European Energy Security: Achievements, Shortcomings, and Potential Improvements

December 16, 2011

On December 16, 2011, the American Institute for Contemporary Studies (AGI) hosted a discussion on “European Energy Security: Achievements, Shortcomings, and Potential Improvements.” During the seminar, Mr. Arne Schröer, DAAD/AGI Fellow, argued that not only does European energy policy have problems in identifying challenges and solving them, but also that Europe’s energy policy is very expensive because it is not very well organized.

Mr. Schröer explained that energy policy pursues three conflicting objectives: clean energy, cheap energy, and secure energy. European policymakers argue that an integrated European energy market can achieve all three objectives at the same time. Mr. Schröer then gave an overview of recent developments in European energy policy concerning oil, natural gas, and electricity. The oil market, which is a global market, is prone to price and supply volatility. In terms of dealing with this volatility, the European Union (EU) has developed crisis mechanisms to build-up oil reserves by requiring member states to maintain a minimum reserve of crude oil, with stricter rules than current requirements by the International Energy Agency (IEA). In terms of increasing sources of oil supply to increase energy security, the role of the EU is, however, rather limited. Its biggest influence is probably its policy toward Russia and the Caspian region as well as the Euro-Mediterranean Partnership. The third step to reduce vulnerability to the oil market’s volatility is to diminish the effect of a rise in oil prices on one’s economy. Here the EU has focused on increasing energy efficiency in the appliances and buildings sector.

Natural gas plays an even more important role for energy security in Europe than oil. Many European countries import the majority of their gas, and imports will continue to increase. Over 40 percent of the EU’s gas imports come from Russia, 18 percent from Algeria, and 20 percent from Norway (which is less of a security issue than the other two countries). Yet, the gas market has fundamentally changed as the exploration of shale gas in the U.S. has opened the opportunity for the EU to import gas from other countries. Thus, the supply security has improved remarkably during the last two years. As natural gas is the “cleanest” of fossil fuels, the extension of its usage promises quick and extensive reductions in greenhouse gas (GHG) emissions.

Current threats for European energy security originate mainly from the electricity sector. Both electricity generation and transmission capacities have approach their limits. Europe ability to cope with extreme conditions resulting in high energy demand as well as Germany’s decision to phase out nuclear energy remains to be seen. The EU aim to produce 20 percent of its energy needs by renewable energy in 2020 constitutes a further challenge for supply security and affordable prices in this regard. Mr. Schröer argued that an economically more feasible energy policy is needed. In times of tight budgets due to the unsolved debt crisis, European states should focus on reaching the more important goal of reducing GHG emissions by 20 percent until 2020. A stronger shift from coal to natural gas, for example, offers a more promising way to reduce GHG emissions, than the extension of some highly costly renewable energy sources, like photovoltaics.

In conclusion, Mr. Schröer argued that Europe needs to develop a better energy policy:

1. It needs to acknowledge that current threats to supply security originate mainly from within the Union itself.

2. The EU should reassess its policy instruments to simplify and streamline them.

3. European funds should be spent more wisely and more intelligently.

4. The EU should create market conditions so that technological innovation can occur. This means especially the inclusion of the external costs of GHG emissions in the price of fossil fuels.

5. The introduction of a carbon tax should be considered.

Finally, Mr. Schröer argued that the EU should reconsider its emphasis on renewable energy and use natural gas as an opportunity to achieve a European energy policy that provides clean, cheap, and secure energy.