EU: Time for a New Energy Policy

The EU needs a more coherent plan in the face of rising energy nationalism from its suppliers.

Of all the difficult challenges currently facing Europe, the need to secure a sustainable and affordable supply of energy for the long-term is surely among the most important. Given that almost every EU member state is now a net importer of energy, there could scarcely be a clearer example of the common European interest. Yet we have failed so far to develop the common policies required to face the future with confidence. Unless we can fashion a more integrated and robust European energy system with a stronger external energy policy to match, rising import dependency will become an acute source of political and economic vulnerability in the decades ahead.
The EU needs a credible policy for encouraging Russia to return to the multilateral, rules-based approach it embraced in the 1990s. Taking “no” for an answer should not be an option. A large part of the solution is for the EU to get its own house in order and press ahead with the rapid completion of its internal energy market. The latest energy liberalization package goes a long way to meeting that objective by proposing the separation of supply and transmission. It needs to be matched by investment to build the interconnectors needed to overcome market segmentation and switch gas and electricity supplies rapidly to meet demand within Europe.

There also needs to be a more active approach to energy diplomacy with countries in the eastern neighborhood and beyond. Extending the benefits of the single-market approach to transit countries in the east would benefit everyone involved. In particular, any measure that strengthened Ukraine’s energy security would automatically strengthen our own. Also welcome is the new political momentum behind the Nabucco gas pipeline project. Envisaged as part of a wider project to build a new energy corridor to the Caspian basin and beyond, this would transform the geopolitical reality of energy diplomacy in Europe’s favor. President Obama has announced his intention to develop the new technologies needed to reduce America’s reliance on carbon fuels. The EU should work with him, hand in hand.

Equipped with more effective instruments of internal and external policy, the EU would find itself in a much stronger bargaining position with respect to Russia. Even so, our intention should not be antagonistic. Russia has as much to gain from an energy relationship conducted according to market principles as we do, even if its leaders don’t always see it that way. One consequence of Russia’s shift to energy nationalism is that its energy sector has become chronically inefficient, with under-investment in new production putting a question mark over its ability to meet future supply commitments.

Wall Street Journal (through Google News)