Europe Hopes ‘Union’ Is Secret Sauce for Energy Recipe

After almost 10 years of trying, the European Union is doubling down on its efforts to do the seemingly impossible: make its energy system simultaneously greener, cheaper, and more secure. To try to meet those three elusive goals, Europe now has grand plans for an “energy union.” And the three objectives continue to define Europe’s approach to energy and climate policies through 2030.

But at a time of tectonic shifts in global energy markets, many wonder whether Europe’s dream of squaring the circle on energy and climate is fundamentally flawed, if not mutually contradictory, which would force policymakers to make tough choices about whether to emphasize environmental, economic, or geopolitical goals.

Promoting renewable energy, for example, helps European countries meet their targets of cutting greenhouse gas emissions. But green energy costs more, which undermines Europe’s goal of having a more globally competitive energy market. Harnessing market forces and liberalization advances Europe’s goals of promoting a more competitive market. But when that means importing cheap U.S. coal and shutting down pricey gas-fired power plants, it hurts Europe’s green objectives. Enhancing energy security by, for example, relying more on imported liquefied natural gas rather than Russian gas increases costs for consumers, thus harming competition goals.

“All of the objectives conflict with each other,” said Dieter Helm, an energy economist at the Oxford University and a sometime advisor to British and European officials on energy matters. “The task of policymakers is to reconcile the trade-offs, and that’s what’s missing,” he said.

Europe first floated its three-fold approach to climate and energy in a 2006 policy paper, the premise of which was formally codified in European initiatives that have driven plans through 2020 and inform the debates about just how to shape the energy sector for the decade after that.

The EU’s new vice president for energy union, Maros Sefcovic, put the three-pronged approach at the center of his new assignment in a November speech delivered in Brussels. “I want to build an energy union aiming at affordable, secure, and sustainable energy,” he said.

To be sure, Europe has made plenty of progress. It has installed loads of renewable energy and, as a result, is on track to meet its emissions-reductions goals for 2020. At the same time, Europe has begun integrating its disparate energy markets by linking many natural gas and electricity networks. When complete, that should help improve competition and, eventually, enhance energy security.

But the policies haven’t fully delivered on any front. Long-term climate targets still require much more heavy lifting if they are to be met. European energy prices are higher than those in other economies, especially the United States’. Natural gas prices are two to three times higher; retail electricity prices in the European Union are about twice as high as those in the United States. And so far, Europe’s hope of increasing its energy security is still just a goal: Europe is the world’s biggest energy importer, relying on outside sources for more than half its demand.

Meeting all three objectives at once was always going to be difficult. But today, with a radically different price environment and even more pressing concerns about supply security, squaring the circle has become even tougher.

The International Energy Agency concluded this month in a review of European energy policies that the divergences between Brussels and member states creates conflicts that are hard to resolve. And the EU itself, in an analysis of Europe’s energy and climate plans, noted the lack of progress on tackling higher prices, ensuring security of supply, and being able to count on free markets to deliver all of Europe’s climate goals.

One of the biggest problems is that Europe has not defined what exactly it is trying to achieve. There are numerical targets for reducing greenhouse gas emissions and installing renewable energy. But there’s nothing similar that makes clear just what energy security actually means or how to measure it; the same problems bedevil discussions of Europe’s competition goals.

“They’ve never spelled out what is meant by security of supply. Does that mean the stability of the electricity system? Reduced dependence on external sources of gas? Or energy independence?” Oxford’s Helm asked.

That confusion has in turn aggravated country-by-country divides over what European energy policy should be and how to achieve it.

Poland and other Eastern European countries are a lot more worried about Russia’s chokehold on their energy supplies than they are about Brussels’s plans to keep cutting greenhouse gas emissions, for example. That leads Poles to embrace coal rather than natural gas to bolster energy security — even if it does nothing for sustainability goals.

Germany, which is massively transforming its energy system away from nuclear power toward renewable energy, puts climate objectives ahead of supply concerns. When it thinks of energy security, it tends to be more in terms of the stability and reliability of its electricity system. But countries worried by rising energy costs and widening competitiveness gaps are loath to copy Germany’s renewables push. For Britons, security of supply is something else entirely — the future of oil and natural gas production in the North Sea.

“The problem in Europe is that the emphasis inside the policy triangle is changing at the European level, but many member states emphasize other parts of the triangle — and that creates some tension,” said Severin Fischer, an energy expert at the German Institute for International and Security Affairs.

Compounding it all is the dramatic shift in energy markets that has taken place since Europe first laid out its road map for its energy future in 2008. Then, oil prices were at all-time highs and seemed to be heading higher. Renewable energy seemed close to becoming cost-competitive with fossil fuels. And old-school worries about energy geopolitics, such as relying on fickle neighbors for physical deliveries of energy supplies, seemed passé.

Today, thanks in part to the energy boom unleashed by the United States’ oil and gas revolution, oil prices are in free-fall and American natural gas is dirt cheap, giving U.S. firms a decided edge over their rivals. Renewable energy requires tens of billions of dollars in subsidies for decades and higher electricity rates, which squeeze consumers.

“Europe bet on reliably cheap green power, and that assumption has turned out to be colossally wrong,” Oxford’s Helm said.

Yet for now, as Sefcovic and the new energy union show, Brussels appears determined to plow ahead, insisting that it can meet all three goals at once, despite the headwinds and bitter experience. This week, the European Council said that Europe’s energy policies are in fact paying dividends for the environment, the economy, and security.

But analysts say the time has come to make hard choices about exactly what Europe’s energy priority should be rather than aspire to achieve everything at once.

“With the energy union, Europe is trying to paint over the cracks in the system,” Fischer said. “But it’s just covering cracks, and nobody talks about the cracks, because that would mean making compromises.”