Opinion on Community Energy Policy (94/C 393/20)

On 23 March 1993 the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on Community Energy Policy.

The Section for Energy, Nuclear Questions and Research, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 14 July 1994. The Rapporteur was Mr Gafo Fernández, the Co-Rapporteurs Mr Frandi and Mr von der Decken.

At its 318th Plenary Session (meeting of 14 September 1994), the Economic and Social Committee adopted the following Opinion by a large majority, with 11 votes against and six abstentions.

1. Reasons for the Opinion

1.1. Energy is of crucial importance to the competitiveness of the Community economy and the quality of life of Europe's citizens.

1.2. This led, on the occasion of the Intergovernmental Conferences set up to prepare the Maastricht Treaty, to the European Commission drawing up a draft Energy Chapter to be incorporated in the Treaty. The Energy chapter was finally withdrawn since no political consensus had been reached and the usefulness of such a chapter had not been discussed in sufficient depth either by the Institutions of the Community or by European economic and social organizations.

1.3. Shortly afterwards, however, the European Parliament and Economic and Social Committee adopted Opinions on the internal electricity and natural gas markets which expressed support for the idea of a common energy policy and argued that this was an essential step towards completion of the Single Market. The Committee is also aware that although the current energy-supply situation is healthy, it could be affected in the medium term by political instability in various energy-producing areas. This fact, together with the European Union's increasing dependence on external energy supplies, plead for a common energy strategy which, operating under the banner of subsidiarity, would try to combine respect for the energy context of each individual Member State with adoption of a common position vis-à-vis the outside world, so that the political and economic advantages to be gained from the European Union taking coordinated action in the energy field could be turned to good effect without this entailing an increase in the level of intervention and regulation.

1.4. For all these reasons the Economic and Social Committee feels that it would be useful to address to the other Community Institutions, Member State governments and different economic and social interests this Opinion, which includes a model of a draft Energy Chapter, with the aim of launching an in-depth discussion of the scope and timeliness of a Common Energy Policy for the European Union.

1.5. So that the Opinion would reflect the diversity of views existing in the EU on energy issues, the Committee held two public hearings to gather the opinions both of independent experts and of the main socio-economic organizations involved in the energy sector. Similarly the Study Group held a special meeting in the Canary Islands (Spain) with the representatives of the various outlying and remote regions to learn about the specific situation and priorities of these regions with regard to energy. Many of the opinions expressed at these hearings have been crucial to the preparation of this Opinion.

2. Historical background

2.1. After the ECSC Treaty of 1951 and the EURATOM Treaty of 1957, where coal and nuclear energy respectively were treated separately, the most important foundations for a Community energy policy were laid in the Paris Council meeting of December 1972 and in the Council Resolution of 17 September 1974 on a new energy policy strategy for the Community ().

2.2. These set out both the thinking behind what came to be known as the 'Community energy objectives' and the first target figures for the whole Community, namely the 'energy objectives for 1985'.

2.3. The philosophy behind these objectives was based on three underlying principles.

2.3.1. The first was that these Community energy objectives should consist of a set of quantifiable scenarios which would serve as a basis for long-term action both by Member State governments and by businesses and individual citizens in these countries.

2.3.2. The second was that these objectives should act as guidelines and not be binding. Their legal form was a Council Recommendation, which is not formally binding. This meant that the Community energy policy was to be the sum of the separate energy policies of the Member States which were to converge voluntarily towards the Community's own energy objectives, without however the Commission having the necessary legal back-up to enforce such convergence.

2.3.3. The third principle was international cooperation to resolve energy problems, both with the energy-producing countries and later with the rest of the world's energy-consuming countries, within the International Energy Agency (IEA).

2.4. These initial energy objectives were subsequently updated and refined, and objectives published for 1990 and for 1995. They all had a common element, namely an underlying concern to guarantee Community energy supplies at an acceptable price, something which has been achieved in practice ever since the 1970s, even during the recent Gulf crisis.

2.5. Nevertheless, it must also be pointed out that the degree of convergence of national energy policies towards Community objectives has been limited. One of the fundamental reasons has been the persistence of primary energy utilization structures which differ greatly from one Member State to another.

2.6. Thus it is not surprising that the Commission's 1988 document on the internal energy market pointed to considerable obstacles still facing the creation of such a market and indicated that there were major differences in prices, taxation and the availability of energy sources between the Member States.

2.7. The 1988 document implied a sea-change. From a philosophy based exclusively on the external aspect of security of supply, a dual philosophy had evolved which, while not abandoning this aspect, tried to combine it with an extension of the internal market to the energy sector.

2.8. Considerable progress has been made since 1988 in the creation of the internal energy market, although at a slower pace - especially in the case of electricity and natural gas - than in other sectors of the economy. One of the reasons for this has been the lack of convergence between Member State energy policies.

3. Community and world energy scenarios up to the year 2010 and beyond

3.1. The Committee considers that a Community energy policy should take account of scenarios of future developments in both the Community and the world; such scenarios should establish the main numerical references for both demand and supply, for all energy and for the different sources. At least the major trends should be covered beyond the year 2010, because the supply of oil in particular is going to be concentrated on the OPEC countries (cf. point 5.3.4).

3.2. In the course of its work the Committee has therefore considered the various available scenarios and the way they have evolved over the last few years. Nevertheless, it did not think it advisable to include a reference to any specific scenario in this Opinion, since selecting a single scenario could mislead decision-makers into over-reliance on a single forecast.

4. General considerations for a Community energy policy

4.1.

Energy policy within the framework of macro-economic policies

4.1.1. Energy policy is one of the most important instruments in the economic policy of a country. As such it is of crucial importance for the attainment of overriding general objectives, especially those for growth, inflation, employment and wealth distribution.

4.1.2. In the Committee's view this calls for the creation of a favourable energy investment climate which can accommodate a long time-scale before investments bear fruit. This in turn requires a transparent legislative framework which, in particular, remains stable over a long period.

4.2.

Security of supply

4.2.1. Since 1973 security of supply in relation to fuel imports has been one of the fundamental elements of Community energy cooperation. Although such cooperation has not been to the fore during the current relative over-supply in energy, there is no doubt that the EU's dependence on imports, which has risen steadily over recent years, from 44 % in 1985 to 52 % at present, means that this principle must remain one of the mainstays of energy policy and take on increasing importance.

4.2.2. Such security of supply may be improved in various ways. Firstly, by an adequate combination of the various primary energy sources, taking into account factors such as the concentration of supply, the life expectancy of proven reserves and their relative cost in terms of final energy. Secondly, by the right geographical combination of origins of supply, taking account of geopolitical factors such as the proximity or policies of the producer regions. Thirdly, by using internal instruments such as strategic reserves and contingency plans in the event of possible supply crises, as suggested by the Committee in its opinion on the subject (). Finally, we must not forget the potential importance for security of supply of the efficient use of energy and the competitive exploitation of the EU's indigenous resources, provided this is compatible with protection of the environment.

4.2.3. At all events, the best guarantee of external supply lies in friction-free cooperation between the Member States within the Community and the political impact which such a strategy is likely to have on our external energy suppliers.

4.2.4. Security of supply must not, however, be understood solely in terms of dependence on imports. In an earlier ESC Opinion () it was defined not only as the availability of sufficient energy resources, but also in terms of regularity of service, especially for electricity and natural gas. Similarly, guarantees of supply must cover, under satisfactory economic conditions for all parties, the whole territory of the EU, in particular its insular and remote regions.

4.2.5. In the Committee's view these three elements in combination - external security, regularity of supply and guarantee of satisfactory supply to the regions - constitute the definition of security of supply.

4.3.

Creation of the internal energy market

4.3.1. The Committee has had occasion recently to comment on this aspect (), stating that the energy market is a key element in the Internal Market (without which the latter would be incomplete) and that it should also serve to strengthen the overall competitiveness of the Community economy.

4.3.2. In particular the objective of the internal energy market was defined as 'ensuring that energy availability and prices are comparable in all the regions of the Community'.

4.3.3. In achieving this, however, two criteria had to be respected: the 'public service obligations' of the electricity and natural gas sectors towards a large segment of society; and the need to guarantee economic and social cohesion between the Community's different regions.

4.3.4. In the Committee's opinion the creation of the internal energy market, together with security of supply, are the twin pillars which must form a harmonious basis for the formulation and development of a common energy policy in the EU.

4.4.

Energy and economic and fiscal instruments

4.4.1. The objective of economic and fiscal instruments - viewed as double-edged weapons, either imposing charges or providing tax concessions - has been defined as to internalize the external costs or diseconomies produced by the use of certain natural resources and the impact on the environment where the market may not allow their cost to be accurately reflected in the final price. They allow use/consumption to be brought into line with long-term sustainable development; these instruments therefore are possibly a key element in the application of a policy such as energy policy, in that they may tax some forms of energy and subsidize others.

4.4.2. The Committee considers that the energy sector, and in practice the oil industry, is heavily taxed at present and wants this to be taken into consideration when it comes to changing existing economic and fiscal instruments, or introducing new ones.

4.4.3. The Committee supports the introduction of economic and fiscal instruments to promote the rational use of energy and the protection of the environment, provided such instruments comply exclusively with the following criteria:

4.4.3.1. They should be used much more for specific objectives, less as a mere source of revenue, provided that the competitiveness of European industry does not suffer on the world markets.

4.4.3.2. Transparency will be required in their definition and the way they are administered; they should also be commensurate with the objectives to be achieved, whilst consideration should likewise be given to their effects on employment.

4.4.3.3. The Member State authorities, including regional and local, have the option of introducing instruments most suited to their specific needs.

4.4.3.4. It is within the Commission's competence to propose to the Council the economic and fiscal instruments to be introduced uniformly throughout the EU for the purpose of attaining the energy policy objectives. Similarly it is for the Commission to examine whether national and local instruments are compatible with the proper functioning of the internal market.

4.5. Energy and research

4.5.1. The Committee has on several occasions reiterated its full support for the common research and technological development policy (). This policy, especially in the energy sector, has contributed to boosting the exploitation of indigenous energy resources, further promoting renewables (), improving energy efficiency and achieving more environmentally-friendly levels of energy production and consumption ().

4.5.2. The Committee considers therefore that in future research policy should be completely interwoven with energy policy. The former, working with a longer time frame, should point the way ahead for the energy sector. Attention must also be paid, however, to more short-term problems and developments affecting energy policy, often resulting from political decisions.

4.5.3. Energy-research policy must also step up the dissemination of findings in order to increase the returns on financial investment. Research findings should not only be made available to the Community's own energy-producing and -using sectors, but also to these sectors in other countries, especially in those countries with which the Community has technical and economic cooperation agreements. The THERMIE programmes are intended to have a marked impact on these aspects of the dissemination of energy technologies.

4.6.

Energy and environment

4.6.1. Similar considerations apply in the case of environmental policy. The Committee realizes that many forms of energy production and use have a considerable and potentially damaging effect on the environment, but it is also aware that energy promotes progress, growth, employment and quality of life, and that it is consequently necessary to achieve a proper balance between the costs and benefits of energy use ().

4.6.2. In the Committee's view it is possible to resolve the conflict of goals between environmental and energy policy rationally and by exploiting technological advances. Environmental considerations often dovetail with the call for efficiency in energy production, conversion and use. The Committee endorses the idea of energy and the environment working together in tandem as efficiently as possible and subject to progressively stricter conditions governing the relationship between them, provided that these conditions have a solid technological foundation, are based on an acceptable cost-benefit ratio and, in particular, do not jeopardize secure and regular energy supplies.

4.7.

Energy and economic and social cohesion

4.7.1. As far as energy is concerned, cohesion has to be viewed from the dual perspective of security of supply and regularity of service under satisfactory economic conditions which are comparable throughout the EU. The Committee has drawn up an Opinion on this particular issue.

4.7.2. The Committee realizes that the cost of energy supplies cannot be the same everywhere in the European Union. For this reason it thinks that the trans-European energy networks, conceived as the backbone of the internal market in this sector, should logically be supplemented by inter-regional energy networks co-financed, in the case of the least favoured regions, by the Cohesion Funds, the aim being to reduce as far as possible the extra fixed costs linked to the remoteness or low population density of these regions and to open them up for economic development.

4.7.3. In the case of the EU's remote and especially insular regions, similar considerations apply where security of supply is concerned. It would be absurd to require of distant and isolated energy systems a diversification strategy similar to that of the core area of the EU. Hence suitable means will have to be found, ranging from priority supply in the event of a crisis to Community co-financing of major investment in the infrastructure required to achieve a comparable level of supply and quality of service.

4.8.

Energy policy and the principle of subsidiarity

4.8.1. The Committee is aware that the non-renewable nature of the fossil fuels currently being used, and the technological developments of recent decades, have shifted the energy debate away from the national to the world arena. Furthermore, many decisions regarding energy production and use are increasingly being taken at regional and local level, especially where renewables and the rational use of energy are concerned.

4.8.2. The Committee is similarly aware of the major errors committed in planning energy supply and demand in all the EU Member States. These errors can partly be put down to inaccurate forecasts of economic growth rates and partly to the substantial fall in energy intensity (especially between 1979 and 1985), resulting in lower than expected energy consumption; they can also be attributed to technological advances and the discovery and exploitation of new indigenous resources. The Committee is concerned that, following the period 1979-1985, there has appeared a tendency for the energy intensity again to recover. The Committee would suggest that the reasons for this should be investigated and any practical remedies included in energy planning.

4.8.3. Energy decisions involve long time horizons for design and construction as well as substantial sums of money and are frequently irreversible; the costs of the resultant overcapacity in energy, especially electricity, have been very high for both the Member State economies and the world economy.

4.8.4. The Committee has had the opportunity to voice its support for the establishment of pan-European energy security (), which it considers should be introduced first as a matter of priority in the EU itself.

4.8.5. For all these reasons the Committee considers that the application of the principle of subsidiarity in the context of energy policy should mean that only such powers are transferred to the EU as are justified to achieve the real efficiency which is the objective of subsidiarity. In this context the EU should be able to intervene adequately in areas such as security of supply and harmonization of, inter alia, specific fiscal, environmental and public service aspects of energy. This would bring the following benefits.

4.8.5.1. Increase Community solidarity in the use of the EU's indigenous energy resources, although national sovereignty over such resources would still apply.

4.8.5.2. Improve security of supply through the adoption of a common strategy within the IEA, coordinated at European Union level and with sufficient flexibility to embrace different national and regional approaches.

4.8.5.3. Cut the reserve capacity of the system, especially in the electricity sector, with a reduction in the cost of supply without lowering the level of security and quality of service.

4.8.5.4. Help towards the gradual establishment of the internal energy market and its objectives.

4.8.5.5. Encourage the acceptance of power plants at local level.

4.8.5.6. Reinforce EU world leadership - both political and economic - in the energy sector.

4.9.

International dimension of Community energy policy

4.9.1. The Committee acknowledges the important part which the International Energy Agency has played, and will have to go on playing, in binding together the interests of the main OECD energy-consuming countries. Nevertheless, it believes that the EU, by coordinating Member State energy policies, can enhance the weight of the individual countries within the IEA. The Committee therefore considers that such coordination will have to be based on the following principles.

4.9.1.1. Worldwide cooperation and solidarity on energy: this principle was formulated in 1973 and has demonstrated its soundness and relevance over the last 20 years, its most recent example being the European Energy Charter (). The Committee, aware of the need for solutions negotiated on the basis of solidarity, fully endorses this principle. Such cooperation should cover all areas, but above all the dissemination of energy research findings, the rational use of energy and a reduction in its impact on the environment.

4.9.1.2. World energy leadership by the Community: Against the background of this philosophy of cooperation, the EU should also take a leading role in the search for global solutions to energy problems. This role should be pursued both by the European Union and by the Member States within their respective terms of reference, though it is essential that the Twelve speak with a coordinated voice in the various international energy fora, while respecting the individual agreements entered into by the Member States.

4.9.2. The Committee would point out that this international dimension of EU energy policy, based on the principles of cooperation, solidarity and leadership, not only contributes towards world stability and progress, but is also the sole means of guaranteeing safe and lasting supplies of energy under satisfactory economic conditions, which is the ultimate objective of this policy.

5. Sectoral aspects

5.1.

World situation

5.1.1. The trend in the EU's energy balance since 1973 has been highly satisfactory (Appendix 1). Not only has the consumption of energy per unit of output fallen sharply, but dependence on imports has been cut back from 62.5 % in 1973 to 52 % at present, although there has been a worrying turnaround in this ratio over the last few years. In addition, the balance between the different primary energy sources has improved considerably since users have had more opportunity to diversify, which in turn has improved the competitiveness of firms in this sector.

5.1.2. Nevertheless, there are still sharp differences between the Member States in their primary energy balances, per capita consumption and dependence on imports. This situation is attributable to a series of geographical, economic and social factors which have to be taken into account when a Community energy policy is drawn up.

5.2.

Solid fuels

5.2.1. Current situation: In 1992 solids accounted for 21 % of total primary energy consumption; their contribution to the total balance has barely changed since 1973. Four Member States produce coal with a high calorific value and six lignite and peat. In 1992 35 % of total consumption was met by imports from several different countries.

5.2.2. Most Community coal is markedly more expensive than the prices of imported coal landed in the EU, with the exception of opencast mining. Some of this coal comes from countries with lower extraction costs because working conditions and environmental standards are far below those of the Community. Historically this difference in costs has led to heavy national subsidies, both for production and marketing; these subsidies have first to be scrutinized and approved by the EC Commission. The Council has approved new aid arrangements for the period 1994-2002, concurrent with the life of the ECSC Treaty, which will entail a gradual reduction in subsidies and closure of the less competitive pits. In the view of the Committee careful consideration needs to be given to the impact of pit closures on medium- and long-term supply, and to the economic feasibility of reopening temporarily unworked pits.

5.2.3. Macro-economic impact: The coal sector is a major provider of jobs; investment, though substantial (ECU 1 142 million in 1990), takes a long time to become productive. As a sector it is noted for technological innovation in mining and processing methods.

5.2.4. Community production of coal is important for security of supply, not only with regard to the actual quantities of energy supplied, but also because it takes priority in the generation of electricity in power stations located near the mines themselves. Any reduction in capacity will have to take account of the impact on supplies to these power stations, especially the cost of alternative facilities for receiving and transporting solids. Imported coal will play an increasingly important role in the diversification of future supplies.

5.2.5. The high costs of transporting coal by land mean that consumption is compartmentalized at local level; for this reason the coal sector has only an indirect effect on the internal energy market through the electricity it produces.

5.2.6. The use of economic and fiscal instruments is widespread in this sector in the form of production subsidies and assistance with the very high social costs. Nevertheless, a possible eco-tax would have a very adverse effect on this sector, as would any other charge on either production or use. This is due to the low profitability of mines and the strong international competition from imported coal.

5.2.7. Solids have been noticeably detrimental to the environment at all stages (extraction, processing, transport and consumption), although new technological developments and the growing use of higher quality coal will make it possible to use them in a more environmentally-friendly way. This should give a boost to the import of high quality coal to the detriment of more polluting varieties.

5.2.8. Priority lines of research in this field are gas scrubbing, clean fuel technology, gasification, economic re-use of spoil and tailings, improving working conditions and safety in mines.

5.2.9. The underground production of solids has highly important social repercussions, especially at regional and local level. Therefore, before pits are closed, account should be taken of the feasibility of developing alternative job-creating activities in the regions concerned.

5.3.

Oil

5.3.1. Current situation: In 1992 oil accounted for 45 % of total primary energy consumption, thus considerably down on the 62 % of 1973. Its share has, however, been virtually static since 1982.

5.3.2. Of this quantity, 78 % was accounted for by imports of highly diverse origin, although the OPEC countries were the main source of supply. Of the present Community countries, only the UK is a major producer. On the other hand, the Community's refining industry has a slight surplus capacity, although its primary distillation capacity was cut back considerably (30 %) between 1980 and 1990; the quality of its products has risen to meet the higher environmental demands of the consumer.

5.3.3. The oil industry has a high macro-economic impact in terms of jobs (it employs almost a million persons directly and indirectly) as well as in terms of GAV (Gross Added Value) and investment - and especially if seen in conjunction with the petrochemical sector. Oil also has a major impact on the economy, especially in all those activities which are related to the transport sector, as became clear during the successive oil crises of the 1970s.

5.3.4. The oil industry is sensitive with regard to security of supply. The wide diversity of producing countries is undoubtedly one guarantee of security. But it must not be forgotten that oil is the energy source most dependent on imports, and that there is a trend towards concentration of future supply in fewer countries; those factors plead in favour of the geographical diversification of supply. This can be complemented by the possibility that the availability of proven reserves in new producing areas will increase as a result of oil price increases.

5.3.5. The main problems which persist in relation to the internal energy market in the oil sector concern the totally inadequate alignment of special taxes on petroleum products.

5.3.6. Economic and fiscal instruments are much used in the oil sector. Besides the special taxes, there are other substantial charges, such as charges on the liquid and atmospheric emissions of refineries, the taxes on waste oil or for cleaning up contaminated land at service stations. Together, they constitute a major source of tax revenue for the Member States. However, all these instruments have been used almost exclusively for revenue-generation purposes; in future this approach should be changed and the tax revenue used, at least partly, on measures to promote the energy objectives, such as improving efficiency in the use of energy, developing renewables or subsidizing the use of more environmentally-friendly fuels. The eco-tax would have an adverse effect on oil, although not as substantial as in the case of solids.

5.3.7. The impact of oil on the environment at the production, distribution and consumption stages is also important. Major programmes to minimize this impact are, however, under way, although the investment required is substantial.

5.3.8. This has not been a priority sector for EU-financed research, although the work being carried out in this area should be regarded as of fundamental importance. Research has been centred on new exploration and production techniques and, to a lesser extent, new clean fuel processes. We should emphasize here the great importance for the EU's security of supply of increasing, however marginally, the efficiency of extraction of oil deposits.

5.3.9. The flexibility of transport, and of the use of oil products, makes this primary energy source an important element in promoting economic and social cohesion insofar as such fuels can be supplied to all regions of the EU on roughly the same conditions in terms of price and quality.

5.4.

Natural gas

5.4.1. Current situation: In 1992 natural gas represented 19 % of the EU's total primary energy consumption. Its share has been increasing slowly but continuously since the 12 % of 1973. This trend is expected to continue over the next few years.

5.4.2. The percentage of imports, although still moderate, has been increasing steadily since 1980 and currently stands at 38 % of total consumption. On account of the particular factors which affect the supply of this product - severely restricted flexibility in supply and transport - there are only four main external suppliers, namely Norway, the CIS, Algeria and to a lesser extent Libya.

5.4.3. The direct macro-economic impact of the natural gas sector is significant in terms of both job creation and investment in exploration or distribution.

5.4.4. The security of supply situation for natural gas may be described as comfortable in the short term, but not without its dangers in the medium and long term. This is due to the heavy concentration of potential supply, the decline in production in the Community itself and the actual terms of the contracts. Other positive factors cannot be overlooked, however, such as Norway's closer links with and possible accession to the European Union, the political stabilization of relations with the CIS which should ensue from the European Energy Charter, and the EU's own interest in ensuring, through regular purchases of natural gas, political stability within the CIS and North Africa.

5.4.5. One unsettled issue in the natural gas sector is the establishment of a new regulatory framework which will make it possible to attain the objectives of the internal market in this sector ().

5.4.6. For the moment the use of economic and fiscal instruments in the natural gas sector is limited. The introduction of the eco-tax would have only a moderate effect.

5.4.7. The production, distribution and consumption of natural gas has a limited impact on the environment, with minimum particulate and SO2 emissions and relatively low CO2 emissions.

5.4.8. Priority research areas in this sector should include the utilization of natural gas in electricity generation to improve the performance of power stations.

5.4.9. The impact of natural gas on economic and social cohesion is considerable. Because of the particular nature of this energy source, a significant part of the Community's territory - namely the lower-income outlying and remote rural regions - has no or only very local supplies of natural gas, and the cost of supplying these regions on market terms is high.

5.5.

Nuclear energy

5.5.1. Present situation: Nuclear energy currently accounts for circa 13 % of the EU's primary energy supply and is therefore fourth behind oil (44 %), coal and gas among the primary energy sources. This percentage is higher than in Japan and the USA (both less than 10 %); for the whole world the figure is 6 %.

5.5.2. The EU leads the world in the proportion (about 33 %) of electricity produced from nuclear energy (throughout the world nuclear energy is used practically exclusively to generate electricity - see chapter 5.8). Nevertheless, it is a particular feature of nuclear energy use in the EU that it is generated in only six Member States, and then to markedly different degrees. The contribution of nuclear energy to total electricity production in the individual countries is, in descending order: 1) France P 75 %, 2) Belgium P 60 %, 3) Spain P 36 %, 4) Germany P 27 %, 5) UK P 21 %, 6) Netherlands P 6 %, other countries P 0 %.

5.5.3. The growth in nuclear energy has recently been relatively high in the EU (4.5 % p.a., 1986-1991), but the prospect is for stagnation in both the EU and USA. This reflects a policy split regarding the use of nuclear energy and nuclear safety, as well as varying levels of acceptance of nuclear energy by the public in the Member States. Consequently the ESC's Own-initiative Opinion on the technological problems of nuclear safety () calls on the EU to reach some degree of consensus on the future role of nuclear energy.

5.5.4. Impact on the economy as a whole: On account of its advantages (see chapter 5.8) the production of electricity from nuclear energy has a high gross added value. Nuclear energy is CO2 free, which could be an important factor in the future. The ESC would point out in this connection that extra efforts and precautions are needed to solve problems in the fields of safety, decommissioning and final storage.

5.5.5. Security of supply: Thanks to the wide dispersion of uranium deposits throughout the world and the ease with which large (strategic) reserves of raw materials can be held in a limited space, as well as their relatively low price, nuclear energy makes a major contribution to security of supply, assuming of course that a high level of safety has been reached. Given this fact and the high proportion of electricity produced from nuclear energy (33 %), on the one hand, and the varying degrees of acceptance of nuclear energy in the Member States of the Community, on the other, the following three comments are called for:

- a substantial increase in electricity generated from nuclear energy would further improve security of energy supply in the EU;

- it is hardly probable in the present climate that nuclear energy production in the EU can be expanded whilst public opinion is generally concerned about, if not actually hostile to, the idea of nuclear energy;

- furthermore, there could also be a considerable backlash against the acceptance of nuclear energy if, despite all the efforts, a serious nuclear accident were to occur;

- if nothing changes, we may possibly have a serious energy crisis on our hands in the next 10 to 15 years when, for technical reasons, because they are at the end of their useful life, a large number of existing nuclear power stations go out of service and their production has to be replaced.

5.5.5.1. The reasons for these comments are as follows: there are no possibilities of renewables filling the ensuing energy gap. The gap could, at least partially, be filled by expanding the production of domestic coal in the EU; (but this would mean opening new mines (or reopening old mines), possibly at great cost. The gap could of course be filled by large quantities of imported energy (mainly coal and natural gas) which would drastically exacerbate the EU's dependence on imported energy.

5.5.5.2. For these reasons it is clear that discussions about the future of nuclear energy, its public acceptability and its contribution to energy production are of central importance to medium and long-term security of supply in the EU.

5.5.6. Internal market: For many years now electricity, and hence also nuclear electricity, has been traded within the EU, with some Member States net importers and others net exporters. The further expansion of nuclear energy, allied to improvements in the integration of long-distance transport lines, can reinforce the hitherto positive effects on the internal market.

5.5.7. Economic and fiscal instruments: For various historical reasons nuclear energy has been supported by R & D in many countries of the world, including the EU. This support has fallen back considerably in the Member States since the introduction of nuclear energy on to the market. Member States have certain permanent tasks, e.g. safety controls, decommissioning and final storage.

5.5.8. Environment: Under normal operating conditions nuclear energy keeps well within the limits of permissible radioactive emissions and does not emit sulphur oxides, nitrogen oxides and carbon dioxide. With present-day technology, however, there is always the risk of major accidents. For this reason the ESC has called for a fundamental improvement in nuclear safety.

5.5.9. Research and development: Future R & D should concentrate on safety improvements, methods of testing the safety of final storage sites, and exploring the possibilities of using combined power-heat systems, e.g. for district heating.

5.5.10. Economic and social cohesion: With its great know-how and experience the EU can and must help to draw up international standards and rules in the field of nuclear safety, and in particular help the central and eastern European countries to solve their safety problems. By providing support for the developing countries through the export of nuclear plant and installations, within the framework of international nuclear control treaties, nuclear energy can open up a wide range of future industrial activity in the EU, with the possibility of improving economic and social cohesion.

5.6.

Hydroelectric energy

5.6.1. In 1992 hydroelectric energy accounted for 1.2 % of the EU's consumption of primary energy, although it took a 9 % share in electricity production and accounted for 18 % of total installed capacity.

5.6.2. Its macro-economic impact has been important in the past and made it possible to correct regional and seasonal water-supply imbalances, meet agricultural needs and satisfy the drinking-water requirements of the population. Nevertheless, since the best hydroelectric sites are already being exploited, the future contribution of this sector will be more limited and will in practice be centred on the development of reversible-pump turbine stations linked to excessive base-load generating capacity.

5.6.3. Despite the fact that rainfall variations seriously affect output, the contribution of hydroelectric energy to the electricity-generating sector as a whole is considerable since it introduces flexibility into the management of the electricity sector and brings down total production costs; hydroelectric energy is an ideal back-up for the production of electricity from thermal sources.

5.6.4. The hydroelectric energy sector's contribution to security of supply is considerable in some Member States; nevertheless its contribution is more limited if we take the EU as a whole, except insofar as it is used to mutually complement national electricity production systems.

5.6.5. Its contribution to the internal energy market basically resides in the complementarity referred to earlier; at the present time it also accounts for most of the seasonal electrical energy trading contracts signed between Member States.

5.6.6. Economic and fiscal instruments may be applied to this sector if the imposition of a charge on the consumption of water for this purpose becomes widespread. This might have an adverse effect on the sector's profitability. We should also assess the positive effects of dam-building on agricultural activities, regulation of flow rates and flood-control.

5.6.7. Existing hydroelectric power-stations have a moderate impact on the environment. Popular opposition to the construction of new dams has nevertheless grown apace.

5.7.

Renewable energy sources

5.7.1. Current situation: In 1992 renewables accounted for 0.4 % of total primary energy consumption. The most important of these have been agricultural biomass, the utilization of urban waste, solar energy, wind energy and mini-hydraulic turbine power generation.

5.7.2. The importance of these energy sources therefore lies less in their present share of total energy production than in their low impact on the environment and the fact that they can help to alleviate the energy problems of the outlying regions. For this reason, major medium- and long-term development is thought to be desirable.

5.7.3. The macro-economic impact of the sector is slight, although many applications of renewable energy generate more added value per unit of output and in a wider variety of areas than conventional sources. Unlike other kinds of energy, the technology required for the use of certain renewables is such that they can be installed by small and medium-sized firms.

5.7.4. The contribution of renewables to security of energy supply is of little significance for the EU as a whole, although locally, especially in many island regions, they constitute the only viable alternative to oil for diversification purposes.

5.7.5. Except for the electricity they contribute to the distribution network, renewables have a fairly limited impact on the internal energy market.

5.7.6. Economic and fiscal instruments have been used mainly to subsidize the setting-up of renewable energy schemes. These subsidies should be continued in future.

5.7.7. Renewables are in general fairly environmentally-friendly.

5.7.8. Research in this field is, comparatively, very important and is focused on the development of technologies to make the application of various renewable energy resources more economical and efficient.

5.7.9. The social repercussions of the use of renewables are much more important than their share in the energy market would suggest. Renewables after all play an important role in developing isolated regions, in improving the quality of life of people living in such regions, in decentralizing energy and, importantly, in creating employment.

5.8.

Electricity

5.8.1. Current situation: Electricity, the production of which accounts for 36 % of primary energy consumption, is used as a network secondary energy in the EU. This percentage is similarly high throughout the industrialized world.

5.8.2. Macro-economic impact: Electricity is the most important secondary energy for modern industrialized societies; above all this is reflected in the fact that the average annual growth of electricity consumption has been maintained recently even at a time when primary energy consumption was falling. Its gross added value is very high because electricity has a very broad range of applications in many industrial processes (to produce heat and drive power), not least because of its use in information technology.

5.8.3. Security of supply: The supply of electricity is reasonably secure because production is located within the Community, primary fuels are relatively well diversified and transmission networks interlinked. The interlinking of networks should nevertheless be carried even further.

5.8.4. Internal market: There is still no decision on EC Directives concerning common rules for the internal electricity market. Such Directives would deal with harmonization and the level of liberalization, but would also create a new legal framework.

5.8.5. Economic and fiscal instruments: During the historical development of electrification these have been employed repeatedly and to varying degrees in EU Member States. Furthermore, electrification has always been an integral part of structural policy (with the aim of aligning living conditions in country and city) as well as of energy and social policy. In this connection it is important to make energy prices sufficiently transparent and to harmonize a number of tax instruments within the EU.

5.8.6. Environment: Electricity, as a network secondary energy, i.e. disregarding its actual generation, is the most environmentally-friendly fuel of all. The health fears regarding electromagnetic fields should however be investigated further.

5.8.7. Economic and social cohesion: As a network energy and on account of its great importance for modern industrialized society, electricity is a good instrument for consolidating economic and social cohesion in the EU.

5.9.

Rational use of energy

5.9.1. Current situation: The falling trend in the intensity of energy consumption in the EU was positive insofar as it indicated a more rational use of energy, i.e. a more efficient use of energy resources. But as an indicator it was affected by other, not strictly energy-related factors, such as changes in the structure of GDP in Europe as a whole where basic industries with very high energy consumption per unit of output are gradually declining in relative importance.

5.9.2. Rational energy use is as it were one of the EU's main domestic energy resources. Its three principle applications involve improving the efficiency of energy conversion, reducing individual consumption (industrial or domestic) and using surplus thermal power for co-generation purposes. Nevertheless, this multiplicity of applications, together with the low level of energy prices, acts as a disincentive to investment in the improved energy efficiency of consumption and discourages energy-saving.

5.9.3. There is no rational energy use sector as such, but each energy sector develops its own criteria for improving efficiency; consequently its macro-economic impact can only be established in terms of the energy which has not been consumed and the increase in competitiveness which it generates, although it is impossible to place a figure on this.

5.9.4. Rational energy use is a key factor in guaranteeing security of energy supply, since any reduction in consumption helps to boost the degree of self-sufficiency.

5.9.5. Rational energy use has no direct impact on the internal energy market.

5.9.6. The use of economic and fiscal instruments in connection with energy consumption has helped to curb and rationalize use. In the past, however, revenue-generation criteria have prevailed, without due attention being given to measures to support rational use.

5.9.7. The rational use of energy () is totally harmless to the environment, hence its crucial importance if any progress in environmental protection is to be made.

5.9.8. Research in this field is not active enough, although in recent years the efficiency of many processes has improved considerably. There are innumerable means of reducing energy consumption without sacrificing the quality of life and which would be economically worthwhile. These means are frequently not used, either to keep the initial investment cost down, or because of potential management problems or for lack of awareness and motivation on the part of users.

5.9.9. The rational use of energy has an important and positive indirect impact on employment, both through the opportunities for direct employment in manufacture and installation, and through the new opportunities it may generate in regions and areas where there is less potential for the use of other conventional energy sources.

5.10.

Sectoral conclusions

5.10.1. The Community production of solid fuels makes a noteworthy contribution to security of supply, job creation and social cohesion. Coal has an important role to play in the diversification of supply. Nevertheless, the factors which count against this fuel - e.g. its environmental impact and lack of competitiveness of underground production - point to a decline in its share. The Committee recommends that this process be allowed to unfold gradually with as little social disruption as possible and always taking into account its important role in electricity generation and security of supply.

5.10.2. The oil sector is still the backbone of the EU's energy supply. It is fairly compatible with all the requirements of a Community energy policy, except that its heavy dependence on imports encourages caution regarding its long-term share of the energy balance.

5.10.3. The natural gas sector is the energy sector with the best forecast growth prospects. Account must, however, be taken of the negative aspects connected with security of supply - particularly worrying in the medium-term - and the uncertainties surrounding the construction of the internal market; nor must the need to maintain a balance with a view to economic and social cohesion between the regions of the EU be overlooked.

5.10.4. The nuclear energy sector makes a major contribution to the EU's electricity production (approximately 33 %). It is nevertheless used to markedly different degrees in the Member States. Nuclear energy has a good record in terms of security of supply and impact on the environment. It remains however a controversial source of energy because of the potential risk from major accidents. The ESC would point out that extra efforts and precautions are still needed to solve problems in the fields of safety, decommissioning and final storage. Discussions about the future of nuclear energy and its contribution to electricity production are nevertheless of central importance to medium and long-term security of supply in the EU.

5.10.5. The hydroelectric sector, which is well-established in some Member States, has limited possibilities for future growth. Nevertheless its great flexibility, low variable costs and positive contribution to the optimization of national electricity grids, mean that its value is high and well out of proportion to its share in energy supply.

5.10.6. The renewables sector has a positive balance in terms of security of supply (subject to certain renewable energy generating equipment and the occurrence of natural elements) and environmental protection. This sector also presents undeniable social advantages even though its share in the total energy market is less important. For this reason, and where justified on grounds of economic rationality, renewables should be promoted as much as possible in isolated areas and particularly the most remote areas of the EU.

5.10.7. As the most important source of secondary energy, the electricity sector is of vital importance to the economy, security of supply, the environment and economic and social cohesion.

5.10.8. Rational use of energy is one of the energy sectors with the best future prospects. Its contribution is wholly positive in terms of increased competitiveness, security of supply and environmental protection.

6. Elements to be included in a Community energy policy

6.1.

Need for a common energy policy

6.1.1. The Committee, basing its case on the analyses carried out in earlier chapters, considers that a Community energy policy is needed.

6.1.2. The proper coordination of Member State policies, and thereby the creation of a favourable climate for investment in energy production and distribution, is necessary precisely because of (i) the considerable differences between Member States in terms of energy conditions and historical developments, (ii) the need for security of supply, (iii) the creation of the internal market, and (iv) economic and social cohesion.

6.1.3. The Committee considers that an Energy Chapter should be incorporated in the Treaties on European Union when they are next revised. By including such a Chapter, and by adhering strictly to the principle of subsidiarity, it should be possible to lay down the mechanisms for coordinating national energy policies and so eventually arriving at a common energy policy.

6.2.

Scope of such a policy

6.2.1. The ultimate objective of such a policy is to improve the competitiveness of the Community economy and enhance the quality of life of its citizens. To achieve this, energy must be supplied on the best possible economic terms to all groups of consumers, with satisfactory conditions for security of supply and environmental protection, within the framework of free market principles, but not forgetting the need for economic and social cohesion.

6.2.2. This energy policy should be formed from a set of minimum elements which together constitute a coherent common policy on energy. These elements should be defined by strict application of the principle of subsidiarity and harmonization of certain aspects at EU level.

6.2.3. The Commission should propose the elements to be incorporated in the common energy policy, but they will require participation of the European Parliament and the Economic and Social Committee, and unanimous approval by the Council. The aspects to be harmonized must be dealt with as stipulated in the Treaties for each specific case.

6.3.

Elements of a common policy

6.3.1. The EU's energy policy should be based on (i) the definition of a number of common objectives and (ii) the establishment of a series of elements, namely security of supply, definition of the scope of the public service obligations in this sector, economic and social cohesion, and the relationship of the energy sector to EU policies, especially those on the environment, competition and research.

6.3.2.

Common energy objectives

6.3.2.1. The common energy objectives should act as guidelines for both the Member States and EU firms and citizens. They should be set for periods of ten years and reviewed periodically. They should be drawn up by the Commission, taking into account the national energy policies of the Member States. These objectives should be seen as following on from the similar measures which the EU has been developing since 1973.

6.3.3.

Security of supply

6.3.3.1. In accordance with the arguments set out in point 4.2, security of supply policy should, under normal circumstances, include the coordination of external energy policy relations and encouragement for a more rational use of energy and for the exploitation of indigenous sources. A common strategy should be established for crisis situations.

6.3.3.2. The adoption of a common energy strategy in the event of a supply crisis could mean the adoption of coordinated action by the EU, within the IEA, on the reduction of consumption, use of strategic reserves, measures to curtail the free circulation of goods, establishment of a national system of controlled maximum prices, and the adoption of a single, coordinated voice in the EU's external energy relations. It would be for the Commission to propose measures and for the Council to take a unanimous decision on them. The Member States would be responsible for implementing these decisions in the way which they considered most suitable for achieving the objectives set.

6.3.3.3. External political relations with regard to energy should be developed in accordance with the common external policy guidelines laid down in the Treaties.

6.3.3.4. Programmes should be established to support the rational use of energy and exploitation of the EU's indigenous energy sources, with due respect for free market principles and protection of the environment.

6.3.4.

Internal market and public service obligations

6.3.4.1. The energy sector should also be included in the internal market, though a way will have to be found to smoothly integrate its special features, such as security of supply and public service obligations.

6.3.4.2. The common definition of public service obligations in the electricity and natural gas sectors should embrace the universal supply obligation as far as practicable and appropriate and a system of proportional distribution of prices, covering a specific territory, for groups of consumers who have not renounced this right.

6.3.4.3. The Member States may voluntarily decide whether or not to establish and apply these public service obligations. If they do so, the obligations must establish a suitable balance with other Treaty chapters, such as those on competition law and the free movement of goods. The Committee would like to see all the Member States establish such public service obligations.

6.3.5.

Economic and social cohesion

6.3.5.1. Establishing common energy objectives will in itself contribute towards economic and social cohesion. Cohesion should, however, be supplemented by the energy networks and by special consideration of the energy needs of the outlying and remote regions.

6.3.5.2. The trans-European networks were conceived as the backbone of the internal market. Clearly they will also be useful in bolstering the security of gas and electricity supplies throughout the EU, reducing cost differences between Member States and groups of consumers, and making maximum use of indigenous energy resources.

6.3.5.3. Consequently this concept should be extended to embrace trans-regional energy networks. These networks would receive priority financing from the Structural Funds and the European Investment Bank and would serve to reduce the extra fixed costs of infrastructure for supplying energy to the EU's outlying or less populated regions. This would also boost compliance with the afore-mentioned public service obligations - mandatory universal service and proportional distribution of prices - taking the existing REGEN/INTERREG II Community initiative projects as a basis.

6.3.5.4. Cohesion also implies that the outlying and remote regions, with few energy resources of their own, with less potential for diversification of their energy balance and with a higher proportion of energy consumption for transport, must have preferential access to supplies in a crisis, in accordance with arrangements to be established by each Member State.

6.3.5.5. Specific Community programmes should be developed to enable the endogenous energy potential of these regions to be fully exploited. Cooperation between these regions and the search for common solutions should be encouraged.

6.3.6.

Relationship with other Community policies

6.3.6.1. An agreed definition of the relationship between this and other EU policies will be particularly relevant in the case of economic, environmental, competition, transport and research policies.

6.3.6.2. When introducing economic and fiscal instruments in the energy sector, priority should naturally be given to macro-economic and social considerations. Nevertheless, their repercussions for and compatibility with energy policy objectives should be studied. National aid to stimulate the use of indigenous energy sources will be particularly relevant here.

6.3.6.3. The Commission would be responsible for approving the compatibility of these national instruments and for evaluating their contribution to the common objectives and the internal market. In the case of common instruments for the whole European Union, it will, as is mandatory, be for the Commission to submit a proposal, which must be adopted unanimously by the Council in cooperation with the European Parliament and after consultation of the Economic and Social Committee.

6.3.6.4. Environmental policy and energy policy must complement each other and be coordinated. In this connection, energy measures which contribute to the attainment of environmental policy objectives should be promoted, in particular energy efficiency and use of renewables, and measures which unduly harm the environment should be avoided. Similarly, environmental policy will have to be framed in such a way that a study is made of the impact of all measures on the common energy objectives and, if necessary, of alternative means of achieving the same objectives.

6.3.6.5. Energy policy and competition policy should be suitably coordinated so that the strict application of the latter does not prejudice security of supply, compliance with public service obligations and economic and social cohesion. On the other hand, energy policy should be implemented in such a way that it does not unnecessarily endanger free market rules in the energy sector.

6.3.6.6. When transport policy aims are being drawn up, their implications for the energy sector must be taken into account, especially for the objectives of rational energy use.

6.3.6.7. Energy research policy must be coordinated with the common objectives and provide medium- and long-term solutions which can be applied by the greatest possible number of potential users in the Member States. Dissemination of the findings of this research must be encouraged, especially among small and medium-sized firms, as is being done under the THERMIE programme.

6.4.

Elements to be harmonized in the energy sector

6.4.1. The elements to be harmonized in the energy sector are those necessary for achieving a single market in the sector and those required for the common energy policy.

6.4.2. The most important are energy taxation, and factors affecting the protection of the environment and compliance with the public service obligations.

6.4.3. Community harmonization will be established on the basis of a minimum threshold which the Member States will be able to go beyond according to their needs and priorities, in line with the subsidiarity principle. The Commission will ensure that the minimum threshold contributes to the attainment of the common energy objectives and that the Member States' decisions are compatible with these objectives and the internal market.

6.4.4. The harmonization process will be the minimum required to achieve the common objectives. The instrument of harmonization will be the Directive, with the legal basis depending on the specific aspect. The Directives will try to leave the Member States maximum freedom of action while complying with the objectives.

6.5.

Introduction of an energy chapter

6.5.1. Such a chapter will have to be drawn up at the 1996 Intergovernmental Conference to prepare the revision of the EU Treaties. In framing this chapter, careful account must be taken of the energy situation in other countries applying to join the EU and, in particular, the implications of the European Energy Charter.

6.5.2. The Economic and Social Committee is aware that its role is normally to advise on proposed legislation referred to it by the European Union; it would, however, like to make use of its right of initiative to address to the other EU Institutions some points which could be considered for inclusion in a possible Energy Chapter in the Treaties. On this basis, it has drafted its ideas in such a form that they can serve as both a summary of the foregoing comments and a contribution to the debate on and possible final drafting of this chapter.

7. Proposed energy chapter

To serve as a working reference model for other EU Institutions.

TITLE XVIII

ENERGY

Article 130A

The objectives of the European Union in the energy sector shall be to improve the competitiveness of the Community economy and enhance the quality of life of its citizens. To this end, the aim shall be to supply energy on the best possible economic terms, with satisfactory security of supply and environmental protection conditions, within the framework of free market principles but without forgetting the need for economic and social cohesion.

Article 130AB

1. To attain these objectives, a series of elements shall be established which together constitute a coherent common policy on energy, along with a series of aspects in need of harmonization at European Union level.

2. The Commission shall be responsible for proposing the elements to be incorporated in the common energy policy, but subject to the unanimous approval of the Council in cooperation with the European Parliament, and after consultation of the Economic and Social Committee. The aspects to be harmonized shall be dealt with as stipulated in the Treaties for each specific case.

Article 130AC

1. The elements of the common policy shall be: security of supply, definition of the public service obligations in this sector, relationship of the energy sector to other Community policies, and economic and social cohesion.

2. Security of supply shall be achieved through indicative common energy objectives, coordination of external political relations in energy matters, and establishment of a common strategy for crisis situations.

3. External political relations with regard to energy shall be developed in accordance with the common external policy guidelines laid down in the Treaties.

4. The adoption of a common strategy in the event of a supply crisis shall imply coordinated action on the reduction of consumption, use of strategic reserves, exceptional measures to curtail the free circulation of goods, and the adoption of a single, coordinated voice in the EU's external energy relations.

5. The scope of the public service obligations in the energy sector shall comprise - in those Member States which voluntarily decide to establish and apply such obligations - the universal supply obligation and a system of proportional distribution of prices between groups of consumers and energy sources. These public service obligations must maintain a suitable balance with other Treaty chapters, such as those on competition law and the free movement of goods.

6. In complying with these objectives, the common energy policy shall take account of the implications for other European Union policies, in particular those on the environment, competition, transport and research. In the event that the objectives of the common energy policy are substantially affected by the way these policies are evolving in practice, the Council, acting unanimously on a proposal from the Commission, must decide on an overall solution which best serves the interests of the Union.

7. Consideration must also be given to economic and social cohesion when this common policy is framed. This shall be achieved by extending the trans-European networks to the outlying and remote regions of the European Union, developing their indigenous energy potential and applying the public service obligations.

Article 130AD

1. Harmonization in the energy sector shall be as required to attain the internal market in the sector or as required for the common energy policy.

2. The following, in particular, shall be harmonized: taxation of energy, aspects relating to the protection of the environment and to compliance with the public service obligations.

Done at Brussels, 14 September 1994.

The President

of the Economic and Social Committee

Susanne TIEMANN

() OJ No C 153, 9. 7. 1975, p. 1.

() OJ No C 332, 16. 12. 1992.

() OJ No C 73, 15. 3. 1993, p. 31.

() OJ No C 19, 25. 1. 1993 and OJ No C 201, 26. 7. 1993.

() OJ No C 19, 25. 1. 1993.

() OJ No C 269, 14. 10. 1991.

() OJ No C 352, 30. 12. 1993.

() OJ No C 73, 15. 3. 1993, p. 65.

() E.g. the use of Integrated Resource Planning (IRP), defined by the European Commission as 'a concept to balance supply-side options and demand-side measures in order to minimize the costs of consumers' energy services and thus ensure an efficient allocation of resources'.