Reconciling a sustainable energy future with the liberalisation and privatisation of the European energy market
Summary
This report contains the most important discussions and documents which flowed from the two day workshop in Amersfoort, the Netherlands, in October 2000, on Reconciling a Sustainable Energy Future with the Liberalisation and Privatisation of the European Energy Market. It follows the chronological sequence of presentations and discussions that took place at the workshop and has been compiled using the audio recordings which were made at the time.
The Opening Workshop, chaired by Professor Wim Turkenburg, of Utrecht University and a member of the VROM-council, set the scene for the two days of presentations and discussions. In this session Dr. Ingeborg Niestroy of the German Council of Environmental Advisors, which is the current Focal Point for the European Environmental Advisory Councils (EEAC) - explained that the EEAC's Working Group on Energy had asked the workshop to provide an answer to two main questions:
- What EU policies are obstacles to sustainable energy strategies in Member States?
- What are national best practice strategies for sustainable energy development?
The presentation on Energy and the Challenge of Sustainability: the World Energy Assessment (WEA) was given by Professor Turkenburg, who was member of the editorial board of the WEA study. The WEA has been produced under the auspices of the United Nations' Commission on Sustainable Development (CSD). It can be described as being somewhat more optimistic than, for example, the International Energy Agency's World Energy Outlook (WEO) concerning the ability of efficiency improvement, advanced technologies and new and renewable energy technologies to lead to a stabilisation of CO2 emissions. The WEA's optimism is partly due to its reliance on the use of advanced fossil fuel technologies, especially CO2 recovery and storage. This session therefore focussed in particular on the potential of CO2 recovery and storage technologies with regard to climate protection. This led to some debate on the impact that liberalisation may have on large-scale energy research and development.
In the following session, Professor Kornelis Blok of Utrecht University, representing the research consultancy Ecofys, presented his paper on Carbon Dioxide Emission Reduction in the European Union: Options and Policies. Professor Blok described the two schools of thought in Europe concerning the role of government in promoting renewable energy. The question in this regard is whether consumer demand for 'green' electricity, coupled with good feed in tariffs, will provide enough of a stimulus for renewables, or whether regulations are needed to impose renewable energy quota's or obligations. Professor Blok went on to describe in detail the impact which liberalisation is having on combined heat and power (CHP) in Europe. The discussion, further, touched on the role of renewable energy certificates within the EU, and concluded with some discussion on voluntary agreements and energy taxation.
The next chapter is an update of the presentation on Policy Options and Instruments, which was given at the workshop by Jip Lenstra, Head of the Energy and Vehicle Technology Division at the Dutch Ministry of Environment. It is based on an interview with Jip Lenstra that took place in June 2001. It mentions the important fact that CO2 is enshrined as a pollutant within Dutch environmental law, and describes the range of instruments that are currently being used in the Netherlands in an attempt to reduce national CO2 emissions. In this context, voluntary agreements, the Dutch tax on energy, and Dutch standards for energy use in the building sector are described. A reference is also made to the Dutch carbon trading system, which is currently in the final stages of the design process and which will be presented before the end of 2001.
Dr. Catherine Mitchell, of the Warwick Business School in the UK, made a presentation on The Relevance of Liberalisation to the Development of a Sustainable Energy Supply. Dr. Mitchell explained that competition is currently taking place only in generation and transmission and that this is not leading to sustainable energy. Dr. Mitchell stressed that competition in distribution is essential to the stimulation of new and renewable energy technologies because sustainable energy is directly linked to distribution companies. Network operators currently simply buy and sell electricity, passing the costs on to the consumer. This provides no incentive for network operators to save energy on the demand side or to provide anything other than conventionally generated centralised power.
Liberalisation does not have to be bad for sustainable energy and should be able to offer new possibilities, but halfway liberalisation as it is currently being carried out is the worst of all worlds. Dr. Mitchell further pointed to the need for social and environmental indicators to be created to improve the benchmarking approach to liberalisation that is being promoted by the UK government in its paper, Energy Liberalisation Indicators. Further, Dr. Mitchell directed participants' attention to the UK's Working Group on Embedded Generation, which is discussing whether there is an inherent barrier to sustainable energy within energy liberalisation, and which is making information available at http://www.dti.gov.uk/energy.
Walt Patterson of the Royal Institute of International Affairs in the UK then gave a presentation on Future Sustainable Energy Systems. Patterson pointed out that it is both technically and economically possible to move towards a sustainable energy system; the reason it is hard to move in this direction is political; we and our elected leaders are not making the choices to move us in the direction of sustainability. It follows from this that powerful interests must be engaged on the side of sustainability if there is to be any progress. Patterson further made clear that the price of electricity is always influenced by, for example, the tax regimes on fuels, the asset accountancy, subsidies and cross subsidies and the treatment of so-called natural monopolies. This means that the price of electricity is never purely determined by the market and is always what the government wants it to be.
Patterson sees a way forward for sustainable energy that takes these facts into account and that engages powerful political interests. This involves an increased focus on the sale of energy services (e.g. heating, lighting) and less focus on the sale of fuels and electricity. This approach takes advantage of recent advances in, for example, fuel cell-, wind turbine-, photovoltaics-, power cable-, and power electronics-technologies, which make it possible to hugely increase the efficiency of the energy system infrastructure. Patterson stressed that research and development in this direction is already being undertaken by large companies such as Ballard, Daimler Chrysler, General Electric, Capstone, Allied Signal, ABB, and others, which see these technologies as major commercial opportunities. He further described how the inherent uncertainty involved with energy liberalisation is encouraging some companies already to move in the direction of providing a range of energy services in long-term contractual relationships with consumers, rather than simply selling kilowatt hours to consumers who may suddenly switch to another supplier. Patterson's presentation led to some debate on the merits of energy services and a discussion on the possibilities of using inherently intermittent renewable energy technologies, such as wind turbines, in a decentralised energy system.
The final session focussed on The Way Forward and was chaired, again, by Professor Turkenburg. Some major points that had been made over the past two days of the workshop were summarised by John Flemming of the UK's Royal Commission on Environmental Pollution. These were as follows:
- A number of the EU's arrangements, regulations and directives which have been put in place in the name of competition and a level playing field are not conducive to efficiency. There is, in fact, undesirable and unfair competition taking place that is not conducive to the production of electricity at least resource cost.
- Setting climate targets too high is likely to drive industries away to areas where environmental targets are lower or non existent; this would be likely to lead not only to job losses but also, probably, to increased greenhouse gas emissions.
- It would clearly be desirable if carbon dioxide would be recognised within the EU framework as being a pollutant. This would raise the possibility of integrating energy efficiency, fuel substitution and even carbon sequestration within the EU's Integrated Pollution Prevention and Control (IPPC) regulations; these would then not have to be promoted separately through other policies.
- The EU state aid regime is a major obstacle; it should be made possible to differentiate between 'good' and 'bad' state aid.
- It may be difficult to reconcile a sustainable energy policy and a single energy market with the devolution of the EU's Kyoto commitments. A particular problem may occur in the arrangements for supplying 'green' electricity across borders. Efficiency requires that the price of a unit of CO2 should be the same throughout the EU (and ideally throughout the world). But the shadow prices associated with national renewable energy quotas are likely to differ in different countries. It is hard to see how an integrated market would deal with these differential prices and this problem needs further examination.
- The EU's gas and electricity liberalisation regulations have not moved into distribution companies. The way to allow energy companies to begin providing services, rather than simply providing fuel and kilowatt hours, is to create regulations that turn distribution network operators into market facilitators that outsource many of their functions and that buy and choose the cheapest options.
Further, there was some discussion on the legal status of EU ratification of the Kyoto Protocol and on whether the group should perhaps in future debate the science of climate change.
There was also a proposal that the group should in future include more exchange of experience on the success and deficiency of the liberalisation process within different countries, in relation to sustainable energy. This was elaborated upon with suggestions to discuss emissions trading, and the role of nuclear power as a technology for the amelioration of climate change.
It was felt that the group's focus should remain on how to achieve a sustainable energy system within the context of liberalisation. The central question should be what policies are needed at the national and EU level, making use of the potential of liberalisation. A proposal was made that the group should focus on frameworks for dealing with instruments, and on concrete measures. It was agreed that there are a number of subjects that must be dealt with and a number of important questions that remain unanswered.
The session closed with some discussion on the possible institutionalisation of the working group and on possibilities for a follow up meeting. Lastly, thanks were expressed by the participants to Professor Wim Turkenburg and Ronald Flipphi of the VROM-council for having organised the workshop, and the session ended with a round of applause!
VROM-Raad &
Focal Point of EEACOctober 2001
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