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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(80)583final
Brussels.15october1980
ENERGYANDECONOMICPOLICY
(Communication fromtheCommissiontotheCouncil)
!>£1
r-^-,
V.,7vy
COM(8o)583final

ENERGY AND ECONOMIC POLICY
INTRODUCTION
1.Theburden ofthe energy constraint onthe short -andmedium-term
management ofoureconomies -intheform ofamajor transfer ofresources
andstrong inflationary pressures -prompted theCouncil ,atitsmeeting
on9June 1980 ,toplace ontheagenda foritsOctober meeting adiscussion
ofthelinks between energy problems andeconomic policy .
Thepurpose ofthis Communication istoserve asabasis forthat discussion
andenable theCouncil toadopt itsguidelines .
THE INTERNATIONAL DIMENSION OFTHE PROBLEM '
2.This paper does nottouch onthewider economic aspects ofthe second
energy crisis ,which arediscussed intheannual report totheCouncil .
The emphasis here ison:
(a)identifying andputting into practice theright solutions totheproblems
arising from balance -of-payments deficits ;
(b)reducing theCommunity 'sdependence onexternal energy supply ,and
primarily itsdependence onoilimports ,bymeans ofstructural
adjustments geared notably toconserving energy andtofostering the
production anduse ofalternative energy sources .
3.Asemphasized bytheEuropean Council ,concerted action isneeded byall
theconsuming countries ,particularly inview oftheimplications for
competitivity .Inourhighly integrated economy ,isolated (orworse ,
contradictory )measures would together bedetrimental 1togeneral growth
potential .

_9_
Itwould bejust ashazardous toaccept anvarVpid i?ijmalr'y ofstructural
adjustment effort intheenergy sector .The costs ofadjustment –in
resource allocation orloasas ofcompetitiveness -would beborne solely
bythecountries that embarked onthecourse ofsction needed ,while all
consumer countries would benef:t .
4.Accordingly ,byvirtue ofitsresponsibilities ,both within the
Community andoutside ,theCommunity has aspecial role toplay in
formulating and implementing anappropriate economic andenergy strategy .
The Community hasalready set itself three objectives :
(i)tolaythefoundations ofgenuine solidarity among consuming countries
bycontributing ,asitdid attheTokyo Summit ,tothe joint
definition oftargets forreducing itsdependence onexternal energy
sources ;
(ii)toplace thesupply ofenergy onasounder basis byentering into a
dialogue with theproducing countries aimed atachieving smoother
reconciliation ofthe interests ofthe countries involved ;
(iii)toplay anactive role inthe areas ofdevelopment orfinancing which
will make itpossible toease thesituation inthedeveloping countries
hardest hitbythe crisis ,inparticular byhelping toexploit their
energy potential andmineral resources .
BA.LANCE -OF-PAYMEHT5 FINANCING
5.Balance -of-payments deficits ,which arelarger andmore permanently
entrenched than after thefirst oilcrisis ,raise aproblem ofgeneral economic
policy ,that ofreconciling the steady reduction ofthedeficits with a
continued general level ofactivity and employment that isashigh aspossible .
"That problem isdiscussed inthe annual economic report .
They also give rise toaproblem offinancing ,nowbeing debated bythe
Council onthebasis ofguidelines which need tobeconfirmed andgiven
practical shape .

-3-
6.Thefirstoftheseguidelines,followinguptheconclusionsoftheEuropean
CouncilandoftheVenicesummitmeetingofthemajorindustrialized countries,
istostepuptheactivityoftheinternational organizations (IMP,WorldBank
andtheregionalBanks)inrecyclingoilcapital,withparticularconsideration
fortheproblemsofnon-oildevelopingcountries.Itwouldbeappropriatealso
toassessthehelpwhichcouldbegiventosupporttheireffortstobrifigabout
thestructuralchangesnecessitated bythestateoftheirexternalpayments.
Notingandtakingintoaccountthedecisionstakenattheannualmeetingsof
theFundandtheBankinWashington,theCouncilshould,beforethenextmeeting
oftheInterimCommittee,considerwhetheractualprogresssdfarmatchesup 1
tothetargetsadvocated.
7.TheCommunityisalreadydirectlyinvolvedintransferring capitaltothenon-
oildevelopingcountriesundertheLomeConvention,underitsarrangements for
assistingnon-associated developingcountriesandundervariousfinancialprote-
coln.UnderthefurtherstudiesonthismatterwhichtheCouncilcalledforon
9june,aneffortmustbemadetoidentifytheareasinwhichjointactioncan
beundertakenwiththeoil-producing countrieswherebytheresourcesavailable
canbemobilizedfaster,onawiderscaleandmoreeffectively.TheCommission
andtheEIBalreadyparticipate inco-financing schemeswithanumberofdevelop­
mentfundsandarealreadyconcernedtoexpandthescopjofsuchparticipation .
Thebringingtogetheroftheseobjectives,togetherwitithenormaloperations
ofthebankingsystemmustbeexaminedindepth.
8.ThethirdguidelineistostrengthentheCommunity'sownfinancingmechanisms.
Moreactivesolidaritywillbetotheadvantageofall,byhelpingtoeasethe
financialconstraintwhereitmightotherwiseleadtoundulyrestrictive measures,
withadverseeffectsongrowthandemployment.Thefirstessentialhereisthe
promptcompletionoftheworkspeltoutbytheCouncilon9june1980:
(a)towardsraisingtheceilingonCommunityborrowingsandimprovingthe
conditionsforusingthisinstrument ;
(b)towardsenablingtheCommunitytousetheECUasthenumeraireforthe
loansitfloatsontheinternational capitalmarkets,asadvocatedin
theopinionoftheMonetaryCommittee,andsoprovidinglenderswith
additionalfacilities fordiversification .

TheexpandingroleoftheCommunity'sfinancialinstruments
(EIB,NCI,ECSCandEuratom)helpstoalleviatebalanceofpayments ,
problemswhenthecorresponding loansareraisedontheinternational
capitalmarkets. 4.
REDUCING DEPENDENCE ONIMPORTED ENERGYANDDIVERSIFYING SOURCESOFSUPPLY
9.Underitsbroadthrustofrestoringequilibrium aswellasinits
specificaspects,economicpolicymustservetheobjectives-paramount
foroureconomies-ofreducingenergydemandanddiversifying sourcesof
energy.Theinvestmentrequiredforthirspurposewillalso'activelyhelp
tosustaineconomicactivity.Actionisneededattwolevels;
(a)acoherentenergypricingpolicy;
/
S ' *
(b)'properplanningofinvestmentandofthefinancialresourcesneeded.
A.Theroleofprices
10.Demandadjustment andinvestmentdependtoalargeextentontheprices
ofenergyproductsonthedomesticmarkei.Tospeedupadjustmentsinthe
\ ' '
energyfield,ttooconditionsmustbemet:thegeneral,pricetrend
(particularlyforpetroleumproducts)muttservetheaimsofboth
conservation anddiversification ,must-movesmoothlyandmustadmitof
reliableforecasting ;andtheremustbeanappropriatehierarchyofprices
forthedifferentsourcesofenergy.

(i)Thetrend intheKeneral level ofdomestic pric-es
11.Energy users must beinaposition tobase their decisions onforward
assumptions regarding prices that aresufficiently reliable andconsistent
with thegeneral direction ofenergy policy .This condition isessential
ifmarket forces are toensure the most efficient allocation ofresources .
1?.Looking ahead tot'hemedium term ,andleaving aside cyclical fluctuations
intheeconomy ,thegeneral situation regarding oilsupply anddemand means
atthevery least that anypolicy incorporating afall inoilprices inret-l
terms must beruled out .
TheCommission considers that ,tokeep thetrend ofpetroleum product
prices asconstantly consistent aspossible with thegeneral direction of
energy policy ,the line ofconduct oftheMember States ,insofar asthey
have aninfluence ontheformation ofprices ,should betoprevent atrend
forthe final consumer which discourages energy saving anddiversification .
13«This principle would boapplied asfollows : . " .
(a;inlilewith theprinciple already accepted bytheCouncil ,increases -
inthorepresentative import price ofcrude oilmust tepassed onto
the filial consumer within nreasonable period oftime ;
Cb)theCommission proposes that theCouncil should establish theguideline
that ,asageneral rule ,butwithout accentuating inflationary tendencies ,
the level oftaxation ofpetroleum products should beperiodically
adjusted inthelight oftherequirements ofenergy policy ,

6.
(c;theCommissionstresses-andtheCouncilhasalreadyacknowledged-
thatthesecondaryinflationary effectsofoilpricerisesmustbe
containedtotheutmostextentpossible. '
Althoughtheseguidelines andmeasuresmustbeputintooperationbythe
MemberStates,withreferencetotheirindividualsituations,theguidelines
themselvesmustbeccwnnion,andtheirimplementation mustbemonitored
regularly:theCommissionnu^yentsthat,aftervJoptingthem,theCouncil
shouldreviewtheresultsannually.
t
lq.Thesemeasuresmaynotbeenoughifthereisasharpdownwardtrend
intheimportpriceofoil.Otherinstruments shjuldthenbeused.
TheCommissioniscontinuingtoexami)ethispoint,andwillinformthe
Council,foralatermeeting,ofitsfindingsandconclusions.
IS*Theproposeddecision ;couldbringaboutanincreaseinpublicrevenue;
itwouldbeessentialtocontaintheiaflatfbnaryconsequences andtoobviate
anydeflationary effects.Appropriatecountervailing measuresmighttake
thefollowingformr.: ,
(a)areductionincharges,.whichwouldatthesamQ\time -prevent
Ν
adeclineinthecompetitiveness ofCommunityfirmsandexerta
'favourableinfluenceorinvestment andemployment ;

-7-
(b)areductioninindirecttaxation,whichwouldhelptoease
inflationary pressures ;
(c)anincreaseinbudgetaryfundsforincentivestoadaptationin
theenergyfield.
(ii)Hierarchyofdomesticpricesofenergysources
16.Thehierarchyofpricesforthedifferentenergyproducts,which
governmentinfluencesthrougharangeofinterventions ,mainlytaxation
andbudgetary,mustservetheaimsofreducingdependence onexternal
energysources,particularly Ijycuttingoilimportsandbydeveloping
alternative energysources.Pricedifferentials mustactbothas
adeterrent(oil)andasanincentive(othersourcesofenergy).
Thisisnotalwaysthecase:insomeMemberStatesatleast,the
domesticpriceforcertainproducts(heavyfueloilisanexample)
doesnotencourageadiversification ofsourcesorgiveanyurgency
toinvestmentin,say,energyconservation .Suchdistortions canbe
tracedback,toalargeextent,tothewayinwhichdifferentenergy
productsaretaxed.
Further,thestructureofprices,i.e.includingtaxation,asbetween
theMemberStatesisapotentialandapresentsourceofdistortion
ofcompetition andthecauseofapoorallocationofresources.
17.TheCommissionaskstheCounciltoapprovethefollowingtwoaims:
(a)toarriveatahierarchyofpriceswhichisconsistentwithoverall
energypolicy;
(b)topreventexcessivedifferencesinthepricestructuresasbetween
MemberStateswhicharenotjustifiedeitherbyasimilarityof
situationsorbythefactofbelongingtothesamemarket.
AtalaterdatetheCommissionwillputupproposalsdefiningthebases,
includingharmonization oftaxation,forattainingtheseobjectives.

B.Planningofinvestments andoftheresourcesrequired .
18.Priceshaveapivotalroletoplayasanincentivetotheadjustment
ofdemand.But,governmenthasadirectandcrucialroleincarrying
outinvestment,muchofwhichdependsondecisionsbygovernment
andwithoutwhichthegoalofself-sufficiency ,forwhichgovernment
isresponsible ,willnotbeattained.Theconsequences aretwo-foldj
(a)theprincipleofplannedprogrammeswhichdefinenotonlythe
investments neededtoreachtheCommunity *stargets,butalsotheresources
forcarryingthemout;(b)takingaccountofenergyrequirements
properandtherequirements oftheeconomyasawhole,thisprogramme-planning,
intheCommission 1sview,shouldajnplifyandspeeduptheentireeffort.
19.InitsResolutionof9June1980*"theCouncildecidedtomakean
annualassessmentofnationalenergyprogrammesatCommunitylevel-
theCommunitybeingameeting-point forcomparingtargets,defining
andmonitoringpriorities,identifyingshortcomings andappraising
results.
TheCommunity'sacknowledged positionthareforeanswersaveryclear
requirement .Itisthebestforuminwhichtodefineforcefully -»
andpresenttothepublic-policieswhicharenecessarily comparable
andanalogousandwhich,intheCommission'sview,must:
(a)givethegreatestpossibleboosttoenergyinvestment;
(b)contributetothedevelopmentofnuclearenergyandhelptoremove
theobstacleshamperingitsexpansion;
(c)pursueaconsistentinternalandexternalcoalpolicyasregards
research,availabilities andcosts,withtheaimofself-sufficiency ;
(d)stimulatetheinvestmentrequired
newenergysources.inenergyconservation anddevelop

-9-
TheMinistersforFinancialAffairscannotremainindifferenttotheaction
inthesefieldstakenbytheMinistersforEnergy.Thegene.aleconomy
isdirectlyconcerned:bybalance–of–payments andpriceconstraints ,
butalsobytheimpetustogrowthandemploymentofferedbythenew
"industrialenergyeconomy"andbytheexpansionofenergyinvestment.
20.Consideration ofthematchingofresourcestogoalsisalsoofdirect
interesttotheEconomicandFinancialAffairsMinistersmeetinginCouncil.
Particularattentionwillhavetobegivantobudgetary,economicand
financialmechanisms,andtobothnationalandCommunitylegislation
introducedtoencouragetheinvestments whichareimmediately necessaryand
tofacilitatetheirfunding.Theonlywaytomakesurethisisdoneis
bythesystematicandcriticalmonitoringofthestateofprogressofthe
programmes .
21.Inaddition,theCommunitycontributestotheinvestmenteffortthrough
itsfinancialinstruments (fundsundertheBudgetandloans).Its
contributionissubstantial :in1979»1580millionEUAinloansgranted,
or6fcofCommunityenergyproductioninvestment (considerably moreif
self–finaneingisdeducted).TheCommunity'sactionshouldhelpthe
MemberStatestopursueavigorousenergypolicy.Itshouldbe
primarilydirectedtosupportingcoherentprogrammeswhichserve
thecommonobjectivesandareintegratedintoanoverallpolicybythe
recipientMemberStates.Communityfinancingshouldnottaketheplace
ofnationalfinancing,butshouldspaedupandamplifycertainmeasures
whichcouldnotbecarriedoutwithoutanexternalfinancialcontribution .
22.ItisinthatcontextthattheCommission askstheCouncil:
(a)toapprovetheguidelinessetoutinthisCoffuuunication ;
(b)todecidetoconveneeveryyearaCouncilmeetingoftheEconomic
andFinancialAffairsMinisterswithappropriateparticipation to
examinehowthelegislative meansandthefinancialresourcesmatch
uptotherealtargetsoftheI'emberStates'energyprogrammes ;
(c)totakenotethateveryyeartheCommissionwillpresentonthat
occasionareportonthepossiblecontribution fromCommunity
resourcestotheoverallinvestmenteffort,andwillsuggesthow
theyshouldbeusedtoservepriorityaims.