The Ukraine Crisis and European energy system transformation

Ukraine in the search light - what does the country's crisis mean for European energy and climate policy?

Ukraine in the search light - what does the country's crisis mean for European energy and climate policy?

How has the Ukraine crisis impacted the EU’s climate and energy policy?


Crises may represent a window of opportunity for policy makers to implement policies that will accelerate energy system transformation to a greener and more sustainable Europe. The Fukushima accident was for example a strong contributor to some countries deciding to phase out their nuclear reactors. The geopolitical crises of 2006 and 2009 with Russia strengthened European policy makers’ motivation to make strong renewables legislation, such as in the Renewables Directive, which to date is the most ambitious piece of international legislation to increase renewable energy production.

The Ukraine crisis has shed light of several weaknesses of the energy systems in Europe, but also the large potentials for improvement. Examples in point; in several countries, the building sector waste a lot and thus need much more energy for heating than what would be possible. Energy transmission infrastructure for electricity and gas is insufficiently built out both within and between countries. With some exceptions countries underexploit their potentials for renewable energy production, contributing to dependence on large-scale import of oil, coal, gas and nuclear fuel. This import is not only expensive and causes a lot of pollution, but also makes these countries more vulnerable to supply disruptions.

A Europe-wide «Energiewende» would thus according to several analyses strengthen the economy by reducing expensive energy imports, create employment etc. In this analysis, we ask: how has the Ukraine crisis impacted the EU’s climate and energy policy the last year to this date?

 

The beginning of the geopolitical crisis


To understand the connection between the current making of the EUs climate and energy policy and the Ukraine crisis, one has to look back to at least January 2014. The Ukraine crisis has put European energy security on the top of the agenda of the EU and European state leaders, especially due to parts of Europe’s heavy dependence on Russian gas.

After the Ukrainian population ousted the former Russia-friendly president Yanukovych, Russia cancelled the beneficial gas purchasing contracts and required what they call ‘market prices’. The Ukraine crisis escalated after Russia’s annexation of Crimea February 2014 and was further aggravated by the shooting down of the airplane from Malaysia Airlines MH17 in July 2014 and with the identification of Russian troops fighting within the Ukrainian borders.

From June 2014 until the present, Russia has no longer exported gas to Ukraine, allegedly because Ukraine will not pay the higher prices that Russia demands. To retaliate, EU, the US and other countries have gradually imposed targeted sanctions against Russia. Needless to say, Europe’s political leaders have engaged intensively in diplomatic talks with Russian and Ukrainian leaders to resolve the various issues that have come up.

The crisis has shed light of EU member states’ heavy import dependency (53% of total energy consumption) from oil (90%), gas (66%), solid fuels such as coal and lignite (42%), nuclear fuel (40%). The bill for this is more than a billion Euros a day. Russia is a main exporter of these sources to the European markets, particularly of gas to the states in Southern and Eastern Europe. Six states have Russia as their single gas supplier.

The Baltic States are in addition dependent on import of electricity from Russia. In the EU’s own reference scenario, the dependence is expected to increase although the import volumes are estimated to decline, due to fuel savings as energy prices are expected to increase, as shown in the table below.

Source: In-Depth study of European Energy Security (2014).

Source: In-Depth study of European Energy Security (2014).

Although the EU the last decade has sought to become less dependent on Russian imports of these sources, the overall average dependency has rather increased. The degree of dependency varies a lot among the member states, however, as pointed out by for example Jonathan Stern and Katja Yafimava: «countries such as Spain and Portugal import no Russian Gas, while the Baltic countries and many in central and south-eastern Europe are completely dependent».

Gas is normally transported through gas pipelines and many of the most important transit routes to Europe are going through Ukraine. Thus, the Russian sanctions against Ukraine may also hurt European states’ supply. Without gas, the countries may get problems especially during the winter time, as gas also is used for heating, and demand thus is much higher than during the summertime. For example Finland, Poland and Bulgaria will have problems after three months without Russian supplies. However, what has not been mentioned that often in the debates, is that Russia is also dependent on exporting its gas to Europe, because of the significant revenues it yields, and because it takes time to build pipelines to new markets.

Source: EESS report p. 21.

Source: EESS report p. 21.

Note here the countries the furthest to the right and to the top of the table. Estonia, Bulgaria, the Czech Republic, Slovakia, Latvia and Lithuania get about hundred percent of their gas from Russia. Slovakia, Latvia and Lithuania also have more than 20 percent of gas in their energy mix. Note also that Hungary is dependent on Russian gas. These countries are the most vulnerable to supply disruptions from Russia.

 

The 2030 negotiations have been heavily affected

The EU is this week supposed to agree on the overarching targets for the climate and energy policy that follows from 2020 onwards to 2030. When looking at the data above, it’s easy to see why state leaders also have been very busy on other issues. The 2030 targets on mitigation of greenhouse gas emissions, energy efficiency and renewable energy are very important, as they set the minimum standard for what the EU as a union and the EEA countries (e.g. also Norway) have to achieve until 2030. The third climate and energy package, adopted by the European Parliament in December 2008, famously ended on the ‘20/20/20-targets’.

After the agreement on the new targets, the member states will agree on legislative measures to implement them, formulated for example in the form of new EU directives or by amending existing legislation. To get a better grasp of the political play that influences the prospects of energy system transformation, one has to look at the process leading to the targets. January 2014, the EU Commission launched proposed targets which included a binding target of reduction of greenhouse gas emissions of 40 percent compared to 1990 levels and an EU-wide binding target of renewable energy share of 27 percent of total onshore energy consumption. July 2014, the Commission launched an indicative energy efficiency target of 40 percent. In the Council meeting in March 2014, the leaders of the EU member states were supposed to agree on targets for climate and energy for 2030.

Due to resistance from member states called the Visegrad+ countries (Visegrad = Poland, the Czech Republic, Slovakia, Hungary, + = Romania and Bulgaria), and the Ukraine crisis, the decision was postponed until the meeting in the European Council in the end of October 2014.

Particularly Poland has been a staunch opponent of having strong targets, and has been viewed as the leader of the Visegrad group. Most of Poland’s power is for example produced in coal-fired power plants, and the coal industry is mighty. The Visegrad countries are not homogenous in their political positions, and some seem to be changing positions now. They use their veto position to negotiate better bargaining positions for themselves, e.g. get concessions from the other member states. Thus, the other member states probably will have to launch measures to make the targets agreeable to them, such as support so that they can be implemented without too large expenses for the states, to create consensus in the European Council, the organ where the formal decision is made on behalf of the member states.

 

The response: European Energy Security Strategy

At the European Council meeting of state leaders in March 2014, where the Ukraine crisis as aforementioned was on top of the agenda, they asked the Commission to come up with an energy security strategy. Therefore, the Commission launched a comprehensive document in June 2014, the European Energy Security Strategy (EESS) , which strongly linked European Union energy security with the 2030 framework, e.g. the climate and energy targets and the pieces of legislation that will be made to achieve them.

«The Union’s energy security is inseparable from the 2030 framework for climate and energy and should be agreed together by the European Council. The transition to a competitive, low-carbon economy will reduce the use of imported fossil fuels by moderating energy demand and exploiting renewable and other indigenous sources of energy».

This strategy outlines short term and medium term measures to improve the situation. The short-term measures include increasing petroleum stocks, but arguably little that will improve the sustainability of the energy systems. The measures include for example filling the crude oil and gas storage sites around in Europe as much as possible, which has been done the last months. Moreover, agreements have been made to develop emergency infrastructure such as reverse flows. This means to send the gas through new transit directions by the construction of systems that switch gas direction in order to e.g. send Russian gas to Ukraine through new routes so that the country will cover at least parts of its energy needs. Reverse flows technology has been implemented, to the large dismay of Russian leaders who argue that this constitutes violation of trade agreements. In addition, reducing short-term energy demand and switching to alternative fuels is an option.

The medium to long term strategy includes a broad number of encompassing strategies: 1) improving energy security, 2) increase domestic energy production, 3) increase diversification of energy sources as well as transfer routes of the different energy carriers, 4) improve energy transmission infrastructure, 5) talk with one voice in the external energy policy, and 6) strengthen the emergency and solidarity mechanisms so that the member states easier help each other, plus protect critical infrastructure.

 

What is the status of energy security in EU law?

One of the major changes since 2009 is the introduction of Article 194 of Treaty on the Functioning of the European Union (TFEU), hereafter referred to as the energy provision. Article 194 TFEU stipulates that EU energy policy objectives are to be pursued «in a spirit of solidarity between the Member States». As argued by Calliess and Hey (2013), the word «solidarity» indicates that Member States have indeed signalised that they regard energy as a sector involving their common interests.(2) Further, solidarity is deemed to be the hallmark of the EU and within the energy sector this could mean that the Treaty enables assistance to Member States most vulnerable to severe energy supply disruptions.(3) Thus, the concept of solidarity may trigger an enhanced Europeanisation of the energy security concept based on deepened cooperation and possibly integration.

With regards to security of supply, Article 194, which aims to «ensure the security of energy supply in the European Union», may represent a quasi-explicit external competence (Blumann 2009/10). The wording «in the Union» could benefit from a change to «security of supply of the Union» as a whole in order to underline the necessity to see this matter referring to the European Union as a whole. Nevertheless, Blumann argues that this imprecise formulation of the security of supply concept in Article 194 TFEU may leverage further EU action with regards to external measures.(4)

The interesting observation in the European Energy Security Strategy is then notably the emphasis on solidarity where «the strategy sets out areas where decisions need to be taken or concrete actions implemented in the short, medium and longer term to respond to energy security concerns […] underpinned by the principle of solidarity».(5) Although the strategy is not legally binding upon Member States since it is a soft-law measure, it clearly outlines the future orientations to be taken at the European and national level.

In practical politics, however, this solidarity sometimes seems less clear. For example has the Energy Commissioner Oettinger commented that Hungary is free to stop gas flowing to Ukraine when it needs this gas itself (e.g. see FT and LSE Europpblog ), although this closing in Hungary happened right after a visit by the leader of the Russian gas company Gazprom.

 

A year of big changes in the Parliament and in the Commission

Not only geopolitical events and the present state of EU legislation affect the new legislation that is made, but also which persons hold which posts in the Commission and in the Parliament, which country they come from and which party group they might belong to. In May 2014, elections were held for a new European Parliament. For the first time, the Parliament could launch candidates for the new leader of the Commission, and for the first time, there was an electoral campaign for these top candidates. The largest party group became the Christian democratic European People’s Party (EPP), with Jean-Claude Juncker from Luxembourg as the key candidate to become the new leader of the Commission. The party group of the European green parties, namely Group of the Greens/European Free Alliance, is the group that the most strongly proposes green policies. It lost mandates. The nationalist parties in different member states, on the other hand, received more votes than ever.

Juncker proposed a reorganization of the Commission with several novelties. For example, he has merged the portfolios of the former Climate Commissioner and Energy Commissioner, but not their Directorates-Generals (DGs, the EU ‘ministries’). This was heavily criticized by the environmental NGOs such as Greenpeace and also the Greens/EFA in the parliament, who argue that this will weaken the focus on climate.

Juncker has also appointed a Vice President for an Energy Union. What does this Energy Union actually consist of and is it a satisfactory vehicle for a more sustainable climate and energy policy?

 

The Energy Union: «black», «green» or something in between?

The dependency on Russian gas has triggered the Commission to focus on speaking with one voice in certain energy-related matters. Member states have rarely been keen on discussing such issues at the European level, but in April 2014, the former Polish Prime Minister Donald Tusk proposed an Energy Union. Tusk argues that the EU should create a Gas Supply Agency, a single European body purchasing the gas needed inspired by the Euratom Supply Agency, which buys nuclear fuels on behalf of EUs member states.

At a first glance, the Energy Union might seem like a tool to alleviate European energy dependence on fossil fuels from Russia, particularly gas. Tusk’s primary focus concerned the reduction of import dependence and diversification of supply routes. Energy Commissioner Oettinger’s comments on the issue summarized the priorities for such a Union: solidarity and trust in Member States, real coordination, joint investments, developments of a true energy market and the ability to speak with one voice.

Further, Juncker sent the former proposed Vice President for the Energy Union, Slovenian Alenka Bratušek a remarkable mission letter; probably the broadest, most difficult and challenging mission letters of all Commissioners. It is through this letter that we might see the future contours of the priorities facing the Energy Union. Bratušek was rejected by the European Parliament, and recently resigned . It now seems that Slovakian Maros Šefčovič will get this important position.

What remains for the Vice President with regards to renewable energy and sustainability when he also needs to address the difficult geo-political situation? His portfolio consists of bringing about a resilient Energy Union, with a forward-looking climate change policy. Security of supply and diversification are clearly the first priorities. Energy «from the East» should not be too expensive, «either in commercial or political terms». However, there is a need to «strengthen the share of renewable energies». This is portrayed as a matter of «responsible climate policy» and as «an industrial policy imperative» in the medium term. He will then have to «make Europe the world number one in renewable energy». These phrases raise several questions, such as: how does the short term supply notion connect with the larger long term sustainability goal? It does not seem clear for anyone yet what the Energy Union really will develop to become.

According to Romain Su (2014), «Poland’s Energy Union plan seems at this point to have more chances for success than the European Energy Community (EEC). The EEC project started four years ago by Jerzy Buzek, then President of the European Parliament, and former president of the Commission Jacques Delors. The EEC was also created to make the EU able «to engage in coordinated energy purchasing» but never became a reality» (see Energy Charter Secretariat ).

This may be due to the fact that the EU is founded on principles of free trade. Such joint purchasing would constitute a break with that tradition. Moreover, according to Geden and Grätz, the EU «lacks the means to realize an effective external energy policy: It has neither the companies nor the diplomatic expertise, but can only offer monetary and regulatory incentives for corporations and member states».

Goldthau and Boersma are strongly critical that the idea of such a purchasing union will be realized of yet another reason:

«What is more, the notion of ‘solidarity’, while indicating altruistic motives, in essence equals a phenomenon known from public policy theory: free riding. It implies that some will pay while others benefit – for energy security, lower prices or the costs of physical infrastructure.»

 

Intense lobbying

To understand more about what is happening in the heads of policy makers, one must also look at the «lobbying games». There is a continuous and furious fight about what constitutes reality, what would be the most beneficial for society in the shorter and longer term, and what policies should be pursued to achieve main targets such as economic growth, innovation, improved energy security and mitigation of greenhouse gases in the EU and in the member states.

The political entrepreneurs fighting for various industries also work and have worked hard to get their views heard. BusinessEurope and the gas industry have for example argued for increased shale gas extraction in Europe if such relevant sources are found domestically within the member states. Shale gas is very controversial, and hardly a source of energy that is regarded as sustainable.

The Coalition for Energy Savings have argued that much of/the whole of the reduction in energy imports of especially Russian gas can be weighed up by not too expensive energy efficiency measures, especially in Eastern Europe (e.g. see energycoalition.eu ).

The renewables interest groups and the environmental NGOs have argued that this crisis underlines the importance of strong growth in renewable energy, as they are indigenous and sustainable resources combined with increased energy efficiency.

In other words, the crisis seems to have given the opportunity for both implementation of policies leading to increased carbon emissions as well as for those leading to sustainable energy system transformation. Analysts do not agree about what the likely future will look like, and several scenarios are possible. Some argue about shale gas extraction in Europe being an inevitable future solution, while Pirani (2014, p. 3), for example, believes in improvement:

«The prospect of progress towards a less inefficient and less wasteful energy system – one that is also less under the control of small political and business interest groups and less dependent on Russian supplies – seems to be not only welcome but also a fairly likely outcome of the crisis.»

 

An opportunity in disguise?

In the beginning of this analysis, we asked how the Ukraine crisis has impacted EU’s climate and energy policy the last year. As shown, the EU has helped Ukraine in various ways, by for example installing technology to reverse gas flows so that gas has been rerouted to Ukraine as a short term solution. The EU has also connected energy security with its climate and energy policy more than ever before in its documents and statements, as witnessed in e.g. the mandate to the new Commissioner for the Energy Union.

It is not yet clear whether the geopolitical crisis really will make EU policies greener in the longer run, in spite of the obvious benefits of e.g. increased energy efficiency, renewable energy production and enhanced grid infrastructure. The European Court of Justice may have an increased role to play in order to clarify the interpretation of the Treaties and assure the correct transposition of all EU legislation connected to renewable energy, energy efficiency and environmental protection. Some member states have for example not transposed and implemented the existing legislation on energy efficiency in the climate and energy package correctly. Thus, complete and rapid implementation of the existing legislative measures, e.g. the EU ETS, the Renewables Directive, the Energy Performance of Buildings Directive and the Energy Efficiency Directive, to achieve the 202020 targets will also likely increase European energy security and improve energy systems.

It seems clear that the Ukraine crisis has given political leaders increased legitimacy to implement new climate and energy policies, including those that are more ambitious than before.

Av Inga M. Ydersbond, Thea Bygjordet Sveen