(2014) The cardinal sins of European energy policy: Non-Governance in an uncertain global landscape

The Cardinal Sins of European Energy Policy:Nongovernance in an Uncertain GlobalLandscape

Kacper SzuleckiUniversity of Oslo

Kirsten WestphalStiftung Wissenschaft und Politik, Berlin

AbstractRecent years have seen some fundamental changes in the way the global energy sector and its governance function.All of these changes have a significant impact on the energy policy choices that are available for EU policy makers andshould be incorporated in a proactive European strategy for the future. Instead, however, we witness a general stale-mate in the energy policy debate within the EU, and internal problems seem to impede any meaningful and coherentexternal policy. In this article, building on a wide literature review, we sketch the changing global energy landscape,explaining the current state of ‘unprecedented uncertainty’ around a set of major issues. Then we describe what wesee as the five ‘cardinal sins’ of European energy policy and governance, which preclude effective common responsesand external action. We conclude by outlining possible ways of overcoming the challenges that face European energypolicy and governance.

Policy Implications• The current global energy landscape is characterized by an unprecedented degree of uncertainty, linked to shifting

patterns of energy supply and demand, changing roles of key players (caused inter alia by the unconventionalhydrocarbons ‘revolution’, the rise of renewables and the exploration of the Arctic), the complex impact of the cli-mate regime, and political instability in key regions.

• The EU’s energy policy and governance suffers from five key problems: the tension between national sovereigntyand common European governance; a navel-gazing policy orientation; a segmented internal energy landscape; theoverlooked and ill-defined rationale of energy security; and a backlash against sustainability that impedes anenergy transition.

• The EU needs to streamline its energy policy with a common vision, building on the concepts of solidarity, respon-sible sovereignty and a deeper understanding of energy security in particular vis-�a-vis the changing global land-scape. The EU has to define a position in an increasingly fragmented international energy system that iscontradicting the overall trend of globalization.

• The aim of common policy should be to transform the European energy system towards sustainability and optimiz-ing costs, without perpetuating fossil fuel dependency, and to acknowledge the inherent trade-off between short-term costs and long-term advantages.

The EU has engaged in an internal debate aboutcost-efficient and competitive energy supply against thebackdrop of the crisis in the eurozone. A snapshot of thecurrently large price differentials across the Atlantic isbringing economic efficiency to the forefront, meaningthat the other angles of the strategic triangle – energysecurity and sustainability – have been pushed aside.With the Ukraine crisis of 2014 the security of supply

(and, more precisely, the dependence on importedenergy) is back on the agenda, too. The attractiveness ofthe American ‘hydrocarbons revolution’, in its triple suc-cess of reducing greenhouse gases and energy pricescombined with increasing energy self-sufficiency, hasresulted in an erosion of the European commitment to asustainable energy transition building on energy savings,energy efficiency and renewables. In this article we

Global Policy (2014) doi: 10.1111/1758-5899.12153 © 2014 University of Durham and John Wiley & Sons, Ltd.

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analyze the implications of that fixation on short-termprice differentials while the EU is at a decisive momentwith regard to its post-2020 energy and climate targets(Fischer and Geden, 2014). Yet these regional politicaldecisions are not taken in a vacuum but rather in aglobal context that is characterized by rapidly changing,condensing and increasing interaction and reorganiza-tion. The EU’s inward-looking attitude and political stale-mate might result in nongovernance and a nonpositionvis-�a-vis these pressing problems.1

In the first section we aim to provide an overview ofthe changing global energy environment, with a focuson recent developments and possible new trends for thedecade to come. In the past ten years we have seenthree major structural trends emerge: first, the demandsurge in China, India and East Asia; second, the ‘uncon-ventional hydrocarbons revolution’; third, the growingdemand in the Middle East and North Africa, which is stillone of the major supplying regions to world markets. Wego on to identify five major problems – or ‘cardinal sins’– of current energy policy making and governance inEurope, both at the EU level and within member states.We conclude by summarizing the policy implications ofthe current state of affairs, proposing some possible waysto overcome the challenges, discussing the role of exist-ing, emerging and changing institutions under the cur-rent conditions, and summing up the discussion fromthe perspective of long-term energy sustainability.

The global energy landscape: ‘unprecedenteduncertainty’

In recent decades, energy has been gaining political sig-nificance and it is now generally seen as a key foreignpolicy problem; very often, it is described using thelanguage of security (Youngs, 2009). It is thus no surprisethat the currently ongoing rapid and fundamental shiftsin the global energy landscape – which the InternationalEnergy Agency (IEA) described as facing ‘unprecedenteduncertainty’ (IEA, 2010, p. 45) – translate into risk muchmore than to opportunity. This is linked to the very lowlevel of resilience that is characteristic of our energy sys-tems: they lack the ability to adapt quickly to abruptchanges (Goldthau and Sovacool, 2012, p. 237). There-fore, the unprecedented level of uncertainty is neither amere dramatization nor a soundbite designed to attractfurther media attention to the already prominent sector.

Looking at the history of energy policy in the modernindustrial era, there has indeed never been a time ofsuch rapid and drastic change, the direction of whichremains unknown even to the key players. The previousturning points in the history of global energy – like theswitch from coal to oil before the First World War or the1970 energy crisis – resulted in deep shifts, but thesewere never as quick and as multidimensional as the

changes we witness today. In the ‘energy policy triangle’(comprising security, sustainability and affordability), allthree aspects are under pressure in new ways. Theangles from which policy makers look at and act onenergy are also changing. Goldthau (2012b) argues thatafter the statist paradigm that dominated most of the20th century and the liberal, market-oriented one thatreplaced it in the 1980s and 1990s, we have recently wit-nessed the emergence of a new interventionist paradigm,under which growing resource nationalism meets withconcerns of ‘energy geopolitics’ both in Europe and glob-ally. But this paradigm could also soon give way to yetanother one, which this time will most likely be definedby states outside the Organization for Economic Cooper-ation and Development (OECD), especially Asian ones.While the latter is still merely a hypothesis, scholars andexperts now agree that the changing energy landscapewill redefine the geopolitical balance and disrupt existingpatterns, roles and mind maps of states and private aswell as state-owned energy companies. The remainder ofthis section looks at the current rapid shifts and growinguncertainties in the global energy landscape, building ona review of recent international relations and political sci-ence literature on energy policy, governance and secu-rity. This is intended as a necessary background for theanalysis of the cardinal sins of European energy policythat follows.

Beyond ‘conventionals’: the changing patterns ofsupply

New fossil fuel supply implies uncertainties and changeon two levels: for the geopolitics of energy and for theenergy market. One of the particularities of fossil fuels istheir uneven geographic distribution, which, combinedwith their political relevance, results in the geopoliticaldimension of energy, necessitates large-scale global trad-ing and is the source of perceived energy insecurity(Yueh, 2010, p. 216). While conventional hydrocarbonsare concentrated mostly in the ‘strategic ellipsis’ stretch-ing from West Siberia and the Caspian Basin into theMiddle East, unconventional hydrocarbons and/or hydro-carbons in unconventional reservoirs are changing thepicture to a great extent – a fact that was hard to fore-see even a few years ago (cf. Lovaas, 2009, p. 324). It isthus not surprising that the former losers in this geologi-cal resource lottery have particularly welcomed the emer-gence of unconventional energy sources. Technologicalprogress and high oil prices have helped to enlarge theresource potential. Offshore, pre-salt and deep sea, aswell as Arctic fields, are part of that new landscape.Another shift in the gas markets is driven by the long-distance transport of liquefied natural gas (LNG) and theconstruction of long-distance pipelines, together turninggas from a regionally to nearly globally tradable

© 2014 University of Durham and John Wiley & Sons, Ltd. Global Policy (2014)

Kacper Szulecki and Kirsten Westphal2

commodity (Hirst and Froggatt, 2012, p. 5) (see Figures 1and 2). These recent developments, resulting from tech-nological innovation, a high oil price level as well as glo-bal warming (when it comes to accessing permafrostzones and sea passages), are seemingly putting a ques-tion mark behind ‘peak oil’ – at least for the time being.Some experts even speak of ‘fossil fuel abundance’(Browne, 2013).

What are the implications of these shifts? Firstly, (geo)political risks are still high on the agenda. As R€uhl (2014)rightly describes, the configuration of markets dependson political decisions, even at the local level. The reasonis that given the large and geographically distributedresource basis, ‘above ground’ political and regulatorydecisions determine whether, where and when fields willbe exploited. The geopolitics of energy are unfoldingwith new dynamics, such as the US as a new energy pro-ducer or the Middle East as an emerging center ofdemand, thereby positioning themselves on oppositecourses. Yet the long-held tenet that the world’s primaryenergy resources, especially oil, are concentrated in ‘ahandful of volatile countries’ (Goldthau and Sovacool,2012, p. 233) will hold true in the future, as the MiddleEast is expected to become the backbone of the world’soil supply again in the middle of the 2020s (IEA, 2013,p. 26). However, the unconventional revolution mightshake up the stability of these countries, weakening theirrevenue basis as mere rent seekers. Societal anger canerupt regardless of crude oil price per barrel, and as therecent examples of Tunisia, Egypt, Libya and Syria show,political tumult can lead anywhere, from regime shift tocivil war with regional impact. The Arab Spring hascaused widespread fears about the prospect of oil andgas supply disruptions and uncertainty. The implicationsof political turmoil in the Gulf, especially in Saudi Arabia– which possesses not only vast oil reserves but also

unmatched spare capacity – could be devastating for theglobal energy market (Westphal, 2011, pp. 9–11).

Shale gas fracking, while taking some of the geopoliti-cal and security pressure off, adds further environmentalrisks – both global (such as the carbon footprint fromwellhead to combustion) and local (e.g. due to watersupply and pollution). Moreover, environmental activistsrightfully point to the risks of perpetuating fossil fueldependency. To avoid increased volumes of greenhousegas emissions, they are also calling for the ‘unburnable’Arctic oil to be ‘kept in the ground’ (cf. McGlade andEkins, 2014, p. 109). On the other hand, the potentialbeneficiaries see the ‘shale gas revolution’ as ‘democratiz-ing energy’ and striking a new balance in energy geopol-itics (Saryusz-Wolski, 2013, p. 3). Yet this is premature:technological feasibility and geological availability doesnot equal future market supply. The geopolitics of energyremain a big unknown (R€uhl, 2014).

Furthermore, fracking has dramatically improved theenergy situation for the US and caused gas prices totumble there. This gives the US a competitive edge overother OECD countries because it can be assumed thatgas prices will remain lower there compared to Europeor Japan (International Energy Agency (IEA), 2013). Thissecond geoeconomic dimension of the shifting patternsof global fossil fuel supply adds to the general uncer-tainty because the energy mixes and pathways areincreasingly divergent.

Thirdly, there is an economic dimension of the uncon-ventional revolution that undermines the long-term envi-ronmental sustainability of the global energy system. Itwas assumed that the high prices of fossil fuels, espe-cially oil and gas, would channel investment into renew-ables. Whereas a 10 per cent oil price increase couldproduce losses of around 0.5 per cent GDP, avertedlosses could offset much of renewable energy sources

Figure 1. Natural gas production and consumption, 2000 and 2012.

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(RES) deployment (Awerbuch and Sauter, 2006). Between2003 and 2013 crude oil prices increased by around 400per cent, but RES deployment, although visible, was notas rapid as could have been assumed. In fact, underhigher prices what we actually see is the move to uncon-ventional fossil fuels, which not only reduce the costs ofenergy, but help to postpone the transformation ofenergy systems and avoid the changes in the politicaleconomy of the energy sector that intermittent renew-ables would require.

Changing patterns of demand: a ‘sandwiched Europe’

For years, the developed countries of Europe and NorthAmerica have grown accustomed to significant importdependency, especially for oil and gas. They thus builttheir leverage on interdependence with hydrocarbon sup-pliers. Developed energy consumers tried to govern theglobal energy sector through the IEA, balancing the influ-ence of the Organization of the Petroleum ExportingCountries (OPEC). As described earlier, this ‘energyimporters’ alliance’ is changing fundamentally with NorthAmerica gaining self-sufficiency due to growing supplies,both indigenous and in the North American Free TradeAgreement (NAFTA) area, and also because of increasingenergy efficiency in the power and transport sector.Despite the unexpected supply revolution, demand will

be the determining factor in the energy markets. FallingUS demand for LNG and oil has already impacted theAtlantic region’s energy market. Moreover, the new sup-ply of fossil fuels is met with rapid shifts in demand inAsia, as well as in the Middle East. China is now the larg-est energy consumer in the world, with India following.This means that China and India are preparing for veryhigh import dependency in the future and are adjustingtheir energy and foreign policies accordingly (Westphal,2013).

It is unclear what the future might bring for the EU.Shale gas is located in some of the largest consumingcountries, including the UK, Germany and Poland. Theeconomic and technical feasibility of fracking in thosecountries – and thus the future demand for importedgas in Europe – is still highly uncertain. Changing pat-terns of demand, especially the US shift, also mean thatcoal becomes cheaper and more abundant on the mar-ket, impacting on investment calculations for low-carboninfrastructure. Regarding oil and gas, the rise of majorenergy-consuming economies, such as China and India,has lowered overall confidence in ‘secure’ and ‘afford-able’ energy supplies (Vogler and Stephan, 2013, p. 299).Experts are looking closely at the behavior of Beijing inthis new context (Kong, 2011): coal can be expected topeak in China in the next ten years, and the actual direc-tion of energy-sector reform that the country will take is

Figure 2. Global oil supply 2000 and 2012.

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Figure 3. Global Refined Petroleum Consumption 2000 and 2012.

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still not clear. In any case, the government in Beijingfaces great challenges related to growing demand,increasing import dependence, local energy-induced pol-lution and the effects of climate change.

The EU is now finding itself increasingly ‘sandwiched’between the growingly self-sufficient and competitive USand the energy-hungry Asian economies. This can under-mine the EU’s position as a major and influential hydro-carbons importer. Moreover, developing economies’promise to be growing markets is turning them intoattractive destinations for infrastructure investments andlong-term supply contracts. In contrast, the EU has to actfrom a position of relatively decreasing market sharesand without security of demand. The latter is seen bysuppliers as the twin sister of security of supply, or evena prerequisite to it. Indeed, the EU has a stagnatingdemand for oil and gas (see Figures 1 and 3). This maytranslate into a decreasing political influence to shapehydrocarbon governance. Moreover, because of theuncertainty around its future energy and climate policytargets after 2020, the EU does not display a clear path-way in terms of either energy consumption or the compo-sition of its energy mix. For instance, increasing renewablegeneration and energy efficiency make it difficult topredict future supply mix and demand. An ambitious cli-mate policy can, in the long run, undermine fossil fueldemand in the major economies. This is a great concernfor oil and gas producers, necessitating their adaptationto new and uncertain circumstances (cf. Sharples, 2013).Yet, from the perspective of an energy consumer, accel-erating diversification by using more renewable energy isa means to hedge against repercussions in the hydrocar-bon world, for instance supply disruptions and price vola-tility (Neuhoff et al., 2014).

Energy dilemmas in a fragmented world and achanging climate

The global energy dilemmas (Bradshaw, 2010), whichstem from diverging positions in the internationaleconomy, the energy landscape and the exposure andsensitivity to climate change, are aggravated by thegrowing fragmentation of energy pathways worldwide.Although their goals are still visibly distinct (Vogler andStephan, 2013), the climate and energy regimes are dee-ply intertwined, and climate policy has important implica-tions for energy choices (Zelli et al., 2013). Climatechange is also presented in terms of security and in rela-tion to energy security (Froggatt and Levi, 2009). It wasbelieved, until very recently, that the reduction of fossilfuel consumption was in fact a response to both (Mulli-gan, 2010, p. 89). However, as we have seen already, ris-ing prices make the business case for unconventionalhydrocarbons, which often prove less energy efficientand more polluting (also in terms of their carbon foot-

print) than conventional fossil fuels. This impact of biofu-els production on forests and other natural carbon sinkshas now outstripped previous concern on the frontier ofenergy and climate sustainability.

The major uncertainty for global energy related to cli-mate policy is linked to the process of negotiationsunder the UN Framework Convention on Climate Change(UNFCCC). The disillusionment of the Copenhagen sum-mit in 2009, coupled with the impacts of the globalfinancial crisis, has turned climate change from a majorconcern to only one among many, and in the opinion ofsome sceptics and lobbyists even removed it from theagenda altogether. While the latter is clearly a short-sighted view, energy sector investors lack a clear signalabout policy priorities for the future. Decarbonizationscenarios, including large-scale RES deployment, arebeing challenged by different proposals if carbon exter-nalities are not taken into account. This shift already hasan important impact on Europe, as we shall see in thefollowing section.

However unrealistic this might have sounded even fiveyears ago, China may become an important driver ofglobal decarbonization, while former environmental‘champions’, like Australia and Japan, have recently madea U-turn and expect to increase their CO2 emissions andcarbon intensity. By 2013, Europe was no longer themajor market for renewables. The fact that the EU is los-ing out on that front is bad news for its industrial andtechnology policy as well as its growth model of buildingon innovation. The 2010–11 Renewable Energy Attrac-tiveness Index ranked China and the US in the top posi-tions, displacing European states. In 2013, Japan becamethe fastest growing market for PV, and a low-carbonstrategy might lead renewable energy to providing onethird of total energy generation in China by 2020. Fur-thermore, India’s 2008 National Action Plan on ClimateChange emphasizes significant future investments insolar energy and energy efficiency (Vogler and Stephan,2013, p. 309). The uncertainties related to renewablesare in their production and geographical concentration.German companies were the first to move on wind andsolar technologies – and somehow German consumerssponsored the global learning curve – but the recenttrade dispute with China made it clear that the economicbenefits fall into the hands of imitators. There are con-cerns that RES production will become dependent onChina. This is due not only to the latter’s state subsidies(which in fact benefit global consumers) and marketdominance, but the result of the concentration of naturalresources necessary for the production of modern RESinstallations.

The general trend is shaped by the growing divergencein energy paths chosen by the key powers. The energymixes are becoming more heterogeneous. While the USis exploiting its shale bonus, Germany still stands by a



low-carbon path; China is weighing up the options, whileRussia remains faithful to a statist governance paradigmand a conventional energy strategy that sees neitherplace nor need for climate-policy considerations. Thisgrowing fragmentation is an opposite trend to globaliza-tion in a way and might complicate know-how and tech-nology transfer, as well as making technologicalinventions more expensive. The unanswered questionsare whether we will see growing competition over thewinning path and in what category the winner will bejudged.

Another element adding to the growing divergence inglobal energy paths, but also to more uncertainty, is thefuture of nuclear energy. Only five years ago, nuclearseemed to be among the most rational options fordecarbonizing the power sector and meeting the risingglobal energy demand at the same time. Some expertssuggested that a ‘nuclear renaissance’ was on the hori-zon (Ferguson, 2009). However, the disaster at FukushimaDaiichi in March 2011 had a significant impact on thepresent and future of this sub-sector. Firstly, the percep-tions of risk and thus societal and political support fornew nuclear plants have changed, as the decisions of theGerman and Japanese governments to phase out nuclearaltogether show. Financial calculations, linked to nuclearsafety and insurance, have changed as well. In 2008, thecost of a kilowatt of installed nuclear capacity was esti-mated at an already high $4000 (Ferguson, 2009, p. 304).The calculation of the costs of developing new units atHinkley Point in the UK was set at €5400 (over $7000)per kilowatt (Schneider and Froggatt, 2012, p. 34). Toachieve satisfactory levels of safety, nuclear facilities arebecoming extremely expensive to build. Under thesefinancial constraints only countries with state-ownednuclear enterprises like China, Belarus or France canafford to complete new nuclear projects (Ferguson, 2009,p. 305). Fears over nuclear technology proliferation arean additional curb for nuclear energy expansion, as thecase of Iran illustrates.

The implications for Europe are, again, uncertain. Theinternal division of perspectives on nuclear puts Germanyon one side, with France, the UK and some Central/EastEuropean (CEE) countries on the other. However, while in2012 the Eastern part of Europe seemed destined for anuclear energy oversupply – with Belarus, Russia (Kalinin-grad), Lithuania and Poland all boasting new nuclear pro-jects – at the end of 2013 it was doubtful that anyoneapart from the state-owned Belarusian utility will actuallybe able to complete their project.

At stake: governing energy in a world of nine billionsouls

Over the longer term, for example by 2050, with thedemographic estimates of nine billion people inhabiting

the planet and the economies of the developing nationsrising, it is obvious that our current energy system is notsustainable. Currently 1.4 billion people have no accessto modern forms of energy. Energy poverty, energy jus-tice and the idea of ‘energy for all’ (Birol, 2012) willbecome primary issues, given that the present system isalready incredibly unjust (Goldthau and Sovacool, 2012,p. 236). The pressure on existing supply will increase,implying uncertainties in our energy security – and inthe actual physical supplies (Westphal, 2013). This is allthe more threatening as we have recently seen a waveof renationalizations and a general paradigm shifttowards a new resource nationalism.

In view of the fragile state of the world economy, it isalmost superfluous to point out that the development ofglobal demand is one of the grave insecurity factors thatmake forecasting the future energy world akin to fortunetelling. More than 90 per cent of the anticipated growthin demand in the next two decades will come from non-OECD countries. While modern energy services have amultiplier effect on other welfare sectors such as healthor education (Florini and Sovacool, 2011, p. 67), mostdeveloping countries lack the financial capacity to investin such infrastructure and have to rely on the cheapestpossible solutions, which are far from sustainable. Thepressure on our climate will thus increase as well. This isa major challenge for an integrated governance para-digm and for our climate change mitigation efforts, andthe question emerges: how much more must the climatetake before we agree on effective measures?

Although oil prices, which are still the leading currencyfor other energy prices, are now lower than in 2008, thereis a risk that the fragile global economy emerging fromthe recession will be met once more by steeply risingprices (Hirst and Froggatt, 2012, p. 2). Meeting the grow-ing global demand and modernizing the ageing energyinfrastructure will require investment counted in trillionsof dollars. Because of path dependency and the currentpolitical economy of energy, national subsidies currentlyencourage the channeling of energy investments heavilyin the direction of fossil fuels and nuclear rather than re-newables (Florini and Sovacool, 2011, p. 63). Subsidizingrenewables, which has been met by widespread mediacriticism, and subsidizing fossil fuels (to an even greaterextent) is rightly compared to ‘running air-conditioningand heating at the same time’ (Browne, 2013, p. 3). Whatis at stake worldwide is the modernization of energyinfrastructure and whole energy systems. This also impliesbreaking path dependencies in political frameworks suchas, first and foremost, fossil fuel subsidies. Importantly,this also includes the demand side.

In those circumstances, we can expect a major shake-up of our governance system in the future. The role ofestablished bodies of energy governance, such as theOPEC, can be ambiguous in the face of both the need to



decarbonize and the rise of unconventional fossil fuels.The supply of the latter – although seemingly limitless –is also a major uncertainty.

In many ways the energy sector is a peculiar andunique object of global governance (Goldthau and Witte,2009; Lesage et al., 2010), differing from other issue areasin terms of high complexity (vertical and horizontal),higher entailed costs and stronger path dependency,among other things (Goldthau and Sovacool, 2012). Thegovernance landscape is described as a ‘byzantine archi-tecture of parallel, nested and overlapping institutions’(Van de Graaf, 2013, p. 147), ‘littered with governors andinstitutions’ (Dubash and Florini, 2011, p. 6), with public,private and hybrid actors (Szulecki et al., 2011). Despitethis, the view that simplification is neither possible norfully desirable is widely shared. Global energy governancecannot be conducted by a single body or forum, butrather requires a polycentric system (Cherp et al., 2011;Van de Graaf, 2013, p. 160). On the other hand, that frag-mentation can add tensions and conflicts, especially whenrelated to energy trade and state subsidies. There are alsofew links between the different governance arenas (secu-rity, access and climate change). Ghosh (2011) argues thatthe future requires choosing between more fragmentedand more integrated governance, and between moreconflicting and more consistent rules.

Again, future developments in the area of globalenergy governance add to the ‘unprecedented uncer-tainty’ that policy makers and energy investors have tocope with. The role of Europe in these changes, as well asin the future set-up, depends on comprehension of thedepth and direction of shifts. Europe and OECD countriesin general can keep the steering wheel in their hands ifthey engage in the governance processes correctly.

European energy policy and governance: fivecardinal sins

The EU is rooted in regional cooperation with energyissues at its core. Initially coal and (later) nuclear energywere the rationale for cooperation and integration at thecommunity’s very beginning. Given all this, it can be sur-prising to see how little progress has been made in thearea of energy policy coordination over six decades.From the early 1970s, the European Commission (EC)made a number of attempts to establish a commonenergy policy, all of which proved largely futile (Finonand Surrey, 1996, p. 165). An internal energy market hasbeen on the agenda for quarter of a century, but only in2011 was a decision made to finally ‘make it happen’ by2014. An explicit EU energy policy is a rather recent phe-nomenon, dating back to the 2006 Green Paper (‘A Euro-pean Strategy for Sustainable, Competitive and SecureEnergy’) and the 2007 Action Plan. Internal policies havenot been met by a commitment to speak with one voice

to the outside world. Having reviewed the rapid shiftsthat the global energy landscape is undergoing, we nowturn to a review of the weaknesses of European energypolicy and governance. While the global political environ-ment is, as we have seen, characterized by great levelsof uncertainty, EU policy makers are not only failing toface these challenges, but are also failing to coordinateand effectively govern their national and regional backyard. The remainder of this section lists the five mostworrisome ‘cardinal sins’, discussing their backgroundand possible implications in the global context.

Tension between national sovereignty and Europeanenergy governance

In the future Europe will have a smaller share in the glo-bal market, which may translate into a more quiet voicein international energy affairs. If member states do notjoin forces in the changing landscape, it is hardly imagin-able how the EU can shape rules and markets. A majorparadox lies in the fact that while a common energymarket and a European policy on energy, ‘in a spirit ofsolidarity’, are the envisaged goals of the EU, sovereigntyover actual energy policies and mixes stays firmly in thehands of member state governments. However, Floriniand Sovacool (2009) point out that although energy isperceived as a matter of highest priority, nationally ‘fewif any governments are well structured to govern energyissues, much less participate in effective systems of glo-bal energy governance’ (p. 5239). This significantly under-mines the effectiveness and coherence of Europeanenergy policy and governance. What is more important,though, is the inherent tension in Article 194 of theTreaty of Lisbon, which makes it clear that policy andgovernance coordination ‘shall not affect a MemberState’s right to determine the conditions for exploitingits energy resources, its choice between different energysources and the general structure of its energy supply’but calls, elsewhere, for solidarity and a common market.What we thus see are simultaneous EC pressures tomove towards integration, but on the other hand thenationalization – or even balkanization – of energy pol-icy. This has been visible for many years. However,Wettestad and colleagues argue that what we observerecently in terms of EC actions regarding emissions trad-ing, renewable energy policy and the internal energymarket is in fact a ‘hesitant supranational turn’, in whichthe EC, having lost an open battle with the memberstates, promoted its position using other tactics andchannels, targeting the industry directly. It thereby laidthe foundation for changes in the governmental prefer-ences of member countries (Wettestad et al., 2012). Thatanalysis is very interesting, but the growing resistance topost-2020 energy and climate targets might signal theend of this tactical campaign.



The deeply engraved tension between policy coordina-tion and national sovereignty leads to the second sin – anavel-gazing policy orientation – and impedes botheffective internal energy governance and a firm externalenergy policy. The latter will be especially important forEuropean policy makers if they are to tackle the chal-lenges of uncertainty that Europe faces.

Navel-gazing policy orientation

The visible nationalization of energy policies, and theconsistent overlooking of the principle of solidarity (towhich we return in the next point), lead to internalcracks in the union and a tendency to overlook neigh-bors’ interests and the impact of our decisions and poli-cies on others. Even by the mid-1990s, scholars notedthat when important national interests are at stake,member states are reluctant to abandon national policiesand practices that protect their own fuel industries. Interms of any joint external action, member states thatare heavily dependent on energy imports are not willingto collaborate in any scheme that would make them buyfuel at above world market prices (Finon and Surrey,1996, p. 166). Today, we see an attempt to create aninternal energy market, but the 28 member states graftonto it 28 approaches, 28 renewable policies, and soon(perhaps) 28 capacity market designs (Helm, 2014).

Paradoxically, some institutional novelties in the thirdinternal market package have reinforced the concentra-tion on national structures, market actors and transac-tions. The founding of regulatory authorities has resultedinitially in the circumvention of competencies and thedefinition of scope of activities towards Brussels’ institu-tions. Only in a second step does recoupling and harmo-nization of codes and norms take place. In the EU arenawe have seen the emergence of the European Networkof Transmission System Operators – for gas (ENTSOG)and electricity (ENTSO-E) – as well as the Agency for theCooperation of Energy Regulators (ACER). These aremajor governance coordination instruments. Togetherwith the Energy Directorate they will have an impact onthe governance of the common energy market. Unfortu-nately, the energy governance paradigm that tends toequate systems and price zones with nation states is stilldifficult to alter, and even the currently proposed formsof market coupling will not overcome the governanceobstacles at national borders (Puka and Szulecki, 2013).

Germany’s energy transition (Energiewende), althoughin its impetus highly laudable, has been pointed out as aunilateral policy that created coordination problems forneighboring countries. Poland and France were amongthe critics of the way the reforms were conducted; theirmain concerns were the speed and lack of consultation,and the fact that such deep changes to the Germanpower system necessarily impacted on the intercon-

nected neighborly grids. A radical policy aimed atincreasing the sustainability of a system can suffer froma navel-gazing attitude and energy transformation needsto be conducted on a transnational, Europe-wide scale.Moreover, discussions about energy transitions andreforms tend to concentrate primarily on the electricitysector.

This navel-gazing, egocentric orientation is not only anobstacle for internal energy governance, but also makespolicy makers blind to the scale and direction of globalchanges. As the global importance of Europe inevitablyweakens, energy nationalism and Eurocentrism becomegraver sins, subverting the responses of the EU andmember state governments to new circumstances.

Divergent paths and segmentation in the internalmarket

Although we are seeing more integration within Europe,division lines are still crisscrossing the union. This isrelated to issues such as: energy mixes and long-termenergy strategies; sectorial policies; uncoordinated sup-port mechanisms for different energy sources; marketcoupling models; utility ownership arrangements, etc.This divided energy landscape has roots in objective fac-tors that necessarily impact on the energy sector (suchas indigenous resource availability or inherited energysystems). Member states have always pursued separatepolicies on energy supply security, reflecting differencesin national viewpoint and indigenous fuel resources.

Divisions are not easy to delineate, and any East/Westor North/South simplifications can be misleading. Majorcontroversies are related to the envisaged role of allimportant fuels and technologies. France is, not surpris-ingly, a major advocate of nuclear power, and hasextended a hand to both the UK and CEE countries will-ing to go down that road. Germany, with its energy tran-sition, is visibly antinuclear, and promotes renewableenergy both within Europe and globally through theInternational Renewable Energy Agency (IRENA) (Roe-hrkasten and Westphal, 2013; Van de Graaf, 2013, pp.106–124). In fact, we are seeing the increased importanceof coal in Germany’s energy mix, although it is theirneighbor Poland that supports coal most vociferously.The latter is also looking forward to the possibility ofdiversifying its gas supply with indigenous shaleresources, a move that has been met with support from,for example, the UK, but with criticism from Germany.

The question that arises at this particular moment isthis: is market integration enough, and can it really beachieved without an integrated policy? Or is it a similarcase to fiscal and monetary union: either both or nothingat all? Although an internal market was first proposed in1988, and we will finally see it in 2014, Helm (2014)notes that even once it is completed, the EU will remain



far from a single competitive market. Bressand (2012)asks provocatively: ‘how can one speak of an “integratedmarket” in which factors of production cannot movefreely in light of economic incentives, as opposed tobeing constrained by 27 different policies?’ (p. 37). Onthe whole, while the segmented energy landscape is aresult of the different perceptions and strategies forachieving individual (national) security of supply (Point-vogl, 2009), the rally for security undermines Europe-wideenergy solidarity, which, in a broader context and overthe longer run, is crucial for the EU’s security.

Energy security: a key rationale, lately overlooked

The EU is by far the largest importer of energy, buying innearly twice the US’s energy import and five times thatof China. Import dependency is thus the defining prob-lem of European energy policy (Umbach, 2010). In a veryinteresting bottom-up exercise that distills energy secu-rity understandings from actual EU energy security poli-cies, Lilliestam and Patt (2012, p. 28) arrive at theconclusion that two dimensions are in fact crucial forenergy security from a state-centric perspective: availabil-ity (having enough energy) and reliability (having it at alltimes and places).

A cardinal sin of EU energy policy making is, surpris-ingly, paying insufficient attention to these questions. Asimple reason is the focus on the electricity sector, whichalso seems to be the easiest sector to tackle in terms ofdecarbonization. The heating/cooling, transport andmobility sectors gain much less attention. This results inthe EU turning a blind eye to the risks (and rewards) thatstem from changing the oil and gas markets for Euro-pean industry. Structural change may be ahead, not(only) because of price differential but (also) because ofshifting trade patterns, for instance refinery capacities.

Until the first Russian–Ukrainian gas dispute in 2005–06,Russia’s extraordinary and strategic position as a quasi-monopoly and major energy supplier had not been anissue that prompted the EU to articulate deep officialconcern (Westphal, 2006, p. 55). Although experts andmany politicians have signaled the need to incorporateenergy into the core of the EU’s foreign and security pol-icy (Correlj�e and Van der Linde, 2006), progress is limiteddue to the lack of a common stance and the downplay-ing of the importance of energy security in its variousaspects (cf. Liliestam and Patt, 2012a, pp. 9–12). Oneexplanation for this can be found in Goldthau’s (2012a,p. 182) distinction between energy ‘marketers’ (who treatenergy as ‘just another commodity’) and energy ‘securi-tizers’ (who see it as an existential matter). Europeaninstitutions seem to be dominated by marketers, whilemany member states adopt a hard-nosed securitizingstance. There is no single best approach here. Thedegree to which the EU’s hands are tied by the Russian

monopoly on gas delivery became more tangible thanever during the 2014 Ukrainian crisis. On the other hand,a large group of politicians and industrial lobbyistsargued that this apparent powerlessness to act shouldrather be perceived as a beneficial interdependencethrough trade.

Maltby (2013) suggests that an important window ofopportunity for building a coherent common EU energysecurity policy has been missed. With the Easternenlargement and the increase in energy dependency andprice volatility, the Commission was able to attract moreattention to the problem of import dependency. How-ever, while the EC has increased its competence in theinternal market, the states retain competence in externalrelations. In 2007 the EU27 member states failed to forgea coherent European energy security and energy foreignpolicy strategy because solidarity was still visibly lacking(Umbach, 2010).

Nevertheless, energy security has to be defined in anall-encompassing way. An approach that focuses only onimport dependency falls short because energy securityalso demands system resilience. The issue of robustnessfocuses on all parts of the supply chain. Diversificationand possibilities for fuel switch, interconnections andreverse flows, but also security stocks, buffers and theN-1 infrastructure principle,2 are all components ofenergy security. In its last consequence, energy security isa public good. A growing tension can be observedbetween the neoliberal market paradigm and energy secu-rity as a public good in the EU. A political discussion aboutthe necessary level and costs of energy security is overdue.

The relationship between Germany and Poland in theenergy sector is a great example of the way differentassumptions about and understandings of energy secu-rity can undermine cooperation. The recently politicizedissue of transborder electricity ‘loop flows’, caused byunpredicted oversupply of renewable energy in Denmarkand Germany and a faulty market design, illustrates thesedifferent approaches (Puka and Szulecki, 2013). In han-dling the problem, the East German operator 50Hertz (aprivate company owned by an Australian-Belgian ven-ture) maintained a technocratic ‘market’ approach, whilethe Polish side, represented by the state-owned, nationaloperator PSE, quickly reframed the issue in the languageof national energy security. Whereas the operators swiftlylaunched an effective and depoliticized technical cooper-ation, the higher-level Polish politicians and the mediastuck by a securitized discourse, creating a visible tensionin bilateral relations. This should not be seen as politicalparanoia: German–Polish energy relations were alreadysuffering from a lack of trust, and for good reason. Anearlier example of Germany adopting a navel-gazing atti-tude and overlooking important energy security concernswas the construction of the Nord Stream – a gas pipelineconnecting Germany directly with Russia, bypassing



Poland as a transfer country and thus possibly increasingthe risk of supply interruptions.

Energy security should be a key rationale for EUenergy policy and it should be a driver of energy systemtransformation. The transition to a more sustainableenergy system, including climate policy goals, is impor-tant. But climate protection is not the only rationale:energy security has to be taken into account and seen asa justification for the transformation (cf. Jewell et al.,2014). This simple realization seems to be vanishingrather than getting stronger. In practice, the way inwhich the EU has come to attach priority to a rather tra-ditional understanding of energy security sits uneasilywith its declared climate aims. The ‘shale revolution’gives an illusion of perpetual supply security withinEurope. Renewables and energy efficiency can providevery good solutions to these problems, which shouldreinforce the environmental incentives for their develop-ment. However, even these environmental justificationsare now being undermined.

Sustainability under fire: the need for modernizationhas been overlooked

Environmental concerns have been an important part ofthe way energy policy was conceptualized by the Com-mission (Solorio Sandoval and Morata, 2013). The GreenPaper of 2006 mentions sustainability as an objective ofan EU energy strategy, and this is the dimension inwhich the EU energy policies have had particularstrength (Westphal, 2006, pp. 50–53). Undoubtedly, theClimate and Energy Package was the EC’s major successin terms of both shaping European energy policies andsteering them towards sustainability (Helm, 2014). It wasessentially a set of short-term targets grounded in theassumption that fossil fuel prices would rise, makingrenewables more competitive and hence yielding com-petitive advantage to the EU, while the Emissions Trad-ing System (ETS) was to become a model for a globalemission trading scheme (Pustelnik, 2013). Given theassumptions and information that the EC had to hand atthe time, this strategy was highly rational. When oilprices were skyrocketing in 2008, and climate changewas at the top of the agenda, the moment was perfectfor launching a deep energy system transformation thatshould, like a proverbial silver bullet, solve all of the EU’sproblems at the same time: reduce energy costs in thelong run, decrease import dependence and increaseenergy security, and (last but not least) contribute to glo-bal (climate mitigation) and local (reduced pollution)environmental protection. The unforeseen external shifts– a global financial crisis and the US shale gas and oilbonanza – changed the entire policy context.

Because of the ‘shale revolution’, it seems that on bothsides of the Atlantic the opportunity costs for renewables

and deep energy-efficiency measures are rising (Dr€ogeand Westphal, 2013). An indirect effect is the falling pricesof coal coming to the European market, increasing theEU’s emissions and providing a tempting low-cost short-term economic solution. A fragmented global energy mar-ket creates concerns about interregional competitiveness.This redirects the debate from an integrated approachand a focus on climate/environmental to economic issues– and this is visible across Europe. Many scholars, politi-cians and lobbyists argue that renewables are still non-competitive, while pricing environmental externalities,such as carbon emissions, impedes economic growth (inthe short run at least). Thus, some conclude that in theface of the recent economic slowdown, ‘climate change isless of a priority’ (Harmon, 2013, p. 320).

Regarding renewable energy supply, the major issuethat remains unresolved is wind and solar intermittency,which makes them (at least on a national scale) less reli-able than conventional sources. Efficient large-scale elec-tricity storage technologies would become a globalgame changer in this respect, potentially giving the play-ers that had placed their bet on renewables earlier agreat competitive advantage. Integrating an ever-largerproportion of intermittent renewable energies requiresnot only a change on the generation side but presup-poses a systemic structural change, ranging from genera-tion to transmission, storage and demand. In that sense,it requires a grand transformation on the technical sideand the commercial side. This step still lays ahead of theEU countries, and part of the large debate on costs stemsfrom this challenge. But it is also a question of the lensone looks through: modernization of infrastructure is agrowing need in most countries.

The energy transformation that the EC tried to initiatehad several different faults, too. The focus was almostexclusively on the electric power sector, where thedegree of import dependence is quite varied betweenthe member states. Given the one-size-fits-all approach,the burden of EU climate policy to be shared under thatdesign was uneven and – as some countries, includingPoland, claimed – unjust. The transport sector, where allmember states are almost identically dependent onimports of oil, was not at the core of EC policy, althoughhere an integrative narrative could have been achieved.For decades Poland’s heavily coal-dependent power sec-tor functioned on indigenous reserves, creating the ideaof autarchy as a nearly natural state. In contrast, Ger-many has long been highly dependent on energyimports. Poland, whose semi-public power companies areimportant for the government and the state budget,opposed climate policy measures that its authorities per-ceived as undermining its energy security – defined inautarchic terms – by forcing a switch to ‘imported’energy sources: Russian gas and possibly German renew-able technology and hardware. Maintaining economic



development, competitiveness (understood as keepingcosts low) and energy independence as its major policyconcerns, the government in Warsaw did not see a placefor remote climate mitigation – unless a binding globalagreement could be reached. As the Warsaw COP19 andother events organized by the Polish government in2013 have shown, the global landscape – in which theUS received a cost boost from shale gas and a bindingagreement on climate policy seems distant – has effec-tively been used by coal-dependent countries and fossil-fuel lobbies to slow down, stop or even reverse previousdecarbonization measures.

However, a simple snapshot of the current energylandscape and short-term price changes should not bethe foundation of long-term policy. It should not obscurethe likely future cost curves of individual energy sources.In the long run we will see, most likely (although notwithout a degree of uncertainty) growing costs of fossilfuels – not just for climate reasons – and falling costs ofrenewables. The growing backlash against sustainabilityand focus on the short-term economic situation is ofgreat concern (see Creutzig et al., 2014). The expansionof renewables could reduce demand and with it theprice for fossil fuels, making it again economicallyunsound to look for new hydrocarbon sources (Froggattand Levi, 2009, p. 1138). On the other hand, shale gascould become a ‘transition fuel’ bridging our current sys-tem and the decarbonized sector of the future, whilereducing greenhouse gas emissions along the way.Unfortunately, in the short and mid term unconventionalsources can create more problems than they solve,including pollution, local-level tensions and water dis-putes (Florini and Sovacool, 2011, p. 67).

Conclusions

In the first part of this article we described the currentglobal energy landscape as being in flux and character-ized by political uncertainties for all global actors,although our particular focus is on the EU. In the secondsection, we enumerated the five cardinal sins ofEuropean energy policy and governance that are com-mitted by both the EU bureaucracy and the memberstate policy makers. How can these sins of Europeanenergy policy be overcome?

The energy dilemma for the nine billion people onthis planet comprises climate and energy security,including the fight against energy poverty. The Hercu-lean task for European leaders is to make our energysystem more sustainable, but at the same time to guar-antee fossil fuel supply for the transitional period. How-ever, this last condition has to be met withoutperpetuating fossil dependency – and this is a toughchallenge, especially given the presence of shale gas andcoal at competitive prices. Taking this into account high-

lights the risks and rewards for EU policies. If the EUtackles these challenges, it might regain its soft powerand bargaining position.

Yet European states lack a shared vision regardingthe future of energy policy. What seems even moreimportant, though, is that EU member states even lacka common understanding of their position in the inter-national energy landscape. There is a clear antagonism,a ‘policy trap’, between national and integrated energygovernance. The only possibility to escape that tensionis to rethink and emphasize the collective benefits ofenergy solidarity. To overcome both the nationalizationof policies and the tendency to overlook partners andneighbors (navel-gazing orientation), and to thinkinstead in terms of the EU (and Europe), sovereigntyshould be reconceptualized along the lines of ‘responsi-ble sovereignty’. That concept requires the acknowl-edgement of the inherent condition of interdependencethat dominates contemporary European and global gov-ernance. Sovereignty should be seen as a collectivegood, not a national or private one; states should beexpected to exercise their sovereignty in a way that isrespectful to that of others. To move forward, leaders,analysts and scholars need to ‘dispel the prevalentnotion that international cooperation necessarily meanslosing policymaking sovereignty and to make the casefor more multilateralism, demonstrating that under con-ditions of policy interdependence more multilateralismhelps states to regain and maintain their policymakingsovereignty’ (Kaul, 2013, p. 54). This call should not bedismissed with a skeptical critique of ‘Europe’s Kantianpolicies in a Machiavellian world’ (Bressand, 2012,p. 46).

Another important element of a streamlined Europeanenergy policy would be taking energy security seriously –the problem of security of supply, the question of afford-ability and the issues of dependency – but with anenvironmental component. An understanding of energysecurity that considers human security can be definedalong the lines of the normative proposal made byGoldthau and Sovacool (2012): ‘the way of equitablyproviding available, affordable, reliable, efficient, environ-mentally benign, proactively governed, and sociallyacceptable energy services to end-users’ (p. 235). Energysustainability needs to be understood in holistic terms,where environmental goals bring significant economicand security co-benefits. The positive impact of renew-able energy and energy efficiency on energy securityshould be emphasized continuously – as models show, alow-carbon transition can be beneficial in this respect(Jewell et al., 2014). Our system is not merely ‘environ-mentally unfriendly’ but unsustainable.

Understanding the investment horizons of the energysector, we see that there is urgency to act now becausetoday’s decisions will affect our pathways in the long



run. What is needed in the shorter term is a set of reli-able and clear targets in the post-2020 agenda thatdirect our longer-term strategy and provide investmentstability. A further step is ensuring investment in infra-structure that will be able to handle the transition. Weare, and will for decades be, facing the ‘energy policy tri-angle’: climate change, energy security and affordability.Under proper governance schemes and policies, renew-able energy sources and energy-efficiency measures candeliver on all these goals. The key policy question is:how do we move forward with these instruments, andwhat can be the drivers? Market-based instruments are anecessary component, but it is clear that the EU ETS inits present form has not delivered the right signals andrequires a structural reform – although a different car-bon-pricing mechanism, such as a carbon tax, is increas-ingly conceivable. Education, changing consumer habitsand deep changes to demand are important in the longrun, but have to be complemented with efforts to ensuresecurity of supply.

We have to be honest with ourselves: policies will haveto make a trade-off between short-term costs and long-term advantages. This will have to be done on the politi-cal level: as the lesson of the 2000s seems to teach us,markets alone will really not deliver an energy transition.Acknowledging the benefits of a ‘win–win’ energy andclimate policy for energy security and climate protectionwill be a major step forward (Vogler and Staphan, 2013).Importantly, however, our experience has shown thatenergy and climate policies are two sides of the samecoin. In the EU, as Helm (2014, p. 33) notes, the commonenergy market and climate policy were two separate pil-lars of energy policy, pursued by two different director-ates. An integrated climate and energy policy is also amust because it brings in more stability to tackle thegrowing uncertainties (hence the importance of the post-2020 agenda). Uncertainty can be decreased by eitherassuring stability or increasing the flexibility of thesystem. The incentives of integrated climate and energypolicy are doing both, as does market integration withinthe EU.

Note1. The article was written and submitted in early February 2014,

before the crisis in Ukraine escalated, pushing energy securityconcerns higher on the priority list of EU policymakers.

2. The so-called N-1 principle is an energy security scenario imply-ing the failure of the single largest gas infrastructure. The failureof the major gas infrastructure is used as a benchmark.

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Author InformationKacper Szulecki is Assistant Professor at the Department of PoliticalScience, University of Oslo. He was previously Dahrendorf Postdoc-toral Fellow in the group ‘Governance and Policy Aspects of ClimateChange’ at the Hertie School of Governance in Berlin.

Kirsten Westphal is Senior Fellow for Global Energy Issues at theInstitute for International and Security Affairs (Stiftung Wissenschaftund Politik) in Berlin.



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