For the first time the International Energy Agency (IEA) - the energy adviser to 27 developed countries including Ireland - has reviewed the energy policies of the European Union which shape the energy use of almost 500 million citizens in 27 EU member countries. The IEA said that the EU should fully liberalise its electricity and gas markets, supporting a proposal to split ownership of gas and electricity supply from pipelines and grids, that was announced by the European Commission last year.

However, European Union energy ministers responded to pressure from France and Germany at a June summit and agreed to give big energy companies easier alternatives to being broken up.

“The European Union is a leader of the global action to mitigate climate change through its bold and innovative energy policies”, said Nobuo Tanaka, Executive Director of the IEA, on Thursday in Brussels at the press launch of IEA Energy Policies Review: The European Union - 2008.

Among its key findings, the review welcomes the EU Commission’s ”climate and energy package” proposed in January 2008. It recommends to vigorously pursue implementation of this package while increasing energy efficiency throughout all sectors of the economy. The IEA says that the EU should furthermore make sure that European energy markets will be open, transparent and competitive in the future, and become more consistent in its relationship with relevant supplier nations. The level of spending for energy research and development (R&D) must be urgently augmented to reflect the importance of technology in addressing growing energy challenges.

On 23 January 2008, the EU Commission presented its climate and energy package which features legislative proposals on CO₂ ”burden sharing” and on the post-2012 period of carbon trading under the EU Emissions Trading System (ETS). The Commission seeks also to promote the development of carbon capture and storage (CCS), and proposes national renewable energy targets, including biofuels, for each member state. The IEA said it views these proposals as ambitious and forward looking. They will require sustained action and significant levels of investment to become reality. If the proposals are successfully implemented, they will result in a transformation of the way the EU produces and uses energy. “It is heartening to see that the European Council at its Summit in March 2008 agreed to adopt these goals by the end of the year”, Tanaka said. He stressed however that “the Commission should be bolder in enlisting the help of the market to achieve the targets more cheaply, by pursuing them on the European level. For example, the current proposal to allow member states to restrict trading of renewable electricity certificates up to 2020 is likely to increase considerably the cost of achieving the targets for all energy users in the EU.”

“The Commission’s continued drive to liberalise EU energy markets is a policy which we fully support”, Tanaka stated. EU energy market liberalisation will not only provide consumers with more choice, but also ensure that costs are distributed in the most economically efficient manner. This policy will benefit the environment, by furthering integration and interconnection, thereby increasing the opportunities for clean energy sources such as wind, which will benefit from stronger cross-border interconnections. “Exposing consumers at all levels to cost-reflective prices will also encourage them to use energy in a sensible manner, and thereby increase energy efficiency,” Tanaka said. “In particular the proposals on unbundling will help drive the development of a truly European energy market, and the European Commission should continue to pursue them.”

“Developing and managing relationships with important supplier nations is critical for continued security of supply”, Tanaka observed, pointing out that “the European Commission has undertaken laudable work in this area, for example through the establishment of supplier-consumer dialogues such as the EU/OPEC meetings.” Many EU member states prefer to maintain their bilateral relationships with supplier countries, which may affect the strength of the European Union to act as a single entity, the IEA said. The agency said that the European Commission and the other institutions of the EU should consider creating a more central role for themselves at the Union level in these supplier relationships, to ensure that the full weight of the European Union comes to play.

Energy R&D

To address the energy and environmental challenges the world is facing, investment in energy R&D will have to increase significantly. The level of EU energy R&D spending is currently foreseen to be €5.1bn between now and 2013, compared to €9bn for information technology. R&D should furthermore be managed in a strategic manner, to ensure that it is in line with the goals that are pursued. The IEA said that the European Union is doing well in addressing the strategic management, which it has reinforced by developing the Strategic Energy Technology Plan in 2007, a comprehensive plan to accelerate energy technologies for a low-carbon future. But it is facing a serious challenge in the area of fund availability. Nevertheless, the current Framework Programme allocates €1.95 bn, or almost 40% of the energy funding, to nuclear fusion, a technology that is only expected to contribute past 2050. It will be important for the achievement of the EU climate change targets that this funding allocation is revised at the earliest possible opportunity, and that funding for non-nuclear energy research and development is increased significantly.