# IMMC.EESC-2023-00490-AC.ENG.xhtml.EESC-2023-00490-00-00-AC-TRA-EN.docx

| OPINION |
| --- |
| European Economic and Social Committee |
| Monitoring the EU's extraordinary measures and resilience in the field of energy |
| _____________ |
| Monitoring the EU's extraordinary measures and resilience in the field of energy


  (Exploratory opinion requested by the Spanish presidency) |
| |
| TEN/799 |
| |
| Rapporteur: Andrés BARCELÓ DELGADO |
| |

OPINION

European Economic and Social Committee

Monitoring the EU's extraordinary measures and resilience in the field of energy

_____________

Monitoring the EU's extraordinary measures and resilience in the field of energy

(Exploratory opinion requested by the Spanish presidency)

TEN/799

Rapporteur: Andrés BARCELÓ DELGADO

EN

Referral

| Referral | Spanish presidency of the Council of the EU, 08/12/2022 |
| --- | --- |
| Legal basis | Article 304 of the Treaty on the Functioning of the European Union |
| Plenary Assembly decision | 13/12/2022 |
| Section responsible | Transport, Energy, Infrastructure and the Information Society |
| Adopted in section | 16/05/2023 |
| Adopted at plenary | 14/06/2023 |
| Plenary session No | 579 |
| Outcome of vote
  (for/against/abstentions) | 198/2/5 |

Referral

Spanish presidency of the Council of the EU, 08/12/2022

Spanish presidency of the Council of the EU, 08/12/2022

Legal basis

Legal basis

Article 304 of the Treaty on the Functioning of the European Union

Article 304 of the Treaty on the Functioning of the European Union

Plenary Assembly decision

Plenary Assembly decision

13/12/2022

13/12/2022

Section responsible

Section responsible

Transport, Energy, Infrastructure and the Information Society

Transport, Energy, Infrastructure and the Information Society

Adopted in section

Adopted in section

16/05/2023

16/05/2023

Adopted at plenary

Adopted at plenary

14/06/2023

14/06/2023

Plenary session No

Plenary session No

579

579

Outcome of vote
  (for/against/abstentions)

Outcome of vote
  (for/against/abstentions)

198/2/5

198/2/5

1.Conclusions and recommendations

1.

Conclusions and recommendations

1.1The COVID-19 pandemic recovery process and Russia's unjustified aggression towards Ukraine have caused serious disruptions in the European energy system, increasing energy security concerns, sending energy prices rocketing to record heights, and highlighting the EU's excessive dependency on Russian gas, oil and coal.

1.1

The COVID-19 pandemic recovery process and Russia's unjustified aggression towards Ukraine have caused serious disruptions in the European energy system, increasing energy security concerns, sending energy prices rocketing to record heights, and highlighting the EU's excessive dependency on Russian gas, oil and coal.

1.2EU society is greatly concerned with the issue of how to address these disruptions to allow for substantial and sustainable growth and social cohesion in the EU. This challenge relates not only to energy, but also to the resilience of the EU, the EU's open strategic autonomy, society, and the competitiveness of European industry.

1.2

EU society is greatly concerned with the issue of how to address these disruptions to allow for substantial and sustainable growth and social cohesion in the EU. This challenge relates not only to energy, but also to the resilience of the EU, the EU's open strategic autonomy, society, and the competitiveness of European industry.

1.3Once the energy crisis had caused gas and electricity prices to reach record levels and sparked major concerns about the security of the energy supply, the immediate reaction of the European Commission and the Council was to launch several toolboxes and emergency measures to reduce dependency on Russian fossil fuels and mitigate energy price increases.

1.3

Once the energy crisis had caused gas and electricity prices to reach record levels and sparked major concerns about the security of the energy supply, the immediate reaction of the European Commission and the Council was to launch several toolboxes and emergency measures to reduce dependency on Russian fossil fuels and mitigate energy price increases.

1.4The extraordinary measures adopted by the EU have proven to be effective in diversifying EU fossil fuel sources and moving away from Russian fossil fuels, but less effective when it comes to tackling energy bills, leading to a drop in energy demand, also favoured by the mild winter season. Furthermore, the impact of high gas and electricity prices has mainly impacted industrial energy demand and low-income households, which are more vulnerable to volatile market prices.

1.4

The extraordinary measures adopted by the EU have proven to be effective in diversifying EU fossil fuel sources and moving away from Russian fossil fuels, but less effective when it comes to tackling energy bills, leading to a drop in energy demand, also favoured by the mild winter season. Furthermore, the impact of high gas and electricity prices has mainly impacted industrial energy demand and low-income households, which are more vulnerable to volatile market prices.

1.5For the sake of effectiveness, it is more appropriate to adopt uniform measures among the Member States to ensure a level playing-field, except in those aspects relating to essential facilities or infrastructure. Measures adopted at national level differ from country to country, thereby allowing for different tax, subsidy and regulatory policies, while energy prices remain at high levels.

1.5

For the sake of effectiveness, it is more appropriate to adopt uniform measures among the Member States to ensure a level playing-field, except in those aspects relating to essential facilities or infrastructure. Measures adopted at national level differ from country to country, thereby allowing for different tax, subsidy and regulatory policies, while energy prices remain at high levels.

1.6The consequence of ineffective measures taken to tackle high energy prices is the erosion of both industrial competitiveness and households' disposable income owing to impacts on inflation rates. This seriously hinders the ability to ensure sustainable economic growth, employment and social welfare.

1.6

The consequence of ineffective measures taken to tackle high energy prices is the erosion of both industrial competitiveness and households' disposable income owing to impacts on inflation rates. This seriously hinders the ability to ensure sustainable economic growth, employment and social welfare.

1.7EU policy must reinforce its long-term vision for achieving the twin transition with a strong commitment to avoiding leaving people behind, going beyond the adoption of temporary measures to alleviate the surge in short-term energy prices. The EESC stresses the importance of accelerating the large-scale deployment of carbon-free energy sources by simplifying permitting processes to make it possible to rapidly replace dependency on third-party fossil fuels, comply with climate change commitments, and enhance competitiveness.

1.7

EU policy must reinforce its long-term vision for achieving the twin transition with a strong commitment to avoiding leaving people behind, going beyond the adoption of temporary measures to alleviate the surge in short-term energy prices. The EESC stresses the importance of accelerating the large-scale deployment of carbon-free energy sources by simplifying permitting processes to make it possible to rapidly replace dependency on third-party fossil fuels, comply with climate change commitments, and enhance competitiveness.

1.8The transition to fully decarbonised energy consumption should be accompanied by affordable and stable energy prices that allow for massive investment in the decarbonisation of large industries, SMEs and households. Stable and predictable remuneration schemes for renewables must therefore be geared towards real long-term production costs and be decoupled from fossil fuel prices. This strategy makes a positive contribution to improving resilience and energy autonomy.

1.9Affordable prices would enable fossil fuels to be replaced with electrification as much as possible and would permit the use of renewable gases in hard-to-abate industries.

1.10Access to critical raw materials is essential to ensure that industries operate in a stable environment, advance towards decarbonisation, and avoid supply disruptions, thereby protecting the supply chain.

2.Gist of the presidency request

2.1The incoming Spanish presidency has asked the EESC to produce an exploratory opinion on Monitoring the EU's extraordinary measures and resilience in the field of energy.

2.2The request comes in the aftermath of the COVID-19 pandemic and in the fallout of Russian's aggression towards Ukraine, which has caused serious disruptions in the global energy system, increasing energy security concerns, sending energy prices rocketing to record heights, and highlighting the EU's excessive dependency on Russian gas, oil and coal.

2.3The cost of foreign supplies in the EU, for example energy, food and commodities, including critical raw materials, has risen, and EU society is now concerned with how to handle this challenge to allow for sustainable growth in the EU economy.

2.4The scope of the requested opinion shall cover the measures adopted to deal with the energy crisis, the resilience of the EU, the EU's open strategic autonomy, society, and the competitiveness of European industry.

2.5Recent developments in the USA will almost certainly have an impact on the deployment of renewable energy sources, including their industrial base, but this will be covered in a separate opinion.

2.6The concept of strategic autonomy is now broader than it used to be, with industry, energy, technology and trade having been added to the traditional issues of security and defence. The EU recovery and resilience plan, Next Generation EU, will surely provide a substantial impulse towards developing the EU's open strategic autonomy in the various fields identified.

2.7In comparison with its main trade partners, the EU is a champion of real, effective and rules-based free and fair trade, and is a prime promoter of an open economy, avoiding protectionism. However, the need to balance an autonomous industrial policy and an openness to trade is a serious challenge in the current international framework.

The European Union needs to attract investment to enhance industrial production, secure the supply of energy and critical raw materials and, at the same time, promote the industrial transition to a decarbonised society, sustaining technological leadership in strategic areas and preserving the single market, the precious cornerstone of the European Union, as the best way to guarantee a wealthier EU society, protecting and promoting high quality jobs in the EU.

2.8The necessary twin green and digital industrial and social transition must protect the European model, ensuring that the focus remains on citizens: protecting jobs and promoting new, high-quality jobs means reskilling and upskilling the workforce, with a strong commitment to avoiding leaving people behind.

2.9The current industrial alliances promoted by the Commission must channel investment and innovation to help secure the availability of raw materials, boost recycling, and promote technology in specific fields. At the same time, it must always be ensured that the necessary global supply chains follow EU and OECD rules and guidelines.

2.10In conclusion, in this new geopolitical scenario, these three issues – critical dependencies, strategic autonomy, and the safeguarding of supply chains for strategic and energy resources – are proving to be strategic issues that will define the relationships between states and blocs. Europe needs to become more autonomous when it comes to access to sustainable energy resources and raw materials with the aim of procuring a competitive level-playing field for industry.

2.11This is why the Spanish presidency has requested an opinion on resilience, strategic autonomy, society and the competitiveness of industry, so that it can lead to reshoring to the single market, better coordination, and an industrial policy that is more integrated into strategic dependencies, creating solid foundations for the twin transition.

2.12However, this pursuit of industrial strengthening must go hand in hand with efforts to defend free and fair international trade with minimum social standards. It is essential to safeguard the EU's level playing-field by improving the EU's toolbox for addressing the distortive effects of foreign subsidies on the single market.

2.13Finally, energy resilience and the current energy regulatory model, which fails to address calls from consumers (households and businesses) for guaranteed, clean and affordable energy, should be monitored.

3.Background

3.1Europe is involved in an unprecedented energy crisis characterised by extremely high gas and electricity prices and major concerns regarding the security of the energy supply, with subsequent effects on the entire economy because of the importance of energy consumption as a massive input in the production of most goods and services and exacerbated by the lack of access to raw materials. The Russian aggression towards Ukraine has exacerbated the impact of energy prices, putting European industry's competitiveness and households' incomes and livelihoods at risk.

3.2This has led to the implementation of different policies in both areas at European and national levels with the aim of mitigating the social and economic consequences of the impact of the energy price surge. In addition, the energy crisis has sparked a public debate not only on energy dependency, but also on strategic autonomy.

3.3The common understanding that the European economy must accelerate the "green" and "just" transition to a fully decarbonised economy and society to reduce our external energy dependency is one of the pillars behind the measures adopted in 2022. Direct benefits derived from the massive deployment of renewable energy sources include affordable and stable energy prices, and leadership in renewable energy technologies, with subsequent benefits from the retention of value creation in the EU, thus allowing for sustainable economic growth and social cohesion.

3.4Energy prices started to rise significantly in the second half of 2021 once the EU economies began to recover their pre-pandemic activity. However, the EU has also been impacted as a consequence of Russia's aggression towards Ukraine, with its undesirable effects on critical aspects such as the security of the energy supply. This risk has been translated into the energy markets as a result of Russia's decision to suspend gas deliveries to several EU Member States.

3.5The EU's response followed immediately at the end of March 2022 when it was agreed to phase out the EU's external dependency on Russian fossil fuels. This initiative finally ended with the May 2022 Council agreement to ban almost 90% of all Russian oil imports by the end of 2022. This measure was accompanied by a call to diversify energy supplies and sources, accelerate the large-scale deployment of renewables, improve energy efficiency, and improve energy infrastructure, as included in the REPower EU plan.

3.6The first measure was the promotion of solidarity among EU Member States in the case of gas shortages. Joint gas purchases were also promoted to diversify and secure gas supplies, with the aim of limiting the impact of gas prices in both gas and electricity markets, with a new gas price reference that better reflects the move from the use of gas pipelines to LNG terminals. The commonly accepted Title Transfer Facility (TTF) virtual gas hub was deemed to be no longer effective.

3.7Additionally, a direct mechanism to reduce external gas dependency is the move to reduce gas demand, with effects not only in terms of conventional gas consumption but also in terms of electricity production coming from combined cycle marginal units. Hence, an agreement was reached on a 15% reduction in gas demand.

3.8Finally, a key critical aspect in order to secure the gas supply was the replenishment of gas storage facilities with a view to ensuring the energy supply through the winter season. In the end, an 80% filling rate requirement for winter 2022/2023 and a 90% requirement for future winter seasons were adopted.

3.9In parallel to the measures envisaged to secure gas supplies, the dramatic increase in energy prices also required action to avoid the loss of industrial competitiveness and households' disposal income. On 6 October 2022, the Council adopted three measures with the aim of addressing high energy prices. The first one related to electricity demand, by setting a 10% voluntary target for demand reduction and a 5% mandatory target for demand reduction in peak hours until the end of the winter season. Secondly, a 180 €/MWh price cap was set for inframarginal technologies to avoid the phenomenon of windfall profits due to high gas prices, so that any extra revenues above the price cap must be redistributed to end-users in order to alleviate their energy bills. Thirdly, a solidarity levy for the fossil fuel sector was approved for those companies with benefits above a 20% increase on average since 2018. All these measures relating to energy bills were finally complemented by a mechanism to limit TTF gas prices to 180 €/MWh under certain conditions approved on 19 December 2022, in conjunction with an oil price cap on Russian oil at USD 60 per barrel.

3.10It should be highlighted that a certain scope for action was generally left to the Member States when it came to implementing these rules.

3.11The underlying idea that the most effective measures to reduce external energy dependency are those relating to the deployment of renewables is also encouraged by efforts to facilitate the permitting of renewables. Thus, faster permitting procedures were temporarily approved for renewable assets. Furthermore, a wide-ranging debate has already been sparked regarding the current electricity market design and its ability to provide the right incentives to attract investment while securing the energy supply and price affordability for end-users. Finally, this scheme is completed by the Net-Zero Industry Act proposal with the aim of strengthening Europe's net-zero technology products manufacturing ecosystem.

4.Security of supply, energy demand and prices

4.1Once the energy crisis had caused gas and electricity prices to reach record levels, the Commission and the Council decided to use the emergency measures set out in Article 122 and Article 194 of the Treaty (TFEU), launching several toolboxes and emergency measures that had a minor impact on energy price volatility in the Member States. In fact, extreme market volatility exposure has been fully absorbed by final-users' energy prices since most market contracts typically cover 1‐year periods.

4.2The CO2 market has exploded since 2020: the average price in 2020 was 24.84 €/EUA compared to 80.87 €/EUA in 2022 and 89.23 €/EUA in March 2023, with an average monthly record price in February 2022 of 91.82 €/EUA, a long way from the record average low of a mere 19.83 €/EUA seen in March 2020 during the COVID-19 lockdown. No extraordinary measures have been adopted to tackle this impact on end-users' energy prices.

4.3The EESC supports the initiative focused on ensuring energy supplies and, more specifically, gas supplies. Thus, priority actions that tried to appropriately address the main concerns surrounding gas sources and the ability to substitute Russian gas pipeline imports with LNG supplies are viewed positively in the short term.

4.4Monthly EU gas source statistics clearly show the significant replacement of gas supplies from Russian gas pipelines since May 2022, well below historical flows, with increasing LNG supplies, mainly from the USA. Therefore, actions taken by market agents are perfectly aligned with EU extraordinary measures aimed at fully replacing Russian gas with other sources in the short term.

4.5However, the EESC also observes that gas and electricity demand has decreased substantially since the beginning of the war. The rise in European energy prices and major concerns regarding security of supply are likely to explain this reduction as the reduced demand coincides with extremely high price spikes in the third quarter. In addition, mild weather conditions in the winter season have favoured this drop in demand.

4.6It should be highlighted that electricity demand is proportionately higher at SME level, while conventional gas demand mainly serves industrial purposes and heating. This implies that the impact of high gas and electricity prices has mainly affected industrial energy demand, which is more vulnerable to volatile market prices. At household level, vulnerable customers have been massively affected by the increase in both energy vector prices.

4.7The EESC concludes that the extraordinary measures adopted by the EU have proven to be effective in diversifying gas sources, but less effective when it comes to tackling energy bills, with subsequent effects on energy demand.

4.8The EESC fully recognises the enormous challenge of ensuring gas supplies that is arising as the 2022/2023 winter season comes to an end. The 90% fill-rate requirement for gas storage for future winter seasons is essential in order to secure energy supplies. At present, EU gas storage capacity is at historically high levels for Q1. In addition, the joint purchases of gas initiative may help mitigate this risk. However, the EU must be primarily focused on reducing dependency on natural gas to zero.

4.9The EESC considers that it would be more appropriate to adopt uniform measures among the Member States to ensure a level playing-field, except in those aspects relating to essential facilities or infrastructure. The measures adopted at EU level to tackle energy bills are not aligned with those adopted at national level, thereby allowing for different tax, subsidy and regulatory policies, while energy prices remain at high levels.

5.Resilience, energy autonomy and the role of industry

5.1Energy prices are the main drivers of the inflation rates observed across the EU. This is eroding both industrial competitiveness and households' disposable income, thereby seriously damaging the ability to ensure sustainable economic growth, employment and social welfare.

5.2A rapid response, involving the implementation of extraordinary measures, has been proven to be effective at the EU level in mitigating energy price increases across the economy as a whole. Alternatively, a good example of national initiatives is the Iberian exception, which allowed for an 18% wholesale market price reduction in 2022. As a result, Spain has one of the lowest inflation rates at present. However, it has been clearly shown that energy prices are responsible for rising inflation and temporary measures have not been sufficient to reduce this trend.

5.3In this respect, the adoption of temporary measures has been fully devoted to alleviating the surge in energy prices in the short term; however, EU policy requires a long-term vision to adequately pave the way for the twin transition.

5.4The EESC stresses the importance of stepping up the large-scale deployment of carbon-free energy sources as an urgent matter to be addressed by facilitating permitting processes. In practice, this must lead to the rapid replacement of dependency on third-party fossil fuels, comply with climate change commitments, and enhance competitiveness.

5.5The EESC emphasises that the transition to fully decarbonised energy consumption should be accompanied by affordable energy prices that allow for massive investment in the decarbonisation of large industries, SMEs and households.

5.6Price affordability will only be feasible by fostering large-scale investment in mature renewables technologies and flexibility through a competitive framework. This strategy makes a positive contribution to improving resilience and energy autonomy.

5.7The EESC believes that, to take full advantage of this strategy, remuneration schemes for renewable energy sources must be oriented towards real long-term production costs. Decoupling electricity prices from fossil fuels prices is therefore the key driver of affordability. In addition, the elimination of barriers to long-term contracts is a key driver of stability and predictability.

5.8Under this new paradigm, households and industries would be better placed to bear the expenses associated with reaching the energy transition goals. This process basically consists of replacing fossil fuels with electrification as much as possible and the use of renewable gases in hard-to-abate industries.

5.9It must be highlighted that new uses of electricity and renewable gases require access to critical raw materials in many critical processes, not only in the area of energy production and consumption, but across the whole supply chain. Hence, ensuring that industries operate in a good environment to avoid supply disruptions must be the key focus of EU policy.

5.10Industry plays a key role in two vital ways: firstly, it has to ensure the use of critical raw materials in commodities to procure assets for producing energy and other essential goods for the economy and, secondly, as one of the main greenhouse gases emitters, it has to use decarbonised energy in its internal processes. In this connection, it must always be led by the "energy efficiency first" principle.

5.11Finally, the transformation of industry must meet two additional requirements to achieve the green, digital and just transitions that cannot be postponed. One critical aspect is the protection of the supply chain, as already pointed out; the other one is to ensure the workforce is sufficiently qualified to adapt to ongoing changes, specifically oriented to include training and qualification programmes as well as job guarantees and opportunities for retraining and further education.

Brussels, 14 June 2023

Oliver Röpke

The president of the European Economic and Social Committee

_____________