MuCEM by Rudy Ricciotti, Marseille / Lighting by Yann Kersalé

Bridging the Gap? The Governance of the Energy Union

by Marie Vandendriessche

The Road to the Energy Union

This article will zoom in on the EU’s Energy Union, and particularly a novel part of it: the Governance regulation proposed by the Commission in November 2016, which is currently traveling along the legislative pipeline. To understand this new regulation, some context is first needed. In the first section, we will focus on the birth of the Energy Union, showing what critically distinguishes it from previous EU energy policy.

The EU’s Energy Union was born on July 15, 2014, when Jean-Claude Juncker delivered his inaugural speech to the European Parliament in Strasbourg and outlined the ten policy priorities for the Commission he would soon lead. As MEP Claude Turmes decribes in his book Transition énergétique: Une chance pour l’Europe, EU parliamentarians looked up in surprise when they heard the incoming Commission president use the term ‘Energy Union’ to describe one of those priorities.

The term was not new. A few months earlier, Donald Tusk, then Polish prime minister, had called for an ‘energy union’ as a reaction to Russia’s annexation of Crimea and the security of gas supply concerns that the annexation and subsequent friction had rekindled. Yet some of the policies Tusk was suggesting, such as “a single European body charged with buying [Russia’s] gas,” would make for a difficult fit with Europe’s traditional policy framework.

As it turned out, Juncker had loaned the Tusk’s term, but used it to baptize a rather different baby. Whereas the Polish PM had focused primarily on security of supply while simultaneously keeping his country’s energy priorities (particularly domestic coal) in mind, Juncker’s Energy Union concept included not only security of supply considerations but also policies on renewables, energy efficiency, and the completion of the internal market. It was, in effect, a reorganization of the EU’s energy policy and its relation to climate policy.

Paradoxically, energy policy has been one of the slower areas to develop in the European Union, despite the Union’s roots, which lie, in part, in two energy-related international organizations: the European Coal and Steel Community and Euratom. It took until the late eighties for the European Community to consider applying its single market approach to energy, and until 1996 for the market liberalization and integration strategy to take hold. By 2009, three legislative packages were supporting this strategy.

By 2014, however, it had become clear that more action would be necessary. On the one hand, security of supply concerns had returned — particularly in gas. In 2006 and 2009, Russia had cut off gas supply to Ukraine, with consequent effects for a number of European states, such as Poland, Hungary and Bulgaria. After Russia’s annexation of Crimea and a renewed gas dispute between Gazprom and Ukraine, member states importing around 90% of their gas from Russia, such as Bulgaria and Slovakia, became worried once again.

On the other hand, energy and climate change policies in the EU were crossing paths with increasing frequency and leading to fraught situations. The Commission’s traditional liberalization agenda in energy was bumping up against a stark increase in national regulation and policy measures. Yet member states had, in many cases, put those policy measures into place precisely in order to meet EU climate change mitigation goals that required the implementation of specific technologies (such as renewables). To add to the messy situation, the instrument that was meant to bridge climate and energy policy through market forces (the EU’s Emissions Trading Scheme) was producing carbon prices far too low to provide the type of signals that the market required.

Progress on energy policy at the EU level was thus necessary — but it was also desired. 2014 saw many of the EU’s member states and citizens in a rather Eurosceptic mood. Support for the European project was in decline, and political parties with Eurosceptic mindsets were on the rise. Yet energy provided a rare area of agreement,[1]which the incoming Juncker Commission seized: as the graph below demonstrates, support for a common energy policy among EU citizens has consistently been high, at 70% or above.

Source: Eurobarometer

Moreover, the policy provided a roof all member states could initially see themselves under. The Central and Eastern European states felt their Russia-related security of supply concerns could be addressed under this concept, and many of the northern member states saw the value of a broad roof which could cover and interconnect energy and climate policy areas.

With the appointment of Slovakia’s Maroš Šefčovič as Vice-President for the Energy Union and Spain’s Arias Cañete as Commissioner for Climate Action and Energy, work was started to develop the Energy Union concept further. By February 25, 2015, a clearer outline materialized, in the shape of the Commission Communication A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy. The Energy Union, which aimed to deliver greater energy security, sustainability and competitiveness, was to be made up of “five mutually-reinforcing and closely interrelated dimensions”:

• Energy security, solidarity and trust
• A fully integrated European energy market
• Energy efficiency contributing to moderation of demand
• Decarbonising the economy
• Research, Innovation and Competitiveness

Herein lies a fundamental innovation of the Energy Union: in its interrelated, holistic approach, the strategy constitutes an attempt to push past the silo mentality that has traditionally characterized the EU’s energy policy. The Energy Union was to be a broad, holistic framework encompassing many issue areas, with a medium- to long-term outlook.

The combination of (a) this silo-breaking approach, along with (b) the EU’s new 2030 climate and energy objectives (which were finalized as the Energy Union strategy was developed), and © the upcoming Paris process under the UNFCCC (United Nations Framework Convention on Climate Change) track created the need for a blueprint capable of coordinating and ensuring coherence between the policy measures being taken at various levels (EU and member state level). This blueprint was Governance — the topic we will address in next week’s post.

Mind the gap: the proposed governance of the Energy Union

Let’s now focus on how the Commission proposed to ensure policy coherence, complementarity and ambition in this new structure: through a regulation on Governance.

Why the need for Governance?

As discussed in the previous post, a combination of three factors explains the need for this very new element in the EU’s energy policy: (1) the interconnected and holistic nature of the new Energy Union itself, (2) the requirements for the EU and its member states under the UNFCCC’s Paris process, and (3) the 2020/2030 switch. When the EU set its energy and climate targets for 2030, it largely abandoned the approach of nationally binding objectives, shifting to EU-level targets instead — and thus created some important multi-level challenges.

The 2020 energy and climate targets were relatively simple in their structure: the goals on reducing greenhouse gas emissions (GHG) and increasing the share of renewables in energy consumption were binding at the member state level, while the energy efficiency goal was indicative at the member state level. It is important to place these targets in their context: they were set in 2007–8, before the effects of the global economic crisis truly started to damage confidence in the European project, and before COP15, the critical climate change summit held in Copenhagen in 2009 in which the EU hoped to play a leading role (although this hope did not become reality).

The sequel to this framework — the 2030 energy and climate targets — was proposed and approved in 2014. However, the times had changed. Again, an important climate change summit — the COP21 summit in Paris — was right around the corner. And again, the EU wanted to take a leadership role in climate change mitigation. However, experiences with the implementation of the 2020 targets and the confidence-eroding effects of the crises led European leaders to choose a different design for the 2030 objectives. While the GHG reduction target remained binding at the member state level, the targets for energy efficiency and renewables were set at the Union level only.

The question thus emerged: How could it be guaranteed that the member states’ individual contributions would add up to reach the collective, Union-level renewables and energy efficiency goals? A clear framework would be required — and this is where governance came in.

GHG objectives: Note that there are two components to this overarching target: the ETS sectors are jointly covered at the EU level, while the non-ETS sectors are covered by individual, differentiated binding national targets.

What type of Governance? The proposed design.

The Commission proposed, in November 2016, a Governance regulation with two main building blocks: (1) ten-yearly national integrated energy and climate plans (NECPs), and (2) a reporting and monitoring process (consisting chiefly of biennial progress reports and a set of specific provisions for GHG emissions inventories).

Each EU member state would be required, in 2018–2019, to draw up a national plan for the 2020–2030 period, revealing the fit of its planned policies and measures with the overall 2030 and Energy Union goals. This drafting process, depicted graphically below, would allow the Commission to detect any gap in member states’ ambition (with respect to the Energy Union/2030 goals).

From 2021 on, member states would be required to submit biennial progress reports on the implementation of their national plans. The reports would allow the Commission to discover any gap in delivery — whether at member state level (if a country was not living up to its national plan) or Union level (if the member states’ efforts were not adding up the collective goal) — and take measures to fill those gaps. These procedures are represented and described below.

For the GHG target, which has remained nationally binding in the 2030 framework, the proposed Governance regulation largely encapsulates previous legislation on reporting, monitoring and verification (which has been honed over the years through EU and member state experience with the Kyoto Protocol). In terms of planning, member states are required to include their GHG policies in the national plans (NECPs). In addition, they must develop long-term low emissions strategies with a 50-year perspective (in keeping with the EU target of reducing the Union’s GHG emissions by 85–90% by 2050).

What tools? The power under the hood.

As represented above, both elements of the Governance regulation — NECPs and progress reports — provide entry points for the Commission to detect problems (of consistency, coherence or ambition) and deploy tools to address them. The potential power of each of these tools — which are utilized in specific circumstances, see figures above — is discussed in turn:

1. Union-level measures: If the Commission detects ambition gaps or gaps in the execution of NECPs, it can take measures at the EU level as a remedy. Since the proposed regulation does not offer further detail on what shape these measures might take, this remains open to the imagination. Creating and taking EU-level measures, however, involves potentially fraught political processes — which might limit their ultimate strength and effectiveness.
2. Commission recommendations to member states: The effectiveness of this measure depends almost entirely on the goodwill of the member states, given that no explicit backstops are foreseen in case these indicative recommendations are not implemented. Past experiences have shown that application of such recommendations has been limited.
3. Specific gap-closing measures for the renewables and energy efficiency goals (see the bottom section of figure above): These tools are more concrete, which could also make them a more contentious element in the legislative process on the regulation. Regarding the financing platform (which is proposed as a gap-filling mechanism in case the collective Union-level renewables goal appears unlikely to be met), there is little clarity on its functioning. In general, if these tools were to be used, it is likely that the Commission would seek technical solutions through committees, only reaching the Council in case no agreement were reached.

Overall, it is clear that while the proposed reporting and monitoring system is strong on formal processes and procedures, it is very much open-ended on substance, and particularly on enforcement rules. The governance of the GHG target, which has remained nationally binding, is the exception.

1. Specific gap-closing measures for the GHG goal: Not represented in the figures above, the GHG-related tools include remedial action plans, opinions and recommendations; as well as compliance checks and potential changes to emissions allocations (described in more detail here). In general, these measures have more bite, which may increase their effectiveness.
2. Transparency: although this is perhaps not an explicit governance tool, the transparency provided by the public NECPs and the monitoring and reporting process (which also includes yearly State of the Energy Union reports) opens up multiple vantage points from which all types of actors can study both member state and overall EU progress towards the 2030 and Energy Union targets. This could open the door for ‘naming and shaming’ type processes.

In general, and despite some clear corrective measures for the GHG target, many of the tools proposed in the new regulation could be labelled ‘soft governance’, in which reputational mechanisms play a large role. In other words, in this model, the goodwill of member states would be vital to bridge the national/EU-level gap that was created when the 2030 goals were set.

But both the regulation and its tools are yet to be confirmed, as the legislative process on the proposal is still underway. The political debate on this regulation will be the topic of the next — and final — post.

Will the Bridge Span the Gap? The Political Debate on Governance

Slipping into the legislative pipeline, the final part of this article is offering a view of the political struggle that is taking place at the European Parliament and the Council (TTE) levels. The outcome of this political debate will ultimately determine the effectiveness of the Governance regulation.

The switch from the 2020 to the 2030 energy and climate framework was the result of a political struggle, and the same would hold true for the proposed Governance regulation. When the European Council decided to move to EU-level renewables and energy efficiency targets for 2030, states such as the UK and Eastern European countries (which had argued in favour of more flexibility for member states to achieve the energy and climate goals) were left satisfied. However, member states that had argued for binding, national-level targets for 2030 and lost — such as Germany, France, Italy and the Scandinavian countries — worried that the new framework would not be effective.

As explained in the second post in this series, the major question was: how it could be ensured that the member states’ individual contributions would add up to the collective EU-level renewables and energy efficiency goals? To the member states that had argued for nationally binding targets, a robust and reliable Governance system would be critical, as the only way to ensure the Union’s goals would be met.

The year since the Commission proposed its Governance regulation has thus been filled with political debate. At the European Parliament’s ITRE (Industry, Research and Energy) and ENVI (Environment, Public Health and Food Safety) committees, the regulation was studied and debated extensively, leading to some 1700 proposed amendments at a certain stage. At the Energy Council meetings, the beginning of 2017 saw member states tentatively taking positions on the Governance issues; this evolved into full-on debates and proposals in the latter half of the year.

In December 2017, many of these discussions temporarily came to a head. At a marathon, 15-hour, Council session on December 18 (which addressed three other elements of the Clean Energy Package in addition to the Governance proposal) EU ministers ultimately reached agreement on a ‘general approach’ (i.e., negotiating position) to the regulation. At the European Parliament, a modified text passed in a joint ITRE-ENVI vote on December 7, by 61 votes for, 46 against and 9 abstentions. However, this proposed text must still face a vote in the plenary, which is currently scheduled for January 17 in Strasbourg.

During the late hours of the Energy Council in December, disagreements on the Governance of the contentious renewables target nearly derailed discussions. The Parliament had followed the Commission in opting for a lineartrajectory — that is to say that both member states individually and the EU collectively would be required to increase the share of renewables in their energy consumption in a linear fashion up to 2030 (when the overarching 27% goal would be met). Many ministers in the Council, however, argued that states needed more flexibility in their trajectories in order to achieve the investment needed to reach the target.

The Estonian presidency, therefore, suggested an indicative, non-linear trajectory with two reference points, or milestones, both at the EU and member state level: 22.5% in 2023 and 40% in 2025.[1] These points were designed to help avoid a ‘hockey stick’ trajectory, where member states would take advantage of the flexibility and little to no investment would be made in renewables until just before the 2030 deadline. At the December 18 debate, France, Germany, Sweden and Luxemburg, among others (i.e., those countries that would have preferred nationally binding targets for 2030) pushed to add an additional (75%) reference point in 2027 and to increase the ambition of the 2023 and 2025 milestones. After late-night negotiations, the Council settled on 24% for 2023, 40% for 2025, and 60% for 2027. In case the reference points were not met, member states would need to implement additional measures to reach the milestones.

The Council also debated the tools available if ambition or delivery gaps were discovered, such as the recommendations that the Commission would give to member states in case it detected a gap in ambition between a state’s draft integrated National Energy and Climate Plan (NECP) and the necessary trajectory towards the 2030 target. The energy ministers underlined that those recommendations would be (a) non-binding (this was already the case in the Commission’s proposal) and (b) non-quantitative (this is a change with respect to the original proposal, and one the Commission argued against repeatedly). In other words, although the Commission would be able to use quantitative data in its analysis of the member states’ mid-term plans, its recommendations would have to remain qualitative in nature. This step would arguably decrease further the potential effectiveness of this non-binding tool.

Both the Council and the Parliament furthermore added detail on the financing platform for EU-level renewables projects (which the Commission proposed as a gap-filling mechanism in case the collective Union-level renewables goal appeared unlikely to be met), stipulating that member state contributions would be voluntary. The Council, moreover, included some more precise provisions on the shape of the support offered by the financing mechanism and defined more strictly how it would be applied in member states.

In terms of the timelines for the planning and reporting phases, both the Parliament and the Council introduced some changes. Some were pragmatic, such as delaying the deadline for member states to submit their draft NECPs,[2] and requiring the Commission to submit its recommendations on draft NECPs within a tighter timeline (so that member states would have time to make the necessary changes). Others were connected to long-term planning for energy and climate policies: interestingly, both the Council and the Parliament added more emphasis than the Commission had on the Paris Agreement and gave the long-term strategies a larger role (see Duwe, 2017 for a detailed view of this alignment). The Parliament, in particular, attempted to realign the timeline of the Governance processes with those under the Paris Agreement (note that the EU aims to play a leading role in the Paris process, which was designed around the same time as the EU’s 2030 energy and climate framework. This will require strong energy and climate Governance on the part of the EU, including clear alignment with the Paris cycles).

Meanwhile, and as was to be expected given the Governance regulation’s cross-cutting role across energy and climate policies, some member states attempted to link issues in Governance with other components of the Clean Energy Package. Potential modifications of the 2030 targets decided by the European Council in 2014, for instance, were followed with great interest (see below for a table of the Commission and Parliament’s current proposals; the Council of Ministers maintained the original targets determined in 2014 by the European Council).

Yet other issue linkages were also used in the negotiations. Spain, along with Portugal and France, for example, succeeded in placing more emphasis on electricity interconnections — one of the most important energy topics for them, especially Spain, which has high potential to export its renewables generation — in the Governance package. The Council’s ‘general approach’ text now calls for member states to include a strategy to achieve at least 15% in electricity interconnection by 2030 in their NECPs (though each new interconnector would be subject to socio-economic and environmental cost-benefit analysis) and includes a provision where the Commission would ‘cooperate’ with member states in 2026 in case the 2025 assessment reveals that progress towards the interconnection target is insufficient.

In addition, in Parliament, further issues were added into Governance or were given a more prominent role. The Parliament’s current text, for instance, (a) includes energy poverty in the planning and reporting obligations, (b) establishes a new, multi-level energy dialogue platform, © stresses that all parts of the Governance process be transparent to the public (including Commission recommendations and member state justifications in case they deviate from the recommendations), (d) establishes a Just Transition Initiative for workers and communities affected by the transition to a low carbon economy and (e) calls for a new concept of cross-border Renewables Projects of EU Interest (RPEIs).

Although the debate has been intense up to now, it is far from over. The Parliament is yet to confirm its position, after which trilogue discussions (Parliament-Council-Commission) must begin to reach a final compromise text. These negotiations will not be a walk in the park: the Parliament has taken more ambitious views than the Council, opting for a linear trajectory for the renewables goal and higher renewables and efficiency targets overall. In addition, it has asked for more transparency in the Governance process, while the Council has built in more flexibility for member states to achieve the targets.

The outcome of these discussions will ultimately define the effectiveness of the Governance regulation, answering the question: Will the EU will be equipped to bridge any gaps that might arise in the national-level implementation of EU-level 2030 energy and climate goals?

This essay was originally published as a series of fully referenced blog posts on the FSR website which can be read here