Bursting the Bubble

Approaching the EU internal energy market

15 November 2013 | by

For those of you following the recent geopolitical developments in and around Europe, the city Vilnius – Lithuania’s capital – might recall only one association – the long awaited EU’s Eastern Partnership summit there, an event reported to be a turning point for a substantial part of Eurasia. However, apart from strongly supporting EU’s Eastern neighbours, Lithuania, who currently holds the EU’s Presidency in the Council of the European Union, is also actively boosting the energy agenda of the Union. Accordingly, Vilnius hosted last week the high level conference, “Completing the Internal Energy Market: Building an Integrated European Energy Network”. Undoubtedly, this will prove the most important energy-related event held during the Lithuanian Presidency. The EU legal base for the energy sector has never been perfect nor exhaustive. According to experts, however, it has greatly improved over the last couple of years. Yet, it is still insufficient for an integrated energy market to be in place. Obviously, apart from a legal framework, you also need a real, physical infrastructure, i.e. cross-border energy interconnectors between member states.  For that, in fact, the Commission came up with this exact proposal which was first presented in October this year and further discussed in Vilnius last week.

At the high level conference, the EU’s 248 energy infrastructure projects – an EU-wide priority list of common interest – were presented by the European Commission.  These are aimed at accelerating the implementation and approximation of the energy infrastructure necessary for a single EU internal market to function. The general budget for these projects for 2014-2020 could reach 5.85 billion EUR, funded by the Connecting Europe Facility.

Let us have a closer look at the issue at stake through the lens of energy security.

To begin with I would like to recollect the statement of EU’s Energy Commissioner Günther Oettinger during the conference, stressing in particular the fact that the EU’s energy sector is lagging behind other spheres, being far from the desired single energy market in the Union; a strange state of affairs for a union, where the energy component has always played a crucial role, often as a system-building factor. In fact, integration first occurred precisely in the energy domain – the European Community of Coal and Steel, then – the European Atomic Energy Community.  We will get back to the question why this is taking so long later on in this article.

What is now important is energy security which was repeatedly referred to in the context of the creation of the internal energy market. Simply put, by establishing the market you achieve security, they argue.

The problem with that is that every country interprets the notion “energy security” in its own way. We can clearly see a complexity of the energy security perception in the EU: it encompasses, among others, current threats of energy trade worldwide, terrorism, the rise of new powerful economies, drastically changing the situation on the market, and the vulnerability of supply chains. However, two specific requirements are common for all countries (though having different precedence) – sufficient supply at a reasonable cost and its diversification.

If we look at the speech of Lithuanian President Dalia Grybauskaitė, this is exactly the top priority: “More than ever, the European Union should invest in power links and competitive local manufacturing as it is the only way to reduce dependence on external supplier […] We must work together to ensure lower consumer prices for energy.”

Logically, we can observe much more willingness to promote a united energy environment in Lithuania than in some other countries from “Old Europe” for example. It is not hard to guess that the main reason for Lithuania is the incentive to ensure its national energy security which is currently threatened by high dependence on Russian imports.

This leads us to the question we left aside for a moment: why is truly unified energy policy taking so long in the EU?

If we dare to look into the academic field, we encounter some international relations theories able to provide a plausible explanation of the different level of interest in EU member states. Given the fact, that Lithuania is much more dependent on Russian fuel, this state is ready to invest more (in political terms) to ensure its security more efficiently. The Russian factor for Lithuania is, thus, academically speaking a “policy externality” which pushes the country towards action.

While in Germany, France or the UK, though having tight energy relations with the supplier, they are not so critically dependent on one. Ergo, they produce “negative externalities” for such states like Lithuania or Poland by their bilateral energy relations with the supplier. Each above government can derive benefits from trading with Russia on a bilateral basis, hence, enjoying positive externalities, which do not push them to integration. It is therefore not surprisingly that it is a country dependent on Russian fuels pushing its energy agenda through:

“Lithuania, as the EU Presidency, will seek for the fastest possible approval by the EU Council of the list of projects of common interest, thus creating all the necessary conditions for more rapid implementation from the beginning of 2014. The European Council agreed that the EU internal energy market must be created by 2014, and after 2015 no energy islands should remain in the EU“, Lithuanian Minister of Energy Jaroslav Neverovič said.

However, luckily Lithuania does not stand alone here, with other member states and the EU institutions sharing the same standpoint. As Günther Oettinger indicated in his speech at the conference: “In the gas sector, one of the priorities is the security of supply. Our aim is that EU member states such as Lithuania and Poland, Romania and Bulgaria gain access to at least two alternative sources of gas. We seek the integration of these countries into the EU, and consequently they should not be dependent on single gas supply from Russia.”

How successful these projects will be; whether financing will be sufficient and, fore and foremost, whether the EU will achieve a truly single energy market in the foreseeable future are the questions to keep an eye on. What is sure, however, is that despite the different levels of interest and the ambiguity of the term “energy security” these 248 projects can add to a sense of common interest, abandoning national borders while building EU energy infrastructure.

 

What do you think?