Europe requires an energy union

As EU leaders headed to Brussels for the mid-December summit, they grappled with the flaws that have stymied progress towards an energy union. While energy packages, such as regulations or sanctions, have a limited lifespan, a consolidated energy market does not.

MADRID – Since Russia’s unprovoked invasion of Ukraine in February, the European Union’s frantic efforts to adapt its energy markets and infrastructure to new geopolitical realities have occupied the media and political circles. Each day brings with it a plethora of comments and discussions on the dilemmas facing Europe. But, after almost 10 months, the EU is still a long way from formulating a coherent energy policy. The extraordinary meeting of the EU Energy Council that took place this Monday is a paradigmatic case: the energy ministers of the member states did not agree on the imposition of a common cap on the price of gas and agreed to continue discussing… even when?

It is true that the EU has made progress this year. The Kremlin’s brutal war of aggression against Ukraine has forced Europe – at last – to recognize the consequences of its (self-imposed) dependence on Russian energy. Dependence aggravated by a host of circumstances: problems in some gas pipelines, insufficient investment in the upstream sector and the loss of half of the French nuclear capacity as a result of unforeseen maintenance shutdowns.

The initial EU response to the energy market turmoil was chaotic. Just like at the beginning of the pandemic: each Member State looking for a life on its own. In the headlong individual hunt for alternative supplies, more than once, Member States ended up competing with each other for contracts.

Again, a community action emerged. Numerous proposals and plans were made, starting with REPowerEU, the Union’s roadmap to reduce energy consumption, develop renewable sources and diversify supply beyond Russia. The EU has also approved a temporary tax on windfall profits from energy companies, and a plan for the joint purchase of gas has been proposed.

Today the energy situation in Europe looks somewhat more solid. In the absence of a particularly cold or prolonged winter, the Union has a sufficient supply of gas, although the International Energy Agency warns of a possible shortage next summer – when Europe would have to resupply for the following winter – due, in part , to the growing Asian demand for liquefied natural gas. In general, the members of the bloc are looking for ways to work together to respond to the energy challenge.

But one should not exaggerate the European unity of purpose in the area of ​​energy. In fact, in many instances, we see that community partners have returned to their usual condition: tensions, disputes and “muddling through”.

This has become apparent, for example, in the attempt to apply a price cap to Russian oil. In the end, a cap of $60 per barrel was agreed (which laid the groundwork for a broader agreement at the G7); that yes, after many fights following the usual fault lines, in addition to Byzantine battles for details. While the process served to highlight the significant potential of EU policies (particularly in the field of energy, in which Europe maintains significant influence), it also underscored the extent to which internal dynamics on energy issues remain discordant.

Paradigmatic of the European muddle-through strategy is the attempt to create a European energy union. Like the EU itself, the energy union is a large-scale project born of a brilliant idea. But the process of making it a reality is limping along, by dint of reactive policies and last minute resolutions, rather than tactical clarity and statecraft skill.

When the trade issue was at stake, at least, the contours of the European vision became well defined. But in the field of energy (as with the Economic and Monetary Union), the bloc’s performance, including the regulatory framework, continues to be -in the best of cases-.

The first attempts to open up the European electricity markets were made during the Barcelona summit in 2002. Although they did not have any results, the idea gained momentum in the following years, until in 2015 a strategy for an energy union was launched, taking as model the design of the domestic market.

It helped that the EU had become a global regulatory superpower (particularly in the realm of sustainability). Europe’s determination to lead the fight against climate change – reflected in the creation of the European Green Deal – has been a central theme during the last two mandates of the European Commission, which have emphasized Europe’s unique influence and competence in the area.

With this initiative, the EU has consolidated the primacy of the energy transition in its political narrative, and has promoted global decarbonisation commitments. It has also promoted advances in renewable energy sources, although its continuity has now been called into question by the protectionist tone of the new US Inflation Reduction Act.

But the European strategy also shows a lamentable lack of vision for the future, exemplified by the insufficient investment in infrastructure in this field. In addition, sustainability is only one of the pillars of the European energy union; the other two (security of supply and affordability) remain the responsibility of the Member States; they protect it fiercely (although in practice, the associated liabilities are not taken into account). Thus, a coherent vision for the EU energy transition has never been formed.

The shortcomings of the European approach were not so visible before Russia invaded its neighbor. Now the dangers implicit in these oversights are plain to see: limited energy supplies, rising inflation, fears of deindustrialization, and incipient global competition for subsidies.

As was the case during the construction of the EU, the leaders of the Union have frequently resorted to temporary, piecemeal or ad hoc solutions when it comes to energy. A good example is the inclusion (for certain cases and after long disputes) of gas and nuclear energy -within the category of “transitional” fuels- in the European taxonomy to classify green investments. Even REPowerEU (which also recognizes that nuclear power will be central to the energy transition) lacks the overall long-term framework that an energy union could offer.

European leaders must commit not only to reaching a final agreement to stabilize gas prices and guarantee security of supply, but also to take stock of their energy policy. Just as important, they must decisively address the failures that have impeded progress towards an energy union; Recognize that energy package measures, such as regulations or sanctions, have a limited lifespan. A consolidated energy market, on the other hand, does not have an expiration date.

The author

She was Minister of Foreign Affairs of Spain and Senior Vice President and General Counsel of the World Bank Group; She is currently a visiting professor at Georgetown University.

Copyright: Project Syndicate, 1995 – 2022

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