With the next European Parliament (EP) elections approaching on May 2019, the European Union (EU) will have to face several different challenges in a renewed institutional asset, among the most relevant of which it must be considered a new EU energy policy. Because of the dependence of the Member States (MSs) on external energy supplies, it is appropriate to underline the significance of having a Union’s common framework for policy action. This to guarantee not only the supply and diversification of the energy mix to MSs, but also to address the dimension concerning sustainability, thus green energy investments, environmental protection and renewable sources. The scope of this article is to provide an overall analysis on both history and the current framework of legislation for energy policy in the EU, addressing the creation of a Common Energy Market. 

1. Evolution of the EU internal energy policy

The path to the actual legal framework of energy policy in the EU is particularly event-driven (A. Takin & P.A. Williams, 2012). The first impetus for the institutionalization of a common European energy policy came from the instability of the earliest historical suppliers, notably Middle East countries. The socio-economic unpredictability of the Middle East initially pushed the European Council (EC) to build a common juridical agenda to manage energy issues. EC thus delivered the Oil Stock Directives in 1968 – obliging MSs to have crude oil stock in case of emergency – then pushed for the creation of a legal entity pledged to deal with oil supply emergencies, the International Energy Association (IEA) in 1973. The legal pathway was then completed with the implementation of two other directives by the EC (73/228/EEC and 77/706/EEC), to synchronize the responses to the two famous 1973 Arab oil embargo and 1979 post-Iranian Revolution oil crisis. 

The turbulences of the Arab region, in conjunction with the sudden end of the Cold War, caused the European Community to be promoter^[1]of the Energy Charter Treaty (ECT)^[2]in 1991, to pursue the objectives of free trade and free transit of energy materials and no unreasonable taxation. 

The real balancer on the matter was Russia, that in the immediate post-Cold War became the first market to look at for energy supplies and the only provider alternative to the Middle East, for the EU. Russia – as well as Norway, among the main energy exporters – followed the negotiations for the ECT but ultimately decided not to ratify the Treaty, thus forcing the EU to follow a parallel process of institutionalization of energy relations with the Russian Federation.

The current energy mix for EU MSs is in fact mostly dependent on Russia and, consequently, on transit countries like Ukraine (Table 1). Russia accounts, respectively, for the 31.6% and the 39.9% of total crude oil and natural gas supply in the EU – standing as the first exporter in the EU (European Commission, 2018) – while accounting the for the 12% of the world’s total oil supply and the 21% of the world’s natural gas supply (OECD). Russia’s energy sector is influenced by the State control over territorial resources, given the major companies to have government-held quotas (Transneft for oil, Gazprom for gas). This makes Russia’s energy policy a potential political weapon, as shown in the cases of 2006 and 2009 Russo-Ukrainian supply crisis^[3], that significantly impacted the EU energy market. 

Actually, the EU – mostly, the European Commission – tried to prioritize the creation of a stronger EU common energy market, in order to lower its dependence on Russian state-driven energy policy. For an internal energy market, the issue that makes bargaining difficult is the difference in preferences of the MSs. The Commission – to which the Treaties confer powers in managing infrastructures, single market and environment – issued several Green Papers on the topic of energy market, addressing the necessity of a common approach for the EU to reduce dependence and consequently vulnerability to international markets fluctuations and foreign policies. EC Green Paper 2006 – which followed the Russo-Ukrainian gas crisis – shaped the actual skeleton of EU energy policy, addressing the priorities for a) sustainable development, b) competitiveness and c) security of supply. The 2006 Green Paper has been implemented by the ones from 2007 and 2008 introducing real action plans (the “20/20 package and the Strategic Energy Review”), to which no real market integration followed.

2. Legal basis for a Common Energy Market

Since the creation of the European Coal and Steel Community (ECSC) and the EURATOM, the EU has struggled to provide a solid normative basis on which to rely for the construction of the internal energy market (A. Takin & P.A. Williams, 2012). Given what discussed in paragraph I, the Lisbon Treaty reform finally introduced a juridical framework for the energy policy, as provided by Article 194 TFEU, and in a complementary way by Articles 191 and 192 TFEU.

On the basis of Art. 194(1) TFEU, “…the Union policy on energy shall aim to:

1. Ensure the functioning of the energy market;
2. Ensure security of energy supply in the Union;
3. Promote energy efficiency and energy saving and the development of new and renewable forms of energy; and
4. Promote the interconnection of energy networks.”. 

Art. 194(1) (b) is of particular salience as it stresses out the concept of “security of energy supply” (SES), declined several times as a priority for the EU^[4]. Consistent with the legal outline given by the Commission’s 2000 and 2006 Green Papers, the Union’s urgency is that “energy supply security must be geared to ensuring…(I) the proper functioning of the economy, (II) the uninterrupted physical availability… (III) at a price which is affordable, while respecting environmental concerns” (European Commission, 2000). Security of supply does not seek to maximize energy self-sufficiency or to harmonize dependence but aims to reduce the risks linked to such dependence. 

Art. 194(2) TFEU provides reference to the ordinary legislative procedure^[5](disciplined under Art. 294 TFEU) – to be followed for the adoption of energy policy measures – given the principle of proportionality (Art. 5(4) TEU), as for “such measures shall not affect a Member State’s right to determine (I) the conditions for exploiting its energy resources, (II) its choice between different energy sources and (III) the general structure of its energy supply, without prejudice to Article 192(2) (c)”. Art. 194(3) also distresses the possibility for the Council to adopt “the measures referred to therein when they are primarily of a fiscal nature” via special legislative procedure. The Article has been the basis for the adoption of the Energy Taxation Directive^[6]in 2003, setting minimum levels of taxation on energy products and electricity. 

The treaty-based framework thus delivers for both the areas of competence of the EU (Art. 194(1) (a), (b), (c) TFEU) and the three main policy areas where MSs have the full rights to determine their energy policies (Art. 194(2) (I), (II), (III) TFEU). By way of derogation to the latter – as set out in Art. 194(2) (c) – Article 192(2) establishes that “the Council acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament, the Economic and Social Committee (ESC) and the Committee of the Regions (CoR), shall adopt:

1. provisions primarily of a fiscal nature;
2. measures affecting: town and country planning; quantitative management of water resources or affecting, directly or indirectly, the availability of those resources; land use, with the exception of waste management;
3. measures significantly affecting a Member State’s choice between different energy sources and the general structure of its energy supply”. 

The special legislative procedure above detailed allows the Council to adopt autonomously any measure concerning the circumstances defined in Art. 192(2) (c) – the outcome of the consultation with the EP, the ESC and the CoR is not binding in this case. At the date, thispasserelleclause has never been used, exposing the difficulty of MSs to reach agreements on a common energy policy. The Council, acting unanimously on a proposal from the Commission and after consulting the EP, the ESC and the CoR, may make the ordinary legislative procedure applicable to the matters referred to in the first subparagraph of Art. 192 TFEU.

Article 191 TFEU completes the framework on energy policy by addressing specific environmental priorities. Art. 191(1) TFEU provides – broadly – the scope of action of EU law on energy and environment: “Union policy on the environment shall contribute to pursuit of the following objectives: preserving, protecting and improving the quality of the environment; protecting human health; prudent and rational utilization of natural resources;  promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change”. In this context, harmonization measures answering environmental protection requirements “…shall include, where appropriate, a safeguard clause allowing Member States to take provisional measures, for non-economic environmental reasons, subject to a procedure of inspection by the Union”.

3. Conclusion

The efforts of policy-makers on developing a legal basis for the construction of a Common Energy Market within the Lisbon treaty have been constantly halted by the mechanism of unanimity voting required in the Council. 

Also considering as solid the legal framework up to date, this stalled situation reflects differences in MSs’ preferences toward a unified energy policy. To illustrate, MSs with higher energy import dependence share consequently higher overall risks on a market unification, showing up as reluctant to deeper integration policies. For what concerns natural gas for example, Austria and Hungary among others – which import from non-EEA countries – are supposed to be more risk-exposed in a common market. Another issue to be considered shall be the diversification of energy supply. The 2000 enlargement favored access to the post-soviet and Western countries who face higher risks in tighten relations with Russia (Europe’s first energy supplier, ibid.), thus determining a slowdown in the pathway to a common EU energy policy.

Even pondering the political implication, the potential of a fully integrated energy market for the EU remains outstanding. It has been recently estimated around €250 billion the possible payback of a more integrated energy market and of energy efficiency in the EU (European Parliament Research Service, 2017). Of these, the bulk €200 billion would come from full implementation of the EU’s energy efficiency measures, while the remainder would largely come from a better coordination of renewable investments – €25.5 billion – and the full integration of energy-related services – €12.5 billion. In this sense, both the EP and the Commission showed their commitment to the cause by setting out a roadmap to energy union’s objectives for 2030 and 2050, consistent with the Paris Climate Change Agreement. European public opinion seems to stand on the same line, as shown by a recent series of Eurobarometer surveys – according to which the 65% of EU citizens “would like to see greater EU involvement in energy policy”. 

Federico Dante De Falco

For further information:

Ali Takin & Paul Andrew Williams (2012), “Geo-politics of the Euro-Asia Energy Nexus. The European Union, Russia and Turkey”, Palgrave Macmillan, Series Editor: Stuart Croft

European Commission (2000), “Green Paper on the security of energy supply”, at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM%3Al27037

European Commission (2006), “Green Paper: A European strategy for sustainable, competitive and secure energy”, at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=legissum:l27062

European Commission (2018), “EU energy in figures. Statistical Pocketbook 2018 », at https://publications.europa.eu/en/publication-detail/-/publication/99fc30eb-c06d-11e8-9893-01aa75ed71a1/language-en

European Parliament Research Service (2017), “Mapping the Cost of Non-Europe, 2014-19”, at http://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_STU(2017)603239

^[1]The main promoter of the ECT was Dutch Prime Minister Ruud Lubbers, on behalf of the European Community (A. Takins & P.A. Williams, 2012)

^[2]See ECT official website at https://energycharter.org

^[3]See Pirani, Stern and Yafimava (2009) at https://www.oxfordenergy.org/wpcms/wp-content/uploads/2010/11/NG27-TheRussoUkrainianGasDisputeofJanuary2009AComprehensiveAssessment-JonathanSternSimonPiraniKatjaYafimava-2009.pdf

^[4]See European Commission at https://ec.europa.eu/energy/en/topics/energy-security

^[5]“The EP and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures necessary to achieve the objectives in paragraph 1. Such measure shall be adopted after consultation of the Economic and Social Committee and the Committee of Regions”.

^[6]See Official Journal of the European Union, Council Directive 2003/96/EC of 26 October 2003 at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32003L0096