EnergyNews from Brussels Danish Presidency of the EU Council – Energy Priorities Latest Developments On 1st January, Denmark assumed the rotating presidency of the EU Council of Ministers, taking over from Poland for a period of six months. As holder of the Council Presidency, Denmark is responsible for setting the agenda for intergovernmental discussions and leading the negotiations with the other EU institutions. At the same time, however, its priorities are closely linked to the European Commission work programme for 2012. While the ongoing Euro-area debt crisis will continue to preoccupy meetings of heads of state and government, at ministerial level the Danish government intends to advance its agenda of a responsible, dynamic, green and safe Europe. Indeed, energy issues form a substantial part of the Green Europe focus area, with many policy proposals which were
Welcome to Hill+Knowlton Strategies’ regular update on key European regulatory developments that will directly impact businesses in the energy sector.
Jan - Feb 2012
introduced in 2011 still on the table and at crucial stages in their negotiation. First, the proposed new energy efficiency directive, intended to set a common framework to promote energy efficiency across the EU, is a major priority, with the Danish Presidency aiming for an agreement before the end of June. This ambition may be thwarted by delays in the European Parliament adopting its position due to the vast number of conflicting positions being put forward by MEPs, while the national delegations in the Council have proposed limiting the scope of the public building renovation requirement to buildings owned by central governments. The proposed infrastructure package is the Presidency’s second priority, where it will work for the development of an effective and intelligent transmission network, so as to enable the integration of large-scale renewable energy into the EU’s energy supply. The proposed new legislation will enable a streamlined mechanism for identifying cross-border “projects of European interest”, within a set of strategic corridors and priorities, which will benefit from a shorter permitting period and streamlined
Energy Roadmap 2050
administrative procedures. Third, negotiations on the proposed regulation on the safety of offshore oil & gas activities will be a further focus of the Presidency. As an oil and gas producing nation, Denmark has a clear interest in this proposal, particularly as it seeks to extend the regulatory approach of the North Sea nations to all European waters. While it is fairly unlikely that an agreement be reached before the summer, the Presidency will work to ensure that discussions get off to a good start and seek to make its mark building on the expertise which comes from decades of exploration and production in Danish waters.
Latest Developments On 15 December 2011, the European Commission adopted the “Energy Roadmap 2050” Communication which explores the challenges posed by delivering the EU’s objective of 8095% decarbonisation by 2050, while ensuring at the same time competitiveness and security of supply. The sectoral roadmap is one of several that follow the Commission’s all-sector “Low carbon economy roadmap”, released in March 2011, which compares a scenario of global action with a unilateral scenario.
All this is set against the backdrop of the debate on deepening the EU’s CO2 emissions reduction targets. Discussions over a possible move to a 30% target for 2020 (up from 20%, compared to 1990 levels) were put on ice under Poland’s presidency, due to that country’s objections to such a move given its high share of energy-intensive industries and reliance on coal. While Denmark has traditionally been supportive of stricter emissions targets, the new Presidency has mollified its stance in order to garner Polish support for a draft resolution on the Commission’s recent roadmap to a low-carbon economy in 2050. The text now before national delegations refers to the fact that if the EU achieves its 20% energy efficiency objective in 2020, then a 25% emissions cut may be possible, without referring to this as a target. The Danish presidency has similarly been careful to ensure that references to deeper cuts between 2020 and 2050 are portrayed as possible milestones, rather than explicit targets. This debate will also feed into attempts to find agreement on endorsing the 2050 Energy Roadmap (see article below).
The analysis set out in the long-awaited Energy roadmap explores five scenarios created by different combinations of the four main decarbonisation routes - renewables, energy efficiency, nuclear and carbon capture and storage technologies (CCS) and contrasts these with a ‘business-as-usual’ approach. In outline, the projections include a scenario in which the EU improves its energy efficiency, enabling renewables to provide 64% of electricity consumption by 2050, and a ‘high renewables uptake’ scenario where they would provide 97% of electricity consumption, with nuclear power and coal almost eliminated from final energy use. A third scenario would see no energy source preferred, with each competing on a market basis. Decarbonisation would instead be driven by carbon pricing. The two other scenarios explore a “low-nuclear” scenario where coal power plants using carbon capture and storage (CCS) technology make up the difference along with renewables and a scenario with the highest share of nuclear energy at 18%, which would still be a decrease from today’s 20%. Inclusion of a sixth scenario, which combined energy efficiency and increased use of renewables, was being urged by the Commission’s Climate Action department. This was, however, opposed by Energy Commissioner Günther Oettinger, on the grounds that such a scenario can only be considered after Member State support for the proposed new energy efficiency directive becomes clear.
Impact & Opportunities The six-month Presidency term is an important opportunity for Denmark to present itself as an influential EU Member State capable of assuming leadership in a new institutional set-up (since December 2009, the European Council has a permanent president chairing the meetings of the 27 heads of state and government, which clearly weakened the role of the EU Council Presidency). This is especially important given that Denmark is a small country which remains outside the Eurozone, and is one of the few EU states to currently have a left-of-centre government in the current climate of economic austerity. While the sovereign debt crisis in the Eurozone is dominating EU strategic decision-making, Denmark will be keen to push forward on the above energy objectives, not least because the investments required to deliver energy efficiency improvements and infrastructure connections are seen as a means to create jobs and growth.
All in all, the roadmap finds that, although the decarbonisation routes would demand large upfront capital expenditure until 2030, by 2050 investment costs would be roughly the same owing to increasing fuel costs. Continuing current policies would bring total energy system cost to 14.6% of European gross domestic product (GDP) in 2050, roughly the same as the other scenarios. This compares to the 10.5% of GDP spent in 2005.
Impact & Opportunities
However, according to Mr Oettinger, the final configuration is likely to be a mix of the projections, following a debate with a wide range of stakeholders. As a result, he expects to “achieve clarity with investors” on what future strategies are worth pursuing by 2013 or 2014 at latest. He expressed his wish for the adoption of a new EU binding renewables target for 2030 by 2014 to give low carbon investors long-term certainty. The roadmap currently suggests a renewables share of about 30%.
The debate over further targets and milestones for the years to 2050 will be a key element of continued discussions around the Roadmap. An earlier draft said that “further renewables targets for 2030 could be an option since Europe is currently on the right track to achieve the targets for 2020”. In the same paragraph, which has since been scrapped, interim targets on CCS and energy infrastructure were envisaged as a possibility. But the roadmap says that the modelling for these scenarios is dependent on a global climate deal, which could be many years away. The Commission consultation on a post-2020 renewable energy strategy, running from 6 December 2011 until 7 February, has been an opportunity for stakeholders to voice their views on whether there is a role for further renewable targets and the findings will feed into the discussions. The upcoming Communications on CCS (by the summer) and energy technologies (in Q1 2013) should also be closely monitored.
The roadmap is more careful in its wording and, arguably, less ambitious in its scope than previous leaked drafts. The final version stops short of recommending targets, a key source of controversy, while it recognises that EU Member States and investors need milestones. While some Commission officials expressed criticism over the Roadmap’s lack of ambition, Green groups praised the roadmap’s demonstration that a high uptake of renewables would come at little extra cost compared to a business-as-usual scenario. But they maintain that the Commission has purposefully underestimated renewables potential.
Industry in general has been strongly pushing the need for regulatory certainty and clarity over whether there will be further targets, in order to be able to make necessary investments, a point which is readily accepted by Commissioner Oettinger. The coming months will therefore offer the opportunity to make such arguments to policy-makers, and to offer suggestions as to what the policy framework should look like post-2020.
The Danish Presidency of the EU Council is to prioritise the reaching of an agreement between Member States on endorsing the Roadmap, although discussions are likely to be impeded by disagreements between Member States over interim targets to 2050.
Nuclear Stress Tests Latest Developments The European nuclear ‘stress tests’, examining whether the 143 European nuclear power plants can withstand the effects of natural disasters, human failures or malevolent acts, are well on track. The European Commission issued an interim report on November 24th based on self-assessments from nuclear plant operators and national progress reports from national regulation authorities. As the deadline for the national regulators’ final report was on the 31st December 2011, the Commission’s November conclusions are only food for thought. Nevertheless, it already highlighted interesting pointers. As such, it seems clear that national regulators have different approaches to safety and use varying criteria to define safety improvements. The Commission has therefore started to review nuclear safety legislation and to envisage ways for improvement in a number of policy areas. The Communication proposed further action through either stronger Member State cooperation or through full blown EU legislation on nuclear safety. More precisely, it focused on: • Minimum technical safety requirements: to harmonise disparate national safety margins, EU-level technical criteria could be commonly agreed for siting, plant design, construction and operation. These criteria should be a reference point when licensing or checking the operations of the plants. • Licensing and checks: to ensure the effectiveness of the system, the decisions of national regulatory authorities should be open to public scrutiny. This will guarantee that issuing licences and the control of the operation of existing ones is done independently. • Cross-border emergency response: since nuclear safety is a transborder issue, the scope and reach of emergency plans should be developed beyond national frontiers. Member States should cooperate more closely, sharing available healthcare and response equipment such as back-up generators. • European liability schemes: a wide variety of victim protection schemes among EU Member States implies that in the case of a radiological disaster, citizens would be compensated based on nationality. As radiological emergencies do
not stop at national borders, a minimum EU-wide standard should be put in place. Nuclear security has been dealt with separately under the auspices of the Council of the EU. The specifically created Council Ad-hoc Group on Nuclear Security also issued a report highlighting that EU Member States would disseminate good practices at the EU level and were ready to making full use of and strengthen relevant international regimes – this includes the participation in international peer review missions. It also emphasised the close link between nuclear safety, security and counterterrorism strategies. Security measures need to be continuously re-assessed in light of evolving threats. Looking ahead, peer reviews of the Member States’ final reports on nuclear safety are being carried out until April 2012 to ensure that no important issues have been overlooked and to provide national regulators with good practices for further consideration. The Commission will then present a final report to the European Council for their 28-29 June 2012 meeting, including possible legislative initiatives aiming to further strengthen the nuclear safety framework in Europe. Similarly, the final results of the work of the Council Ad-hoc Group on Nuclear Security will be published in its final report by June 2012.
Impact & Opportunities Following the earthquake and tsunami of the 11th March 2011 that hit the Fukushima-Daiichi nuclear power plant in Japan, nuclear safety has regained heavy political attention. It has become a very sensitive topic on which it would be unwise to present another picture than one of extensive cooperation. A low profile and the image of a concerned, transparent but serious industry that is willing to cooperate should be overall favoured. At the national level, regulators are considering how to engage the public by organising a structured and comprehensive information process. At the EU level, a public meeting was held on January 17 and stakeholders were given the opportunity to submit peer review suggestions until January 20. A further public meeting will be organised after completion of the final peer review report and, if possible, before the submission of the Commission’s report to the European Council next June. Participation in these meetings and engagement with the national and European authorities is essential to stay ahead of the game.
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Hill+Knowlton Strategies’ regular update on key European regulatory developments that will directly impact businesses in the energy sector.