Energy Policies in the EU – 50 years in the waiting

Since the inception of the European Union at the end of World War II, the idea of creating a common, strong energy policy that would allow Europe to have cheap and secure (and later also green) energy supplies has been constantly buzzing in negotiations and in EU offices. The very idea of the European Union was built on energy: the first nucleus of a united Europe was the European Coal Organisation (ECO), set up in 1946 by the United States and the UK, to coordinate production and distribution of coal (and coal-mining equipment) in the continent, during the severe coal shortage caused by the war. After this experience, which was mostly supervised by the United States, the European Coal and Steel Community (ECSC) was established in 1951. It was the first European-level institution between Italy, France, Germany, Belgium, the Netherlands, Luxembourg (the Inner Six), with the idea that establishing a common market for coal and steel would not only promote economic growth and better standards of living, but it would make war amongst European states materially impossible.

Except, by 1951 coal was not the most needed energy source in the world: it was oil. And oil was not under the control of Europe, a land that is scarce in oil throughout (particularly before the arrival of offshore technologies); it was mostly under US control, both in terms of reserves and in terms of market control by US-based companies. The Marshall Plan, the basis to establish the OECD (Organisation for Economic Co-operation and Development), was heavily reliant on energy products: more than 10% of the loans given by the US to Europe were specifically issued for the purchase of oil, which European countries purchased from US companies. In general, the US strongly promoted the usage of American oil in OECD countries, fearing that an energy crisis could push some European states to establish closer links with the Soviet Union – and perhaps more importantly, as the largest and fastest growing energy market in the world, Europe’s growing thirst for oil was a fantastic business opportunity for American companies.

Within the Inner Six, the switch to oil created two divided areas of interest, which related mostly to different approaches in the relations between energy companies and public institutions. On the one hand, Germany and Benelux (Belgium, the Netherlands and Luxembourg) wanted to push for the preservation of the coal market, to avoid a social crisis with the loss of mining jobs. At the same time, they were content to rely on a seemingly free-market approach by leaving oil companies to independently manage oil supplies in their countries, without state intervention if not to protect coal markets. On the other hand, France and Italy wanted to push for the consumption of oil (and later gas), with provisions to favour the usage of oil produced by European state companies, and invested a great deal in developing an autochthonous oil industry through which to control domestic markets and energy prices (by the early 1960s, it was the price of oil that determined energy costs).

Energy policies in the European Economic Community (EEC) mostly focussed on coal, while oil supplies were discussed within the OECD framework: the OECD had a permanent “oil committee”, but the EEC did not. This is not a trivial detail, as US interests were strongly represented in the OECD. Market integration on energy was also mostly negotiated in the GATT (General Agreement on Tariffs and Trade) rounds for the development of global commerce, which later became the World Trade Organisation (WTO). General energy policies were shaped mostly by the Cold War (such as a boycott of Russian oil and gas, even though most countries repeatedly disregarded this in favour of cheap imports), by the willingness of protecting coal markets, and by general protectionism to favour local companies.

Apart from the creation of the Euratom in 1957 for cooperation on nuclear energy, the only other achievement in energy policies at a European level was a series of agreements on storage capacity of oil in case of disruption in supplies, which were dwarfed by oil companies which did not want to pay the costs of storing crude oil in the long term. Interestingly, this was achieved because both France and Italy periodically expressed their unease in leaving oil supplies, which by the early 1960s were at the heart of European economic recovery and mass motorisation, in the hands of private firms which dealt directly with producer countries.

Since the mid-1960s, both countries complained that if companies and producer countries struck an agreement, Europe would see its energy prices skyrocket; but in 1973, when the prophecy unfolded with the biggest economic shock to the European economy before the 2008 financial crisis, European countries were caught completely unprepared. Action was decided only at a national level, but often in competition with other EU countries; no solidarity nor shared supply control mechanisms were implemented, and apart from the most acute phase of the shock, companies were once again the only interface through which governments dealt with the crisis. They were the institutions that followed the crisis.

Only 36 years later, with the 2009 Lisbon Treaty, shared competencies between the European Union and Member States were established on energy matters, starting a slow path for converging policies. In matters of energy, the Treaty only established a fiscal solidarity mechanism for states hit by an energy crisis, and the promotion of integrated energy networks. Most importantly, it set the principles that the Union had to work towards environmental protection and sustainable development. However, on energy and environment matters, Member States preserved shared competencies with the European Union, meaning that the European Union does not have exclusive competencies, but it has to wait for Member States to implement their policies.

The “Energy Union'' project, launched by Jean-Claude Juncker in February 2015, in view of the Paris Conference, created an EU-level energy policy covering several key areas: ensure the functioning of the internal energy market and the interconnection of energy networks; security of energy supply; energy efficiency; promote research, innovation and competitiveness. While the goals for a switch to a green economy are ambitious, each Member State maintains its right to ‘determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply’, as stated in Article 194(2) of the Lisbon Treaty. Collaboration in the fight against climate change has therefore brought Europe together, at least on paper, but divergences amongst countries remain, covering 3 macro-areas: geopolitical considerations (for example, Eastern European countries being particularly reliant on coal against energy dependence from Russian gas); employment consideration (Germany is still protecting its coal mines); and perhaps most importantly, in lack of strong legislation, energy company behemoths do not seem willing to reconvert to renewables.

While the EU area, including the UK, only accounts for 9% of global emissions, Europe hosts four of the largest energy companies in the world (Shell, ENI, BP, and Total), which until very recently only spent 1% of their budgets in green energy. Much like in the years heading to 1973, intervening on the actions of energy companies and global energy markets would allow for a much stronger environmental impact on part of Europe. Fifty years later, the chicken and egg problem of energy policies in the EU, the companies or the institutions, is still strongly present in the debate on energy issues.