economies and developing countries. Among the most frequent examples mentioned were the development of an international market for carbon offsets and the export of demand management measures. By reaching out to the world's largest energy consumers, the EU would contribute to creating of appropriate global measures to tackle climate change.

The main energy consumers mentioned in the responses were: Brazil, China, India, Japan, Russia and the USA, as well as Sub-Saharan Africa and countries in South America. The predominant view was that energy collaboration with these countries ought to be focused on promoting clean technologies, energy efficiency measures and related know-how, with the aim of diminishing and decarbonising energy consumption and at the same time avoiding carbon leakage. Equally important, these collaborations could stimulate the EU energy industry and contribute to bringing forward commercial maturity for the technologies in question. Progress could be even more rapid should the EU also promote its environmental standards in these countries.

Several voices advocated that the EU lead by example and establish an international platform for technology and R&D-related cooperation, focusing on renewables, energy efficiency, low carbon technologies (such as CCS), as well as nuclear generation.

The EU should be prepared to invest in local low carbon energy production in order to stimulate initiatives in developing countries, including by redirecting funds from fossil-fuel projects. The Kyoto Clean Development Mechanism and Joint Implementation instruments are investment channels that may be used to invest in developing countries for the mutual benefit, and the EU should support their prolongation, it was stated.

With the US in particular, one of the main collaboration topics should be shale gas development. For cooperation with China and India, renewables and low carbon technologies were deemed as the most important issues. Another suggestion was to prepare a policy in response to Chinese energy agreements with countries in the Caspian, Central Asia and Africa. For African countries, energy access issues were considered as the most relevant topic. In Brazil, Mexico, Argentina and Colombia, new oil discoveries and ever growing energy consumption may materialise into an opportunity for the EU oil extraction industry. At the same time, diplomatic efforts were seen as necessary minimise protectionism in these countries.

Question 6: Should the EU take action to increase its collective weight in global energy discussions and in international organizations and initiatives dealing with energy? How?

There was general consensus that the EU should enhance its weight in global energy discussions and become a normative power with regard to promoting energy efficiency and low-carbon technologies. Promoting sustainability in this way should not penalise specific carbon-intensive technologies too severely.

A considerable part of respondents believe that credibility will naturally come with the EU leading by example – by living up to international commitments, especially in relation to climate change, implementing the "20:20:20" strategy, consolidating its leadership role on the low carbon technologies and distributed generation markets, and its successful energy R&D.

The more coordinated and non-contradictory its actions, the clearer will Europe's voice be heard. Equally important, it was recalled that single-handed EU commitment to mitigate climate change is not sufficient. To this end, efforts are required to engage the rest of the world on the same track. To fulfil its climate leadership ambition, some respondents argued that the EU should promote natural gas as a relatively "clean" fossil fuel and CCS.

The EU needs to stay involved in a variety of international organizations in order to stay abreast of the emerging energy issues and be in a better position to address them later. The main international fora with which the EU should reinforce its involvement are: the Energy Charter (ECT), the International Energy Agency (IEA), G8 and G20, the International Energy Forum (IEF), the International Atomic Energy Agency (IAEA), the International Partnership for Energy Efficiency Cooperation (IPEEC), the International Thermonuclear Experimental Reactor (ITER), and the International Renewable Energy Agency (IRENA).

Some respondents underlined the ECT as the best channel for the EU to disseminate its energy acquis abroad. It was also added that the United Nations Development Programme (UNDP) or the United Nations Environment Programme (UNEP) should be used to disseminate best practices in least developed countries. Relations with the IEA were highlighted as necessary to attain robust data, build accurate scenarios and, consequently, take proper policy decisions.

Financial support was also mentioned as a way to increase the EU's weight in international energy fora.

Question 7: What initiatives could help the EU promote nuclear safety, security and non-proliferation standards globally?

There was a general agreement that the EU's nuclear safety standards are very high when compared to the existing global references and that these should be promoted widely, together with EU best practices and related technology. Some contributions expressed caution and encouraged a step-by-step approach, as there is wide global divergence on the topic of nuclear energy.

Legally binding international commitments on nuclear safety and non-proliferation standards ought to be in line with the objectives of the EU Energy 2020 Strategy and the existing and legislation. When promoting its own standards, the EU should take into account WENRA[3] objectives for new reactors, together with Euratom and IAEA provisions. It was stressed that useful work should not be duplicated, but integrated in the EU strategy. In this sense, more use of ENSREG, ENSRA and ESARDA[4] frameworks as well as the Instrument for Nuclear Safety Cooperation and the Instrument for Stability was encouraged, together with promoting international conventions (UN Espoo, the Nuclear Safety Convention of the IAEA and WENRA).

These efforts should be done in conjunction with promoting a low carbon energy paradigm, especially since there are parties who see nuclear energy as a major solution for greenhouse gas emissions reduction. This is especially relevant as countries with growing energy consumption in Asia and Latin America show themselves engaged in nuclear initiatives and should be persuaded to adopt the highest standards. Russia and countries of the Commonwealth of Independent States (CIS), which already have a substantial nuclear fleet, should also be encouraged to upgrade their existing nuclear safety and security standards along the entire nuclear fuel cycle to the international level.

R&D partnerships were also commonly desired solutions, especially in collaboration with countries like the US, Japan and South Korea. The US model of smaller, more geographically distributed reactors was regarded as a proposition that the EU should promote. In addition, it was suggested that alternative fuels, such as thorium, are tested with a view to reducing costs and increasing safety.

A few respondents specifically thought that the EU should establish a minimum nuclear technology requirement for its internal energy market, channelling its attention away from third and towards fourth and fifth generation reactors.

Finally, on non-proliferation, one of the suggested measures was for the EU to halt exports of nuclear technology and services to countries that did not sign the Non-Proliferation Treaty and to signatories with a weak rule of law.

4.           Better combining EU and Member States' efforts to promote European energy interests

Question 8: How could the EU and its Member States gain together greater impact on international energy issues? What concrete actions should be taken to ensure synergies and coordination between Member States' initiatives and EU initiatives?

Stakeholders agreed that a balance is needed between the concept of the EU speaking with one voice and the liberty of each Member State to choose their own energy mix and energy strategy, and to establish international ties.

Stakeholders thought that the key factor that can fuel effective coordination between the Member States is genuine internal energy market integration. Concrete results internally can also bring international prestige (e.g. effectively established EU-wide energy efficiency standards for buildings). Moreover, it was said that once commercial arrangements start to dominate the energy market instead of politically-motivated arrangements, the synergies between Member States' and the EU-level initiatives would be captured more easily. Transparency and reciprocal confidence were considered as pillars for cooperation between the Member States.

Nevertheless, others supported the view that possibilities to formulate policies exist only on issues with a broad consensus among the Member States. A few examples mentioned are renewable energy policy, energy efficiency, infrastructure and market liberalisation.

Another concrete suggestion was to reach coordination horizontally, between existing agreements and initiatives (e.g. Energy Community, Baku Initiative and investments in external supply in general) and vertically, between relevant policy fields (such as trade, development cooperation, sustainability). In addition, improved consultation with industry and exchanges between Member States' experts are needed to increase the EU's weight in international energy discussions.

On the regulatory side, platforms like the IERN (the International Energy Regulation Network (IERN) and ICER (the International Confederation of Energy Regulators) can be increasingly used to disseminate best practices among Member States. Further information sharing could occur by creating a database with relevant projects by region/Member State/third country, to which all EU countries could have access. ACER was seen positively in terms of contribution to internal synergies, together with existing dialogues and information exchange mechanisms.

A number of respondents put emphasis on the potential role of the EU High Representative for Foreign Affairs and Security Policy, whose action needs to further promote the external dimension of the EU energy policy.

Question 9: Do you consider that the compliance with EU internal market rules and the EU energy security objectives of Member States' bilateral agreements with third countries can be an issue? Should the EU take action to ensure compliance? How?

A considerable number of responses denoted the belief that Member States' individual bilateral agreements frequently disregard the internal energy market rules and the interests of other Member States. Overall, it was thought that a common approach can be a more appropriate and effective way to ensure energy security in the long-run.

Many stakeholders agreed that the EU should step in to ensure compliance between current and future bilateral agreements and internal energy market rules. Some respondents recalled, however, that changing the existing bilateral agreements requires re-negotiation with energy suppliers. In addition, some respondents considered bilateral agreements to be of strictly national competence – especially since Member States' bilateral initiatives with third countries can in this way benefit from healthy effects of competition. The EU should not itself be a party in agreements, unless such involvement is justified.

Strong support was given to ensuring more transparency on the current and future intergovernmental agreements. A few respondents expressed worries about the eventuality of revealing commercially sensitive information and pointed out that the existing framework for EU law enforcement was largely sufficient. These respondents preferred to have the existing infringement procedures reinforced.

The creation of clear set of guidelines for the negotiation of bilateral energy agreements with third countries by all Member States was also mentioned. Developing a common list of objectives for each cooperation area (memoranda, agreements on strategic partnerships, extended cooperation) was one possibility. Another proposal was to create an approval procedure on competition and trade matters before signature of bilateral agreements. A number of stakeholders also believed that in order to forestall non-compliance and duplications, EU-level notification of new bilateral agreements, as called for by the European Council of the 4th February 2011, should be made mandatory.

Question 10: How could the European industry and civil society best contribute to the EU external energy policy objectives?

Primarily, the role of companies was acknowledged as crucial for a successful external energy policy. By exercising their core commercial purpose, companies can generate wealth to pay for imports, contribute towards infrastructure optimization, develop indigenous resources, as well as foster low carbon technologies, effective energy efficiency measures and consumption reduction. Furthermore, companies can also disseminate all these best practices in third countries where they operate.

The EU should promote not only its best practices but also share its' less positive experiences. As an example, lessons drawn from the experience of private companies acting inside the EU can be used in third countries, with the added benefit of depoliticising the energy relation between the EU and its partners.

Energy policy goals are attainable if economically and technically feasible, but also if publicly acceptable, it was added. Civil society organizations frequently ask for more transparency on energy costs in order to help consumers understand energy mix decisions and tax policy. The public should be further informed on the high degree of external energy dependence, so as to encourage reduced consumption, increased alignment of the EU internal energy market and enhanced renewable energy goals. Dissemination of accurate information is the optimal solution for society's best response.

The EU can also provide financing to NGOs that undertake independent research, as well as initiatives for local alternative energy generation, involving citizens trying to actively reduce their carbon footprints.

Another prominent opinion was that the European Commission should hold regular meetings/consultations with industry and civil society on external energy policy matters. By inviting representatives from all stakeholder groups, it could gain useful periodical and independent evaluation for the EU external energy policy.

Finally, it was noted that the existing mechanisms for openness and transparency within the EU institutions must be made more accessible, in order to achieve more effective contribution by industry and civil society to reaching the EU external energy policy objectives.

[1]               http://ec.europa.eu/energy/international/consultations/20110221_external_dimension_en.htm.

[2]               EITI – Extractive Industries Transparency Initiative

[3]               WENRA – Western European Nuclear Regulators Association

[4]               ENSREG – European Nuclear Safety Regulators Group, ENSRA – European Nuclear Security Regulators Association, ESARDA – European Safeguards Research and Development Association