EU Energy Policy Blog

The European Union is engaged in a process of market inte- gration over a long period. Cross-border energy infrastructure investments should play a key role in reaching this objective. However, cross-border investment projects having a European interest are currently undertaken only country by country with an insufficient cooperation between actors involved in such a project. Beside the lack of cooperation, the asymmetries of cost allocation and of benefit distribution of cross-border infrastructure plus the presence of economic externalities have lead to a suboptimal situation at the EU level. Continue reading »

The discussion on a target model for European gas network access has been going on for a while now,officially starting with the conclusion of the 18th Madrid Forum in 2010 which invited ““the Commission and the regulators to explore, in close cooperation with system operators and other stakeholders, the interaction and interdependence of all relevant areas for network codes and to initiate a process establishing a gas market target model””.
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In the EU like elsewhere the amount of energy that will be consumed in the future is determined as the product of population, wealth and energy intensity.
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Recent declarations of European leaders, like J. Buzek President of the Parliament, or the former European Commission President J. Delors, remind the necessity to accelerate the Europeanization of energy policy. They demonstrate a renewed interest for potentialities and limitations of the current decision-making mechanisms in this area. The establishment of a new European Energy Community, the revamping of the old EURATOM Treaty or an ‘enhanced cooperation’ mechanism are propositions to provide a way out and are increasingly structuring the energy policy debate today.
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EU energy policy is a basket of a number of policies that are concerned with energy markets and energy issues. Since the 2007 Spring Council, the basket is based on three pillars: climate change, competitiveness and supply security. Let’s look separately and then jointly at the Kyoto, Lisbon and Moscow summits of this magic EU triangle.
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EU energy policy can be pushed or pulled by Europeans and European Member States. Of course, the EU faces tremendous energy challenges ahead, such as competitiveness, security of supply and sustainability. Furthermore, the current energy price deflation in effect since late summer 2008 is not a universal remedy and could even worsen the situation by suppressing incentives to act boldly and by reducing resources to finance necessary changes. Europe must face these great challenges while its energy policy is still in its infancy. This may not be all bad, and could indeed represent an opportunity.

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Energy security of supply is an extremely political matter. It involves consideration of international relations, geography and infrastructure control. Despite these realities economics has much to offer improved policy-making for security of supply.
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The publication of the EU Commission proposal for the 3rd legislative energy market package in September 2007 reopened a much debated issue about the pros and cons of different electricity transmission institutional arrangements. Even if one should not minimize the intrusion of political considerations, economic theory and empirical evidence provide useful insights to the debate.
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Today’s European electricity markets are still wrapped up with long-term vertical contracts and liberalization has not changed much this traditional sales pattern. Due to their ambiguous effects on competition and welfare in the long run, long term contracts are a key issue of competition law enforcement and we cannot but notice that economic theory remains far from providing precise guidance to competition authorities.

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