European energy policy

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Start date: 2006 July 16

Topic: A European energy policy

Source story: Drafting an European energy policy - getting started by Jerome a Paris, July 16th 2006

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Task: Draft a European energy policy

Contents

A European Energy Policy

by Jerome A Paris

Introduction

Energy is a vital, strategic resource, and it needs to be treated as such, and, in particular, it needs to be valued (and thus priced) as such by all users and policy-makers. At the corner of our economic policies, foreign policies, social policies and intimately limked to global climate change, pollution and resource depletion, it is unacceptable that its impact on all of these is mostly hidden and obfuscated, thus allowing absurd claims on the apparent "cheapness" of some energy sources - and the corresponding use patterns, to go on unchallenged.

While Europe has made efforts at various times in the past, sometimes on a national basis and sometimes on a collective basis (like the decision in the 80s, sadly abandoned since, to regularly increase gas taxes, the EU Directive on renewable energies, which has given a decent base for the industry to take off, or the support for the Kyoto Protocol, which, however flawed and unsufficient, is a good start which promotes the right instruments), it sorely lacks an actual energy policy beyond the permanent calls to liberalise markets and the blame games between various countries on their supposed protectionism or their go-it-alone policies. Different resources bases, different attitudes to nuclear, different geographies have led to very distinct energy use patterns, different regulatory frameworks and little trust for the neighbors. The prevalent attitude of politicians to ignore the gravity of the current energy situation, and to focus on promises of "cheap energy" are not helping to build the necessary consensus that (i) a serious change in energy policies is needed and (ii) it requires EU wide policies.

I'll focus on the politics of it at dome later point. For now, I'd like to define what the long term goals of an actual EU energy policy should be, what needs to be done to get there, and some basic policies that need to be - and can be - implemented as first steps.

Goals of a smart European energy policy

I see the need to focus on 3 main long term goals:

  1. reduce ghg emissions massively;
  2. make energy prices fully transparent;
  3. make it clear that energy security starts with demand management

Climate change is the biggest threat on the horizon, and while it has had no major consequences for Europe yet, momentum is building steadily and we are certain to see in the coming decades the effects of our past recklessness. Even if we brutally stopped all greenhouse gas emissions, we'd still see climate change. While it is unrealistic to require such a stop immediately, it has to be an overriding long term goal: we have to get, in a few decades, to a point where our greenhouse gas emissions are reduced to tolerable levels - which means a small fraction of today's levels - and that means targetting a complete change in our energy use patterns, in particular away from burning hydrocarbons.

The second overriding goal is to make all direct and indirect consequences of our energy use a lot more explicit, so that (i) these consequences can be properly allocated to those that cause them, and (ii) that we stop behaving as if energy were cheap because we don't see or immediately bear the associated costs.

The final long term goal must be to find a way out of the "more is better" mindset, at least with respect to energy, and to get people to realize that energy security is achievable, but only if we start working on the demand side of the equation. Energy demand should no longer be a given, but be part of the plan - and a core part of it.

Main tools to put in place

With the above goals in mind, here are a few tools that I see as necessary:

a unified European energy policy
That would include moving towards a single electricity grid operator, and a Europe-wide regulator with real powers over grids (electricity, pipelines, import facilities), energy imports policy, transport, carbon emissions, and building codes. That obviously means agreeing on the objectives of the regulator and giving it a clear political framework for its action. That will require Europe-wide support and thus debate;
a massive effort to internalize all externalities and indirect costs of energy use.
Ways to do this include carbon taxes/neutrality obligations, energy import taxes, recycling obligations, re-valuation of "free" infrastructure or real estate made available to various activities, full lifetime energy cost evaluation of any equipment (manufacturing + use) to transfer back energy use costs to actual energy users. This needs to be done in a consistent and fair way across Europe, which requires both the existence of the pan-European regulator and an agreement on the policies it will run.
it will be essential to focus on what already works.
We already know what technologies work and, for the most part, at what cost, and what policy decisions will have a real impact. If we want to make massive energy savings and to get people to change behavior, enough tools are already there. What lacks is the political will and the educational background. Again, we're back to the political background for this debate;
finally, we need to start with the principle that public policy will never be - and should never be - "neutral"
Even full market liberalisation is a policy choice with very real comsequences that must be spelt out (a preference for investments with lower upfront costs that are hard to finance and higher operating costs that are higher to pass on to customers via the markets - usually burning hydrocarbons). Public policy should thus be made explicit - and ideally stable. Industry, and all users, will adapt easily to clear, lasting and well-enforced rules. Government is precisely about setting up such rules for the common good. If there ever was a topic that begged for smart government leadership, it is energy policy.

A few initial policy proposals

carbon emissions
all carbon (and other GHG) emissions must be included in the ETS (European Trading Scheme). That includes all transportation modes and should include all buildings.
energy import tax
All import of energy sources should be taxed at the European level to reflect the fact that such imports have policy consequences (military budgets, anti-terrorism budget, constraints on our ability to defend human rights and other values of ours in our diplomacy). Such tax might be sized on two things: concentration of reserves and production, and overall depletion levels.
electricity investment financing
public authorities (ideally the European regulator acting on political instructions) should define rules for future capacity investment and finance a known, fixed portion, which could vary per technology, of the cost of each generation project (thus eliminating the selection bias against high-investment low-operating cost technologies). Utilities need to be incentivised to encourage energy savings and be able to make money from "negawatts" by splitting the savings with the consumers.
transport reform
fuel consumption must go down. A feebate system penalising overweight, over-powerful and non fuel efficient cars, and rewarding high-MPG cars should be put in place, with increasing targets each year. Fuel taxes should go up (ideally via the carbon mechanisms). Road usage tolls need to be put in place everywhere. Kerosene must be taxed appropriately. Healthcare costs of transport (emergency services, road police, social support to handicapped people, air-pollution diseases) must be made explicit and included in transport costs
construction
All new construction should be up to the stricted environmental and energy use standards - imposed by regulation. Incentives must be provided to help improve all existing buildings' energy use patterns
education and debate
sustained PR and education effort to make the costs of energy use (and often, waste) more explicit - and make it clear that the "cheap" energy (in money terms) we're used to is not really "cheap" - we just pay it in other ways.
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