EN Official Journal of the European Union C 54/1

467th PLENARY SESSION HELD ON 8 AND 9 DECEMBER 2010

Opinion of the European Economic and Social Committee on ‘Energy Strategy for 2011-2020’

(exploratory opinion)

(2011/C 54/01)

Rapporteur: Mr HERNÁNDEZ BATALLER

On 12 May 2010 the European Commission decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, on the

Energy Strategy for 2011-2020

(Exploratory opinion).

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 16 November 2010.

At its 467th plenary session, held on 8 and 9 December 2010 (meeting of 9 December 2010), the European Economic and Social Committee adopted the following opinion by 138 votes to 40 with 21 abstentions.

1. Introduction and Summary

1.1 The European Commission intends to adopt an Energy Strategy for 2011-2020 and a Roadmap for low carbon energy system by 2050. It has asked the Committee to prepare exploratory opinions on these two topics as a contribution to their work.

1.2 The Committee is glad that these two topics are being developed together. Investment in the energy sector has a long life, and it is very important that the strategy for the next ten years should be working towards the longer term goals for 2050.

1.3 The Commission has published a stock-taking document ‘Towards a new Energy Strategy for Europe 2011-2020’ as a basis for consultation. In this opinion Section 1 summarises our views and recommendations. Section 2 outlines some general themes that should be covered in the strategy. Section 3 then comments on the particular issues raised for discussion in the Commission's stock-taking document.

1.4 Over the past 200 years the world has relied mainly on fossil fuels for energy and for transport. During this period abundant sources of fossil fuels have been available for extraction at comparatively cheap prices and have enabled the developed world to achieve an enormous increase in productivity and standards of living.

1.5 Over the next 40 years however most experts agree that supplies of oil and gas will become less abundant and there will be strong competition and higher prices for the resources that remain. Coal will probably remain relatively more abundant, and there will probably be less risk of serious supply constraints during the next century. But the world also urgently needs to reduce the level of CO2 emissions from the burning of fossil fuels in order to avoid catastrophic climate change; and this applies to coal just as much as to oil and gas.

1.6 The world therefore needs to transform its energy base and its use of energy by 2050. All the various possible alternative sources of energy need to be pressed forward as fast as possible. Where fossil fuels do continue to be used it will be necessary to capture most of their carbon emissions at source for storage or reuse so as to avoid release to the atmosphere. And in every sector energy needs to be used much more efficiently than it is today.

1.7 Managing this transformation effectively is one of the largest challenges facing society and governments in the 21st century. It will require a new approach to pricing energy and energy services to ensure in particular that the use of fossil fuels bears the full cost of the CO2 burden they impose on the world, massive investment in new technologies, strong new partnerships between industry and governments to create the necessary infrastructure, and a transformation of public attitudes to the use of energy and its cost.

1.8 Countries will need to work closely together to achieve the changes needed. At the same time the transformation process will itself be intensely competitive. There will be fierce competition for access to the remaining sources of oil and gas, at the same time as new areas for competition arise in the development of alternative sources of energy and in energy efficient products and services. Countries and regions which make early progress towards greater energy efficiency and effective deployment of alternative energy will strengthen their competitive position. Those which muddle along and delay the transformation will find that their competitive position is eroded.

1.9 Europe and the European Union now stand at a critical stage in this evolution. It has strong reasons to press ahead with the transformation because it is highly dependent on foreign imports of oil and gas and is vulnerable to any constraints that may emerge on these supplies. It has also been at the forefront of growing public and political awareness about the climate change threat, and has pioneered the development of some of the alternative sources of energy that will be needed, and measures to increase energy efficiency in some of the key sectors.

1.10 But Europe cannot afford to be complacent. The transformation process has not yet built up sufficient momentum to proceed under its own steam, and could easily be severely set back by current economic difficulties and the short-termism that they induce. Meanwhile other countries and regions such as China and the USA are gearing up for rapid action. China in particular is likely to become a very vigorous competitor in the development of alternative energy sources.

1.11 It is vitally important for Europe to develop a new dynamism for the energy transformation. The EU's new energy strategy could and should provide the framework for this to be established. It should map out goals and targets, and outline the measures and structures that will be needed to achieve it. The adoption of the strategy by the Council and the institutions needs to be the occasion for mobilising a united political, business and societal will for the changes needed. It is an opportunity that must not be missed or squandered.

2. Key Elements of the strategy

2.1 The new Energy Strategy for Europe 2011-2020 must be based at least on three cornerstones: security of supply, low-carbon economy and energy competitiveness. The Committee supports the efforts made to trigger the transition towards a low-carbon economy and to improve its supply security, but regrets that the energy competitiveness issue has received much too little attention in the Commission May 2010 stocktaking document ‘Towards a new energy strategy 2011-2020’. In the medium term the achievement of the low carbon economy should itself make Europe more competitive in the world. But in the short term there is a real risk of carbon and job leakage caused by the cumulative cost of all energy policies, unless the appropriate measures are adopted with no delay.

2.2 In the EESC's view the key elements of the strategy could be summarised under the following heads:

— Getting the economic signals right

— Getting the right technologies

— Mobilising the finance

— Getting the right institutions and structures (public and private)

— Securing the engagement of consumers and the public

— Building a European alliance and partnerships for the transition and establishing general agreement on the goals, the pace of advance and specific targets to be achieved by specific dates.

2.3 Economic Signals. From an economist’s perspective the single most important means of bringing about the necessary transformation of the energy sector is to price energy properly, including all the externalities of its production and use. In particular the production and use of energy ought to bear the full cost of the global disbenefit that its production of CO2 causes.

2.4 At present this is very far from the case throughout the world. Energy production and use is far from bearing its full carbon cost, and in many places it even still receives perverse subsidies to lower its cost and encourage demand and the associated carbon production. In future policy ought to aim at ensuring that CO2 emissions from the burning of fossil fuels bear a full carbon price. Any remaining subsidies should be focused much more carefully on

— promoting R and D in new technologies,

— supporting the uptake of emerging new low carbon technologies for limited periods until they can stand on their own feet in the market place,

— encouraging the uptake of energy efficiency measures and techniques,

— and helping poorer or vulnerable households to secure the energy services they need.

2.5 Europe has made some progress in the direction of better pricing structures. But its present mix of many different fuel taxes in different countries, some residual production subsidies, an imperfect and volatile carbon trading system etc is far from giving the steady and consistent price signals that are needed to enable energy suppliers and consumers to plan ahead in confidence to make the necessary large and small-scale investments. The new energy strategy should set out clear goals and targets for

— the elimination of perverse subsidies throughout the energy and related sectors both on the production and on the consumption sides

— more harmonisation of taxation of all greenhouse gas producing fuels, processes and products

— the establishment of a proper carbon price in all sectors, whether through extension of the trading system and elimination of its loopholes or through other fiscal means

— and the focusing of any remaining subsidies on the specific purposes mentioned above.

2.6 Energy prices are likely to remain higher than in the past (and supplies of some sources of Europe's energy supply could be constrained from time to time). Energy needs to be used as efficiently as possible in order to keep total energy consumption and the level of new investment needed down to manageable levels. Maximum effort needs to be put into promoting energy efficiency in all sectors.

2.7 Getting prices right is important but in the Committee's view it is by no means sufficient to get the momentum moving irreversibly in the direction of the low carbon economy. Many other measures and initiatives will be needed, particularly in the initial stages before the market itself can provide the main driver.

2.8 The Right Technologies. Major efforts still need to be made to promote the development and installation of alternative energy sources, including the whole range of renewable energy sources. When these alternatives are fully developed they should become fully competitive in the market place and will no longer need special support other than the differential in their favour implied by a proper carbon price. But up to 2020 many of these technologies are still in the development stage and are likely to need financial encouragement through R and D programmes, feed-in tariffs or other incentives for investment, and support for appropriate infrastructure development.

2.9 Many of the alternative sources of energy are likely to be most effectively used as the input for generation of electricity: In order to optimise their contribution and to make best use of existing power generation capacity the electricity network will need to be greatly strengthened and enlarged at local, national and European level, and to be ‘smartened’ so that it can accommodate variable inputs from many different sources at different scales as well as handling variable demand patterns.

2.10 Standby capacity or storage (together with an integrated grid) will have an even more important part to play in future than at present since it will have to cope with fluctuating patterns of supply from renewable sources such as wind and solar power as well as fluctuating demand patterns. Hydro plants, biomass fuelled plants, gas storage facilities and possibly large scale battery storage could have an increasingly important part to play for this purpose alongside remaining fossil fuel plants (particularly gas-powered plants) equipped with carbon capture systems.

2.11 Some commentators believe that a new generation of nuclear power plants will have to play a significant part in the new low carbon economy, and several countries both within and outside Europe are taking steps to prolong the life of existing plants and to plan for new ones: A majority of the Committee shares the view that nuclear will need to play a part in Europe's transition to a low carbon economy. But technology for conventional nuclear power generation is now well developed, and in the Committee's view any new nuclear power plant development should now be required to meet the full economic costs of operation, insurance and the eventual decommissioning and waste storage and disposal without any explicit or concealed subsidies.

2.12 Coal will clearly remain an important energy source, particularly for power generation, for some decades to come. To minimise its CO2 impact efforts to develop and install carbon capture and storage need to be pressed forward vigorously and timetables set for their fitting to all coal-fired power plants.

2.13 Energy efficiency and decarbonisation needs to be promoted more vigorously in all sectors, including in particular in transport, in housing and construction, in the power sector, and in energy intensive industries.

2.14 Mobilising the Finance. Implementing this transformation of the energy sector will require major investment to be undertaken over the next 20 years (at probably three or four times higher than the present levels of investment). In order to achieve this expansion an ambitious European strategy is needed to establish clear goals, and to create the right reliable and consistent framework of regulation, incentives and other support for the industries concerned to enable them to drive steadily towards the achievement of those goals:

2.15 The right Structures and Institutions. The transformation will also require a major strengthening of institutional arrangements to plan and guide the developments at the same time as continuing to encourage a dynamic and competitive market for undertaking the necessary investments. The planning of energy supply, the management of the grid, and the regulation of the energy market and its tariff structures all need to be reviewed and integrated or coordinated at a European level to ensure that they are consistent with the aims of the Energy Strategy for 2011-2020.

2.16 The changes that are needed will require rapid and substantial changes in patterns of production and consumption in the European economy. On the production side many new businesses and jobs should emerge in the energy field as renewable energy and energy efficient products and services develop; but others will be lost in the older parts of the energy sector. A major programme of awareness raising, training and retraining will be needed to manage this transition harmoniously.

2.17 There is a rapidly growing international market in the new technologies and solutions needed to transform the energy sector. Europe needs to expand its own R&D and encouragement of its own industries and businesses to secure a leading place in this dynamic and competitive market.

2.18 Engaging Consumers SMEs and the general public. On the demand side a major effort needs to be put into educating and incentivising domestic and business consumers so that they can play their part in the smart consumption that will be needed in the future. Consumers of all kinds (business and domestic) will need appropriate information about the opportunities available to them to use energy more efficiently and to assist in the transition to renewable sources of supply. In many cases they will also need incentives to undertake energy efficiency measures themselves or to install renewable energy sources.

2.19 Energy prices are likely to remain higher than in the past, and the impacts on poorer households and vulnerable people need to be carefully assessed and policies shaped accordingly. Such households should be priority candidates for assistance with installing energy efficiency measures, both because they may lack the resources to undertake such measures by themselves, and because higher energy prices will bear more heavily on them than on those that are better off.

2.20 A European Alliance for change. In order to bring about the massive and rapid transformation that is needed the EU and its Member States need to share their competences and to work closely together to establish the necessary technical and economic integration of the single energy market, and to engage the relevant industry sectors in working towards the transition. The EU Strategy needs to be jointly owned and jointly implemented.

2.21 Targets. In order to keep up the pace of change the Committee suggests that it would be useful for the EU strategy to establish a set of inter-related and consistent target dates for the completion of particular parts of the transition. Each target would then need its own set of implementation measures and investment plans worked out in cooperation with industry and other stakeholders. Examples could include:

— The targets already established for renewables for 2020, and further targets for 2030, 2040 and 2050

— Once the techniques or technologies for capturing or removing carbon from fossil fuel power plants are proven require them to be incorporated from the outset in any new fossil fuel power plants and establish timetables for them to be applied to all existing plants

— Target dates for requiring all new housing and other buildings to achieve zero carbon status, and for progressively retrofitting existing buildings

— Target dates for progressively increasing electrification of the vehicle fleet

— Indicative targets for eliminating all fossil fuel consumption in the home for heating and cooking.

2.22 All of these separate targets and measures need to be integrated within the comprehensive strategy for reducing greenhouse gases, and made consistent with the overall target of 20 (or 30)% reduction in greenhouse gases for 2020.

3. Priority areas for the new energy strategy identified in the Commission's Consultation Document

3.1 Modern integrated grids. The Committee agrees with the Commission that the development of a more robust, resilient, smarter and integrated grid infrastructure for Europe is of the highest importance. In order to secure the most efficient results from renewables there should be a preference for installing the different kinds of renewable energy in the locations that are optimal for each (wind energy where it is windiest, solar energy where it is sunniest etc), then relying on an efficient grid to transfer energy where it is needed. To achieve this optimisation on a European scale will ultimately mean regarding the whole of European electricity production as a single integrated system. A ‘Single European Grid’ has to be established as well as joint projects and structures to plan and manage it. The grid will need to be capable of smart management and operation at all levels so as to optimise the matching of supply and demand. Among other objectives the integrated grid will need to accommodate energy input from remote sources (e.g. offshore wind or desert solar installations); and the use of AC and DC in different parts of the network will need to be optimised so as to minimise energy loss in the whole network.

3.2 The Commission and Member States need to work more closely with each other and with all the ENTSOs to establish a coordinated structure for planning the development and management of the integrated network, including both the technical and financial parameters for its construction and operation.

3.3 The Committee agrees with the Commission that it will be important to introduce smart metering at all levels of consumption including individual homes. Consumers will need a great deal of help from fuel providers and from public bodies so that they can understand the information that smart meters will provide them and be given real choices as to how they can use that information to optimise their energy consumption patterns.

Progress towards a low-carbon energy system. The EU is already committed to reducing carbon emissions by 20 % by 2020, and by 30 % if other countries make comparable commitments. These targets are an important driver for many other policies and for the investment in the new energy systems that will flow from them. In the Committee's view it would be desirable for the EU to commit itself, in line with the proposal from the Environment Ministers of Germany, France and the UK, to an early tightening of its CO2 target for 2020 to achieve a 30 % reduction by that date instead of the present 20 % commitment if the economic and social conditions allow it without loss of competitiveness and provided that it is indeed coupled with the necessary measures and investment to achieve it.

3.4.1 The European Union is already well on the way to achieving the 20 % reduction by 2020, (17 % reduction already achieved by 2009) and could benefit from the stronger stimulus of a tighter reduction target to get the energy transformation moving more rapidly, the carbon trading market working more effectively, and improving Europe's longer term competitive position. But considered politically, and in terms of protecting shorter term competitiveness of European industry (particularly the energy intensive sectors), it would clearly be much easier to move to an early 30 % reduction if other industrialised countries commit to making comparable cuts, and the more advanced developing countries agree to make an adequate contribution to the global effort. This would mean that all major countries would share more equally in the investment costs and energy price burdens of managing the energy transition, and that ‘carbon leakage’ would be minimised.

3.4.2 Up to now the EU has tried to make the possibility of moving to a 30 % target for 2020 into a negotiating card to persuade other countries to make comparable commitments. But this has not proved to be an effective tactic either at Copenhagen or subsequently. Meanwhile the opportunity of using a stronger 2020 target as a means of speeding up the energy transformation within Europe itself is steadily being lost as time moves on.

3.4.3 In the continuing absence of a comprehensive global deal on climate change the EU should consider an early move towards a 25 % reduction by 2020, thus targeting the lower end of the reduction range that IPCC has recommended for that year for developed countries. This would also secure some of the transformational benefit of adopting a tighter target as soon as possible, while retaining the negotiating benefits of having a further 5 % still to offer to encourage other countries to do more in the next two years.

3.5 An early move in this direction would lead to tighter caps in the carbon emissions trading scheme and thus a higher and more effective price for carbon emissions. The Committee believes that if the trading system is to deliver genuine results a floor price of at least EUR 30 needs to be established, and there need to be arrangements to ensure that a higher proportion of carbon reductions are achieved within the EU itself by appropriate investments rather than being exported to other parts of the world through the Clean Development Mechanism (CDM). Even with these improvements however the Committee believes that it is important not to exaggerate the results that could be obtained by the trading system alone. Moreover it may prove politically and competitively unacceptable to strengthen the system substantially in the EU if other parts of the world continue to hold back on taking comparable action. Many other policies along the lines outlined in this opinion will need to be introduced under a comprehensive strategy if the energy transformation is to take place at the pace that is needed, and may need to be given greater emphasis in the future strategy if the trading system continues to be flawed in practice.

3.6 The EU has already made good progress in establishing minimum energy efficiency standards for buildings, vehicles, and a variety of other goods and services. But there is still further to go in extending and tightening these limits. And there is a lot further to go in ensuring that all these standards are implemented and complied with. The Commission will need to increase the pressure on Member States to develop adequate energy efficiency action plans and policies.

3.7 Leadership in technological innovation. Technological innovation will be crucial in the energy sector in developing new products and services, and bringing their prices down to more manageable levels. Europe is at risk of falling behind major global competitors in this sector, and needs to scale up the level of R&D (public and private) in the key new technologies. At European level the Strategic Energy Technology Plan (SET-Plan) should be implemented promptly.

3.8 Energy should have a higher priority in all relevant EU programmes, including in particular in the structural funds. Member States equally need to give higher priority to energy in their investment plans particularly in relation to energy efficiency and development of renewables. The EU and Member States also need to ensure that the private sector firms operating in energy supply and distribution and on energy efficiency products and services are given the right stable framework of regulation and incentives to enable them to play their part in the expansion of effort.

3.9 The Committee agrees that there is a particularly important role for local and regional authorities in promoting energy efficiency in their areas and in coordinating plans for the development of renewables. It recommends European support for the excellent initiatives that the Covenant of Mayors have been undertaking in the energy field, and that means should be sought to strengthen and extend this initiative.

3.10 Strong and coordinated external energy policy. The Committee agrees that the EU would benefit from a more coordinated policy on energy in relation to third countries. But however coordinated its policy Europe will remain vulnerable internationally if it remains heavily dependent on imports of fossil fuels from other parts of the world, particularly if these are concentrated in a few key countries. The faster the EU can move to greater efficiency, lower levels of overall consumption and lower levels of dependence on foreign imports of fossil fuels the more secure its position will be.

3.11 Protecting the EU citizens. The Committee agrees with the Commission that high priority should be given to measures to create a level playing field for energy operators throughout Europe, and promoting transparency for customers in relation to all aspects of the energy services they receive. Consumers of all kinds (business and domestic) will need to learn to pay much more attention to their patterns of energy consumption, and the opportunities that will be available to use less energy more efficiently.

3.12 Energy products and services are likely to become relatively more expensive which will provide an economic incentive in this direction. But consumers of all kinds will rightly expect more than price increases to help them move in the right direction. Information about the energy characteristics of goods and services will need to become much more widely available, together with specific information about the choices that will be available and assistance in making the change over (e.g. choice on improving the energy performance of homes and other buildings, greener transport choices, greener shopping and holiday choices etc.).

Brussels, 9 December 2010. The President of the European Economic and Social Committee Staffan NILSSON