On 22 May 2013, the European Council met in Brussels to discuss two matters that are crucial for the recovery of the EU economies: energy, and tax fraud and evasion. This briefing looks at the Council's conclusions on energy.
"The reality is that the global energy landscape is changing quickly and not in Europe's favour" - this is not a headline in some business publication, but rather the statement made by the President of the European Commission following the European Council meeting on May 22.
According to Joao Manuel Barroso, over the past 7 years gas and electricity prices increased by 35%, respectively 38% for the industrial sector and by 45%, respectively 22% for households in the EU. During the same period, US gas prices dropped 66% for gas and 4% for electricity for the industrial sector, and only increased by 3% for gas and by 8% for electricity for households.
The causes for this divergence can largely be attributed to the financial crisis, the Fukushima accident, and the shale gas revolution in the US.
The energy cost across the EU currently accounts for 12% of GDP and is forecasted to rise at 14% by 2050.
What Mr. Barroso did not mention in his presentation is that the shale gas revolution in the US and the systematic increase of gas prices in Europe has also helped coal to make a comeback in Europe, where it is replacing gas. This development is of course very much at odds with Europe's green and climate change policy.
In his presentation to the Council, Mr. Barroso made it clear that energy costs will rise in all scenarios and that the key issue now is to address what can be done to contain the price escalation in order to ensure that it does not cause energyintensive industries to migrate away from Europe.
The Council agreed on the following priorities:
- Effectively completing the internal energy market by 2014.
- Significant investments in new and intelligent infrastructure, such as smart grids and smart meters. In the Council's view, the financing for these investments should come primarily from the market, rather than from public funding at the EU or national level.
- Diversification of the energy supply to Europe and development of indigenous energy resources. The Council translates this target into keeping up with developing new renewable energy capacities and recourse to onshore and offshore European natural resources. We can perhaps read between the lines here that the Council is referring to shale gas.
- Energy efficiency.
In addition, the Council's conclusions attribute a primary role to the effective functioning of the energy markets, with the oil price indexation for gas being singled out as an issue that needs to be looked at.
What's next? It is expected that by the end of this year, some clarity will emerge with regard to the way forward for the European energy policies beyond 2020, as the public consultation on the Green Paper on a 2030 framework for climate and energy policies is coming to an end in early July. Also the Commission is preparing a set of guidelines on costeffective support schemes for renewables; these guidelines are also expected to be published this year. Finally, the Commission intends to present an analysis on the drivers and main elements of the energy prices and costs for the Member States, placing a focus on energyintensive industries and households.
The Council's latest conclusions confirm that the focus of Europe's policy makers has shifted from the concept of a "green economy" to the reality of uncompetitive energy prices.
The Conclusions of the European Council of 22 May 2013 and related documents can be viewed here: http://ec.europa.eu/energy/council/2013_en.htm
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