Communication from the Commission to the European Council and the European Parliament - an energy policy for Europe {SEC(2007) 12}
Date: 2007-01-10
Institutions: European Commission
Subjects: competitiveness, energy policy, energy supply, environmental protection, international market, renewable energy, security of supply, single market

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 10.1.2007 
COM(2007) 1 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN COUNCIL 
AND THE EUROPEAN PARLIAMENT 

AN ENERGY POLICY FOR EUROPE 

{SEC(2007) 12} 

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TABLE OF CONTENTS 

The Challenges............................................................................................................. 3 

Sustainability................................................................................................................ 3 

Security of supply ........................................................................................................ 3 

Competitiveness ........................................................................................................... 4 

A Strategic Objective to guide Europe's Energy Policy .............................................. 5 

The Action Plan............................................................................................................ 5 

The Internal Energy Market ......................................................................................... 6 

Solidarity between Member States and security of supply for oil, gas and electricity
.................................................................................................................................... 10 

A  long-term  commitment  to  greenhouse  gases  reduction  and  the  EU  Emissions 
Trading System .......................................................................................................... 11 

Anambitious  programme  of  energy  efficiency  measures  at  Community,  national, 
local and international level ....................................................................................... 11 

A longer term target for renewable energy ................................................................ 13 

A European Strategic Energy Technology Plan......................................................... 15 

Towards a low CO2 fossil fuel future......................................................................... 16 

The future of nuclear.................................................................................................. 17 

An International Energy Policy that actively pursues Europe's interests................... 18 

1. 

1.1. 

1.2. 

1.3. 

2. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

3.6. 

3.7. 

3.8. 

3.9. 

3.10 

Effective monitoring and reporting............................................................................ 20 

4. 

Taking work forward.................................................................................................. 21 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN COUNCIL 
AND THE EUROPEAN PARLIAMENT 

AN ENERGY POLICY FOR EUROPE 

"To  these  ends,  the  ministers  have  agreed  on  the  following  objectives:…  putting  more 
abundant energy at a cheaper price at the disposal of the European economies…".  

The Messina declaration, 1955 

1. 

THE CHALLENGES 

Energy is essential for Europe to function. But the days of cheap energy for Europe seem to 
be over. The challenges of climate change, increasing import dependence and higher energy 
prices are faced by all EU members. Moreover the interdependence of EU Member States in 
energy, as in many other areas, is increasing – a power failure in one country has immediate 
effects in others.  

Europe needs to act now, together, to deliver sustainable, secure and competitive energy. In 
doing so the EU would return to its roots. In 1952 with the Coal and Steel Treaty and 1957 
with the Euratom Treaty, the founding Member States saw the need for a common approach 
to  energy.  Energy  markets  and  geopolitical  considerations  have  changed  significantly  since 
then. But the need for EU action is stronger than ever. Without this, the EU’s objectives in 
other  areas,  including  the  Lisbon  Strategy  for  growth  and  jobs  and  the  Millennium 
Development  Goals,  will  also  be  more  difficult  to  achieve.  A  new  European  Energy  Policy 
needs to be ambitious, competitive and long-term – and to the benefit of all Europeans. 

1.1. 

Sustainability 

Energy accounts for 80% of all greenhouse gas (GHG) emission in the EU1; it is at the root of 
climate change and most air pollution. The EU is committed to addressing this - by reducing 
EU and worldwide greenhouse gas emissions at a global level to a level that would limit the 
global  temperature  increase  to  2°C  compared  to  pre-industrial  levels.  However,  current 
energy and transport policies would mean EU CO2 emissions would increase by around 5% 
by 2030 and global emissions would rise by 55%. The present energy policies within the EU 
are not sustainable. 

1.2. 

Security of supply 

Europe  is  becoming  increasingly  dependent  on  imported  hydrocarbons.  With  "business  as 
usual"  the  EU's  energy  import  dependence  will  jump  from  50%  of  total  EU  energy 
consumption today to 65% in 2030. Reliance on imports of gas is expected to increase from 
57% to 84% by 2030, of oil from 82% to 93%. 

1 

Source – European Environment Agency. Other data are European Commission unless otherwise stated 

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This carries political and economic risks. The pressure on global energy resources is intense. 
The  International  Energy  Agency  (IEA)  expects  global  demand  for  oil  to  grow  by  41%  by 
2030.  How  supply  will  keep  up  with  this  demand  is  unknown:  the  IEA  in  its  2006  World 
Energy Outlook stated that "the ability and willingness of major oil and gas producers to step 
up investment in order to meet rising global demand are particularly uncertain"2. The risk of 
supply failure is growing. 

In  addition,  the  mechanisms  to  ensure  solidarity  between  Member  States  in  the  event  of  an 
energy  crisis  are  not  yet  in  place  and  several  Member  States  are  largely  or  completely 
dependent on one single gas supplier. 

At the same time, EU electricity demand is, on a business as usual scenario, rising by some 
1.5%  per  year.  Even  with  an  effective  energy  efficiency  policy,  investment  in  generation 
alone over the next 25 years will be necessary in the order of € 900 billion. Predictability and 
effective internal gas and electricity markets are essential to enable the necessary long term 
investments to take place and for user prices to be competitive. These are not yet in place. 

1.3. 

Competitiveness 

The EU is becoming increasingly exposed to the effects of price volatility and price rises on 
international  energy  markets  and  the  consequences  of  the  progressive  concentration  of 
hydrocarbons reserves in few hands. The potential effects are significant: if, for example, the 
oil price rose to 100 $/barrel in 2030, the EU-27 energy total import bill would increase by 
around  € 170  billion,  an  annual  increase  of  €350  for  every  EU  citizen3.  Very  little  of  this 
wealth transfer would result in additional jobs in the EU. 

Providing  that  the  right  policy  and  legislative  frameworks  are  in  place,  the  Internal  Energy 
Market  could  stimulate  fair  and  competitive  energy  prices  and  energy  savings,  as  well  as 
higher investment. However, all the conditions to achieve this do not yet exist. This prevents 
EU citizens and the EU economy from receiving the full benefits of energy liberalisation. A 
longer  time  horizon  in  the  area  of  carbon  constraints  is  required  in  order  to  promote  the 
necessary investments in the electricity sector. 

Boosting  investment,  in  particular  in  energy  efficiency  and  renewable  energy  should  create 
jobs,  promoting  innovation  and  the  knowledge-based  economy  in  the  EU.  The  European 
Union  is  already  the  global  leader  in  renewable  technologies,  accounting  for  a  turnover  of 
€ 20 billion and employing 300 000 people4. It has the potential to lead the rapidly growing 
global  market  for  low  carbon  energy  technologies.  In  wind  energy,  for  example,  EU 
companies  have  60%  of  the  world  market  share.  Europe's  determination  to  lead  the  global 
fight against climate change creates an opportunity for us to drive the global research agenda. 
All options should be kept to ensure the development of emerging technologies. 

At  the  same  time,  the  social  dimension  of  Europe's  energy  policy  needs  to  be  taken  into 
account throughout all stages of designing and implementing the individual measures. While 
this policy should overall contribute to the growth and jobs in Europe on the long term, it may 

2 
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4 

IEA World Energy Outlook 2006. 
Assumed dollar exchange rate of 1.25 $ per € and compared with an oil price of 60 $ (today's money) in 
2030. 
European Renewable Energy Council “Renewable Energy Targets for Europe: 20% by 2020”. 

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have a significant impact on some internationally traded products and processes in particular 
in the area of energy-intensive industries.  

2. 

A STRATEGIC OBJECTIVE TO GUIDE EUROPE'S ENERGY POLICY 

The point of departure for a European energy policy is threefold: combating climate change, 
limiting the EU's external vulnerability to imported hydrocarbons, and promoting growth and 
jobs, thereby providing secure and affordable energy to consumers.  

In  the  light  of  the  many  submissions  received  during  the  consultation  period  on  its  Green 
Paper5, in this Strategic Energy Review the Commission proposes that the European Energy 
Policy be underpinned by: 

•  an  EU  objective  in  international  negotiations  of  30%  reduction  in  greenhouse  gas 
emissions  by  developed  countries  by  2020  compared  to  1990.  In  addition,  2050  global 
GHG emissions must be reduced by up to 50% compared to 1990, implying reductions in 
industrialised countries of 60-80% by 2050; 

•  an EU commitment now to achieve, in any event, at least a 20% reduction of greenhouse 

gases by 2020 compared to 1990. 

These  form  a  central  part  of  the  Commission  Communication  "Limiting  Climate  Change  to 
2°C - Policy Options for the EU and the world for 2020 and beyond"6.  

Meeting the EU's commitment to act now on greenhouse gases should be at the centre of the 
new European Energy Policy for three reasons: (i) CO2 emissions from energy make up 80 % 
of  EU  GHG  emissions,  reducing  emissions  means  using  less  energy  and  using  more  clean, 
locally  produced  energy,  (ii)  limiting  the  EU's  growing  exposure  to  increased  volatility  and 
prices  for  oil  and  gas,  and  (iii)  potentially  bringing  about  a  more  competitive  EU  energy 
market, stimulating innovation technology and jobs.  

Taken together, this strategic objective and the concrete measures set out below to make it a 
reality represent the core of a new European Energy Policy. 

3. 

THE ACTION PLAN  

To  achieve  the  strategic  energy  objective  set  out  above  means  transforming  Europe  into  a 
highly  energy  efficient  and  low  CO2  energy  economy,  catalysing  a  new  industrial 
revolution,  accelerating  the  change  to  low  carbon  growth  and,  over  a  period  of  years, 
dramatically  increasing  the  amount  of  local,  low  emission  energy  that  we  produce  and  use. 
The  challenge  is  to  do  this  in  a  way  that  maximises  the  potential  competitiveness  gains  for 
Europe, and limits the potential costs.  

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6 

A  European  Strategy  for  Sustainable,  Competitive  and  Secure  Energy  -  COM(2006)  105,  8.3.2006; 
Commission Staff Working document, Summary report on the analysis of the debate on the green paper 
"A European Strategy for Sustainable, Competitive and Secure Energy" - SEC(2006) 1500. 
Communication from the Commission to the Council and the European Parliament - COM(2007) 2. 

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Existing measures on areas such as renewable electricity, biofuels, energy efficiency and the 
Internal Energy Market have achieved important results but lack the coherence necessary to 
bring  sustainability,  security  of  supply  and  competitiveness.  No  one  element  of  the  policy 
provides  all  the  answers  –  they  must  be  taken  together  as  a  whole.  Energy  policy  must  be 
addressed  by  many  different  policy  areas.  For  example,  as  mentioned  above  the  social 
dimension of Europe's energy policy needs to be taken into account throughout all stages of 
designing and implementing the individual measures7 and it will be necessary to develop the 
further  use  of  oceans  and  seas  to  promote  the  EU's  energy  goals,  given  their  potential  to 
support the generation of energy and to diversify energy transport routes and methods8. The 
first step is for Member States to endorse a strategic vision and an Action Plan for the next 
three  years:  with  the  explicit  aim  of  moving  towards  an  international  alliance  of  developed 
countries at least with a view of reducing global Greenhouse gas emissions by 2020 by 30% 
and making a significant contribution to reducing the EU's greenhouse gas emissions by 2020 
by 20%. This will be backed up with careful monitoring and reporting of progress, as well as 
the  effective  exchange  of  best  practice  and  continued  transparency  -  through  the  regular 
presentation by the Commission of an updated Strategic Energy Review. 

The measures outlined below will not only put the EU on the path to becoming a low carbon 
knowledge-based energy  economy,  but will at the same time improve its security of supply 
and make a progressively more significant contribution to competitiveness.  

3.1. 

The Internal Energy Market 

A real Internal Energy Market is essential to meet all three of Europe's energy challenges:  

•  Competitiveness:  a  competitive  market  will  cut  costs  for  citizens  and  companies  and 

stimulate energy efficiency and investment. 

•  Sustainability:  A  competitive  market  is  vital  to  allow  for  the  effective  application  of 
economic  instruments,  including  the  emissions  trading  mechanism  to  work  properly. 
Furthermore, transmission system operators must have an interest in promoting connection 
by renewable, combined heat and power and micro generation, stimulating innovation and 
encouraging smaller companies and individuals to consider non-conventional supply. 

•  Security of supply: an effectively functioning and competitive Internal Energy Market can 
provide  major  advantages  in  terms  of  security  of  supply  and  high  standards  of  public 
service. The effective separation of networks from the competitive parts of the electricity 
and  gas  business  results  in  real  incentives  for  companies  to  invest  in  new  infrastructure, 
inter-connection  capacity  and  new  generation  capacity,  thereby  avoiding  black-outs  and 
unnecessary price surges. A true single market promotes diversity.  

The  EC  has  already  adopted  a  series  of  measures9  to  create  an  Internal  Energy  Market 
intended  to  deliver  real  choice  for  all  EU  consumers,  be  they  citizens  or  business,  new 
business opportunities and more cross-border trade. 

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9 

Communication on restructuring of 31 March 2005 - COM(2005) 120. 
Communication  from  the  Commission  entitled:  Towards  a  future  maritime  Policy  for  the  Union:  A 
European Vision for the Oceans and Seas - COM(2006) 275. 
Including  the  second  market  opening  Directives,  the  Regulations  aimed  at  harmonising  the  technical 
standards  necessary  to  make  cross-border  trade  work  in  practice,  and  the  Directives  on  security  of 
supply. 

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The  Internal  Energy  Market  Communication10  and  the  final  Report  on  the  Competition 
Sectoral  Enquiry11  demonstrate  that  the  present  rules  and  measures  have  not  yet  achieved 
these objectives. There are signs that this lack of progress is leading Member States to impose 
generalised  caps  on  electricity  and  gas  prices.  Depending  on  the  level  at  which  such  price 
caps are set and whether they are generalised in nature, they can prevent the Internal Energy 
Market  from  functioning  and  suppress  price  signals  that  new  capacity  is  needed,  leading  to 
underinvestment  and  future  supply  crunches.  They  can,  under  such  circumstances  make  it 
harder for new entrants, including those offering clean energy, to enter the market.  

In the light of the many submissions received during the Green Paper consultation period, the 
Commission considers that this situation cannot continue. A coherent series of measures now 
need  to  be  taken  with  the  objective  of  creating  within  three  years  a  European  Gas  and 
Electricity Grid and truly competitive European-wide energy market.  

In order to achieve this, the Commission has identified the following requirements: 

3.1.1.  Unbundling 

The Internal Market Report and Sector enquiry show the danger of discrimination and abuse 
when companies control energy networks as well as production or sales, protecting national 
markets and preventing competition. Such a situation also creates a disincentive on vertically 
integrated  companies  from  investing  adequately  in  their  networks,  since  the  more  they 
increase network capacity, the greater the competition that exists on their “home market” and 
the lower the market price. 

The  Commission  considers  that  two  options  might  be  considered  to  redress  this:  a  full 
Independent System Operator (where the vertically integrated company remains owner of the 
network  assets  and  receives  a  regulated  return  on  them,  but  is  not  responsible  for  their 
operation, maintenance or development) or ownership unbundling (where network companies 
are wholly separate from the supply and generation companies)12.  

Economic evidence shows that ownership unbundling is the most effective means to ensure 
choice  for  energy  users  and  to  encourage  investment.  This  is  because  separate  network 
companies  are  not  influenced  by  overlapping  supply/generation  interests  as  regards 
investment  decisions.  It  also  avoids  overly  detailed  and  complex  regulation  and 
disproportionate administrative burdens.  

The independent system operator approach would improve the status quo but would require 
more detailed, prescriptive and costly regulation and would be less effective in addressing the 
disincentives to invest in networks. 

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12 

Communication of  the  Commission  to  the  European  Parliament  and  the  Council  on prospects  for  the 
internal gas and electricity market - COM(2006) 841. 
Communication from the Commission "Sector Enquiry under Article 17 of Regulation (EC) No 1/2003 
on the gas and electricity markets (final report)" - COM(2006) 851. 
This already exists for electricity in the Denmark, Finland, Italy, the Netherlands, Portugal, Romania, 
Slovakia,  Slovenia,  Spain,  Sweden  and  The  United  Kingdom.  And  for  gas  in  Denmark,  the 
Netherlands, Portugal, Romania, Spain, Sweden and the United Kingdom. The unbundled TSO is also 
the owner of the network. 

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In  addition,  the  provisions  regarding  the  unbundling  of  distribution  activities  –  which 
presently exempt distributors with less than 100 000 customers from most of the unbundling 
requirements – need to be re-examined. 

3.1.2.  Effective regulation 

First  of  all,  the  levels  of  powers  and  independence  of  energy  regulators  need  to  be 
harmonized  on  the  basis  of  the  highest,  not  the  lowest,  common  denominator  in  the  EU. 
Secondly,  they  must  be  given  not  only  the  task  of  promoting  the  effective  development  of 
their  national  market,  but  also  that  of  promoting  the  development  of  the  Internal  Energy 
Market. 

In  addition,  the  technical  standards  necessary  for  cross-border  trade  to  function  effectively 
need  to  be  harmonised.  Progress  to  date  has  fallen  far  short.  The  creation  of  the  European 
Regulators' Group for  Electricity and Gas (ERGEG)  and  the  electricity and gas regulations, 
have not provided the governance required. Most of the relevant technical standards remain 
different  in  each  Member  State,  making  cross-border  trade  difficult  and  often  impossible. 
Three main options merit consideration: 

•  Gradually  evolving  the  current  approach:  reinforcing  collaboration  between  national 
regulators  by  notably  requiring  Member  States  to  give  national  regulators  a  Community 
objective,  and  introducing  a  mechanism  whereby  the  Commission  could  review  some 
decisions of national regulators which affect the Internal Energy Market13. 

•  A European network of independent regulators (“ERGEG+”): Under this mechanism, 
the role of ERGEG will be formalised, and it would be given the task to structure binding 
decisions  for  regulators  and  relevant  market  players,  such  as  network  operators,  power 
exchanges  or  generators,  on  certain  precisely  defined  technical  issues  and  mechanisms 
relating  to  cross  border  issues.  It  would  need  the  appropriate  involvement  of  the 
Commission,  where  necessary,  to  ensure  that  due  account  was  taken  of  the  Community 
interest. 

•  A  new,  single  body  at  Community  level  would  be  set  up.  It  would  in  particular  be 
granted the responsibility for adopting individual decisions for the EU electricity and gas 
market  related  to  regulatory  and  technical  issues  relevant  to  making  cross  border  trade 
work in practice14.  

There  is  a  relation  between  unbundling  and  regulation.  Markets  in  which  there  is  less  than 
ownership  unbundling  require  more  detailed,  complex  and  prescriptive  regulation.  In  such 
circumstances national Regulators need in particular more intrusive and burdensome powers 
to  prevent  discrimination.  However,  disincentives  to  adequately  invest  in  networks  without 
ownership unbundling can not in any event be fully addressed by Regulators. 

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14 

As indicated above, this is based on the approach already used in the electronic communication sector 
and in relation to exemptions for third party access for new gas and electricity infrastructure. 
Under the Draft Interinstitutional Agreement on the operating framework for the European regulatory 
agencies  [COM(2005)  59],  such  a  body  may  in  particular  be  entrusted  with  the  task  of  applying 
Community standards to specific cases, which includes the power to adopt individual decisions which 
are legally binding on third parties (Article 4). 

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Of the three options, the Commission considers that the first, gradually developing the current 
approach, would not be sufficient, notably because progress would continue to be based on 
voluntary  agreement  between  27  national  regulators  which  often  have  different  interests. 
Thus, the minimum approach likely to make rapid and effective progress in harmonising the 
technical  issues  necessary  to  make  cross-border  trade  work  effectively  would  be  the 
ERGEG+ approach. 

In  anticipation  of  a  formal  decision  being  taken  and  implemented,  Regulators  should  be 
encouraged  to  work  more  closely  together  to  use  existing  powers  more  effectively  on  a 
voluntary basis. 

3.1.3.  Transparency 

Transparency  is  essential  to  allow  the  market  to  work  properly.  At  present,  Transmission 
System  Operators  provide  varying  levels  of  information,  making  some  markets  easier  than 
others to compete in for new entrants. Furthermore, some regulators require generators to be 
more transparent regarding generation availability than others, which can help prevent price 
manipulation.  Minimum  requirements  need  to  be  established  and  to  be  respected  by  all  EU 
companies, similar to that already adopted for telecommunications15.  

3.1.4. 

Infrastructure 

The Priority Interconnection Plan16 sets out five priorities: 

•  Identifying  the  most  significant  missing  infrastructure  up  to  2013  and  ensuring  pan-

European political support to fill the gaps.  

•  Appointing four European co-ordinators to pursue the four of the most important priority 
projects:  the  Power-Link  between  Germany,  Poland  and  Lithuania;  connections  to  off-
shore  wind  power  in  Northern  Europe;  electricity  interconnections  between  France  and 
Spain; and the Nabucco pipeline, bringing gas from the Caspian to central Europe. 

•  Agreeing a maximum of 5 years within which planning and approval procedures must be 
completed  for  projects  that  are  defined  as  being  "of  European  interest"  under  Trans-
European Energy Guidelines. 

•  Examining  the  need  to  increase  funding  for  the  Energy  Trans-European  networks, 

particularly to facilitate the integration of renewable electricity into the grid. 

•  Establishing  a  new  Community  mechanism  and  structure  for  Transmission  System 

Operators (TSOs), responsible for co-ordinated network planning. 

3.1.5.  Network security 

In order to increase the reliability of the EU's electricity system and prevent black-outs, recent 
experience  has  shown  that  common  minimum  and  binding  network  security  standards  are 

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Directive  2002/19/EC  of  the  European  Parliament  and  the  Council  on  access  for  electronic 
communications. 
Communication  from  the  Commission  to  the  European  Parliament  and  the  Council:  Priority 
interconnection plan - COM(2006) 846. 

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necessary in the EU. The new Community mechanism and structure for Transmission System 
Operators should also be tasked with proposing common minimum security standards. These 
would become binding following approval by energy regulators. 

3.1.6.  Adequacy of electricity generation and gas supply capacity 

During  the  next  25  years,  Europe  will  need  to  invest  € 900  billion  on  new  electricity 
generation.  Gas  remains  a  fuel  of  choice  given  its  high  efficiency,  but  even  gas  will  need 
€ 150  billion  of  investment  on  gas-fired  power  plant  and  an  additional  € 220  billion  on  gas 
infrastructure.  The  overriding  priority  in  terms  of  securing  adequate  new  investment  is  a 
properly  functioning  Internal  Energy  Market,  providing  the  correct  investment  signals.  In 
addition,  close  monitoring  of  the  demand/supply  balance  is  also  needed,  to  identify  any 
potential shortfall. This will be a key role for the new Office of the Energy Observatory (see 
below).  

3.1.7.  Energy as a public service  

Energy  is  essential  for  every  European.  Existing  European  legislation  already  requires  the 
respect  for  Public  Service  Obligations.  But  the  EU  needs  to  go  further  in  tackling  energy 
poverty. The Commission will develop an Energy Customers' Charter with four key goals:  

•  assist in establishing schemes to help the most EU vulnerable citizens deal with increases 

in energy prices;  

•  improve  the  minimum  level  of  information  available  to  citizens  to  help  them  choose 

between suppliers and supply options;  

•  reduce paper work when customers change supplier; and  

•  protect customers from unfair selling practices. 

3.2. 

Solidarity  between  Member  States  and  security  of  supply  for  oil,  gas  and 
electricity 

The Internal Energy Market increases the interdependence of Member States in energy supply 
for  both  electricity  and  gas.  Even  with  the  targets  on  energy  efficiency  and  renewables,  oil 
and gas will continue to meet over half the EU's energy needs, with import dependence high 
in both sectors (over 90 % for oil and some 80% for gas in 2030). Electricity generation will 
be heavily dependent on gas. Without a significant technology breakthrough, oil will continue 
to  dominate  transport.  Therefore,  security  of  supply  of  these  fuels  will  continue  to  be 
paramount to the EU economy.  

The  EU  has  effective  energy  relationshipswith  traditional  gas  suppliers  from  inside  the 
European Economic Area (EEA), notably Norway and outside, Russia and Algeria. The EU is 
confident  that  these  relationships  will  strengthen  in  the  future.  Nevertheless,  it  remains 
important for the EU to promote diversity with regard to source, supplier, transport route and 
transport  method.  In  addition,  effective  mechanisms  need  to  be  put  into  place  to  ensure 
solidarity  between  Member  States  in  the  event  of  an  energy  crisis.  This  is  particularly 
important given that a number of Member States are highly or completely reliant on a single 
gas supplier. 

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Energy security should be promoted in different ways: 

•  Measures are needed to assist Member States that are overwhelmingly dependent on one 
gas  supplier  to  diversify.  The  Commission  will  monitor  implementation  of  the  recently 
transposed  Gas  Security  Directive17  and  assess  its  effectiveness.  Projects  should  be 
developed to bring gas from new regions, to set up new gas hubs in central Europe and the 
Baltic  countries,  to  make  better  use  of  strategic  storage  possibilities,  and  to  facilitate  the 
construction  of  new  liquid  natural  gas  terminals.  Ways  to  strengthen  existing  crisis 
solidarity  mechanisms  such  as  the  Energy  Correspondents  Network  and  the  Gas  Co-
ordination Group should also be examined. In addition, strategic gas stocks would help the 
security  of  gas  supply.  The  considerable  new  investments  in  new  storage  and  pipeline 
capacity  that  would  be  needed  to  ensure  a  higher  degree  of  security  will  have  to  be 
balanced against the costs this will imply for the consumers.  

•  The  EU's  strategic  oil  stocks  mechanism,  effectively  co-ordinated  with  stocks  of  other 
OECD countries through the IEA, has worked well and should be maintained. The manner 
in which the EU manages its contribution to this mechanism could however be improved. 
Reporting  requirements  on  Member  States  should  be  reinforced,  there  should  be  more 
analysis of the sufficiency of the stocks, and there should be better coordination if the IEA 
calls for stocks to be released. The Commission will make an analysis of these issues in 
2007. 

•  Electricity interconnections (see 3.1.4 above) and binding, enforceable reliability standards 
will form a third element of this approach. This will in particular help to address concerns 
about security of electricity supply. 

3.3. 

A long-term commitment to greenhouse gases reduction and the EU Emissions 
Trading System 

The EU traditionally favours the use of economic instruments to internalise external costs as 
the allow the market to determine how to react most efficiently and with limited costs. More 
particularly, in its Communication Limiting Climate Change to 2°C - Policy Options for the 
EU  and  the  world  for  2020  and  beyond,  the  Commission  has  set  out  how  the  emissions 
trading mechanism is and must remain a key mechanism for stimulating reductions in carbon 
emissions and how it could be used as a basis for international efforts to fight climate change. 
The  Commission  is  reviewing  the  EU  ETS  to  ensure  that  emissions  trading  reaches  its  full 
potential:  this  is  critical  to  creating  the  incentives  to  stimulate  changes  in  how  Europe 
generates and uses its energy. 

3.4. 

An  ambitious  programme  of  energy  efficiency  measures  at  Community, 
national, local and international level 

For Europe's citizens, energy efficiency is the most immediate element in a European Energy 
Policy. Improved energy efficiency has the potential to make the most decisive contribution 
to achieving sustainability, competitiveness and security of supply. 

17 

Directive  2004/67/EC  of  the  European  Parliament  and  the  Council  of  26  April  2004  concerning 
measures to safeguard security of natural gas supply (OJ L 127, 29.4.2004, p. 92).  

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On  19  October  2006  the  Commission  adopted  the  Energy  Efficiency  Action  Plan18, 
containing  measures  that  would  put  the  EU  well  on  the  path  to  achieving  a  key  goal  of 
reducing its global primary energy use by 20% by 2020. If successful, this would mean that 
by 2020 the EU would use approximately 13% less energy than today, saving € 100 billion 
and  around  780  millions  tonnes  of  CO2  each  year.  However,  this  will  require  significant 
efforts both in terms of behavioural change and additional investment. 

18 

Action Plan for Energy Efficiency: Realising the Potential - COM(2006) 545, 19.10.2006. 

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Key measures include:  

•  Accelerating  the  use  of  fuel  efficient  vehicles  for  transport,  making  better  use  of  public 

transport; and ensuring that the true costs of transport are faced by consumers19; 

•  Tougher standards and better labelling on appliances; 

•  Rapidly  improving the energy performance of the EU's  existing  buildings and taking the 

lead to make very low energy houses the norm for new buildings; 

•  Coherent use of taxation to achieve more efficient use of energy; 

•  Improving the efficiency of heat and electricity generation, transmission and distribution;  

•  A new international agreement on energy efficiency to promote a common effort.  

A new international agreement on energy efficiency 

This could bring the OECD and key developing countries (such as China, India and Brazil) 
together to restrict the use of products failing to meet minimum standards and agree common 
approaches to saving energy. The EU could formally table a proposal in 2007 which could 
then  be  discussed  and  taken  forward  during  a  major  international  conference  on  energy 
efficiency during the German Presidency of the G8. The aim could be to sign the agreement 
during  the  Beijing  Olympic  Games.  The  potential  energy  saving  and  CO2  reduction  is 
enormous - improved energy efficiency alone could cut, according to the IEA, around 20% of 
current global CO2 emissions. 

3.5. 

A longer term target for renewable energy 

In 1997, the European Union started working towards a target of a 12% share of renewable 
energy in its overall mix by 2010, a doubling of  1997 levels. Since then, renewable  energy 
production  has  increased  by  55%.  Nevertheless  the  EU  is  set  to  fall  short  of  its  target.  The 
share of renewable energy is unlikely to exceed 10% by 2010. The main reason for the failure 
to  reach  the  agreed  targets  for  renewable  energy  -  besides  the  higher  costs  of  renewable 
energy sources today compared to “traditional” energy sources - is the lack of a coherent and 
effective policy framework throughout the EU and a stable long-term vision. As a result, only 
a limited number of Member States have made serious progress in this area and the critical 
mass has not been reached to shift niche renewables production into the mainstream. 

The EU needs a step change to provide a credible long term vision of the future of renewable 
energy  in  the  EU,  building  on  the  existing  instruments,  notably  the  renewable  Electricity 
Directive.  This  is  essential  to  realise  present  targets20  and  trigger  further  investment, 
innovation and jobs. The challenge for renewables policy is to find the right balance between 
installing large scale renewable energy capacity today, and waiting until research lowers their 
cost tomorrow. Finding the right balance means taking the following factors into account: 

19 

20 

See  also  Keep  Europe  moving  -Sustainable  mobility  for  our  continent  -  Mid-term  review  of  the 
European Commission’s 2001 Transport White Paper - COM(2006) 314, 22.6.2006. 
Communication from the Commission to the European Parliament and the Council: Follow-up actions 
of the Green Paper: Report on progress in renewable electricity - COM(2006) 849. 

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•  Using renewable energy today is generally more expensive than using hydrocarbons, but 

the gap is narrowing – particularly when the costs of climate change are factored in; 

•  Economies of scale can reduce the costs for renewables, but this needs major investment 

today; 

•  Renewable energy helps to improve the EU's security of energy supply by increasing the 
share of domestically produced energy, diversifying the fuel mix and the sources of energy 
imports and increasing the proportion of energy from politically stable regions as well as 
creating new jobs in Europe; 

•  Renewable energies emit few or no greenhouse gases, and most of them bring significant 

air quality benefits.  

In  the  light  of  the  information  received  during  the  public  consultation  and  the  impact 
assessment, the Commission proposes in its Renewable Energy Roadmap21 a binding target of 
increasing the level of renewable energy in the EU's overall mix from less than 7% today 
to  20%  by  2020.  Targets  beyond  2020  would  be  assessed  in  the  light  of  technological 
progress.  

How do we get there? 

Meeting the 20% target will require a massive growth in all three renewable energy sectors: 
electricity, biofuels and heating and cooling. But in all sectors, the policy frameworks set up 
in particular Member States have achieved results which show how this is possible.  

Renewables  has  the  potential  to  provide  around  a  third  of  EU  electricity  by  2020.  Wind 
power provides approximately 20% of electricity needs in Denmark, today, as well as 8% in 
Spain  and  6%  in  Germany.  Costs  in  other  new  technologies  -  photovoltaic,  solar  thermal 
power, and wave & tide, are projected to decrease from currently high levels. 

In the heating and cooling sector, progress will have to come from a number of technologies. 
Sweden,  for  example,  has  over  185 000  installed  geothermal  heat  pumps.  Germany  and 
Austrian have led the way on solar heating. If other Member States matched these levels, the 
share of renewable energy in heating and cooling would jump by 50%.  

As for biofuels, Sweden has already achieved a market share of 4% of the petrol market for 
bioethanol,  and  Germany  is  the  world  leader  for  bio-diesel,  with  6%  of  the  diesel  market. 
Biofuels could make up to 14% of transport fuels by 2020. 

This 20% target is truly ambitious and will require major efforts by all Member States. The 
contribution  of  each  Member  State  to  achieving  the  Union's  target  will  need  to  take  into 
account  different  national  circumstances  and  starting  points,  including  the  nature  of  their 
energy mix. Member State should have the flexibility to promote the renewable energies most 
suited  to  their  specific  potential  and  priorities.  The  way  in  which  Member  States  will  meet 
their targets should be set out in National Action Plans to be notified to the Commission. The 
Plans  should  contain  sectoral  targets  and  measures  consistent  with  achieving  the  agreed 

21 

Communication from the Commission to the European Parliament and the Council: Renewable Energy 
Roadmap: Renewable Energies in the 21st century; building a sustainable future - COM(2006) 848. 

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overall national targets. In practice, in implementing their Plans Member States will need to 
set their own specific objectives for electricity, biofuels, heating and cooling, which would be 
verified by the Commission to ensure that the  overall  target is being met. The Commission 
will set out this architecture in a new renewables legislative package in 2007.  

A  particular  feature  of  this  framework  is  the  need  for  a  minimum  and  coordinated 
development of biofuels throughout the EU. While biofuels are today and in the near future 
more  expensive  than  other  forms  of  renewable  energy,  over  the  next  15  years  they  are  the 
only  way  to  significantly  reduce  oil  dependence  in  the  transport  sector.  In  its  Renewable 
Energy Roadmap and Biofuels Progress Report22, the Commission therefore proposes to set a 
binding minimum  target for biofuels of 10% of vehicle fuel by  2020 and to  ensure that the 
biofuels  used  are  sustainable  in  nature,  inside  and  outside  the  EU.  The  EU  should  engage 
third  countries  and  their  producers  to  achieve  this.  In  addition,  the  2007  renewables 
legislative package will include specific measures to facilitate the market penetration of both 
biofuels  and  heating  &  cooling  from  renewables.  The  Commission  will  also  continue  and 
intensify the use of renewable energy through other policies and flanking measures with the 
aim of creating a real internal market for renewables in the EU.  

How much will it cost? 

To achieve a 20% share for renewables will result in an additional average annual cost of 
approximately € 18 billion – around 6% extra on the EU's total expected energy import bill in 
2020.  But  this  assumes  oil  prices  of  $ 48/barrel  by  2020.  If  these  rose  to  $ 78/barrel,  the 
average  annual  cost  would  fall  to  € 10.6  billion.  If  a  carbon  price  of  more  than  € 20  is 
factored  in,  the  20%  would  cost  practically  no  more  than  relying  on  “traditional”  energy 
sources,  but  create  many  jobs  in  Europe  and  develop  new,  technology  driven  European 
companies.  

3.6. 

A European Strategic Energy Technology Plan 

Europe has two key objectives for energy technology: to lower the cost of clean energy and to 
put  EU  industry  at  the  forefront  of  the  rapidly  growing  low  carbon  technology  sector.  To 
meet these objectives, the Commission will present a European Strategic Energy Technology 
Plan23  in  2007.  This  Plan  will  need  a  long  term  vision  to  match  the  long  term  challenge  of 
moving towards a low carbon energy system in a competitive manner: 

–  By 2020, technologies will have to make the 20% renewable target a reality by permitting 
a sharp increase in the share of lower cost renewables (including the roll-out of off-shore 
wind and 2nd generation biofuels);  

–  By  2030,  electricity  and  heat  will  increasingly  need  to  be  produced  from  low  carbon 
sources  and  extensive  near-zero  emission  fossil  fuel  power  plants  with  CO2  capture  and 
storage.  Transport  will  need  to  increasingly  adapt  to  using  2nd  generation  biofuels  and 
hydrogen fuel cells; 

22 

23 

Communication from the Commission to the European Parliament and the Council: Biofuels progress 
report - COM(2006) 845. 
See also the Communication from the Commission : Towards a European Strategic Energy Technology 
Plan - COM(2006) 847. 

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–  For 2050 and beyond, the switch to low carbon in the European energy system should be 
completed,  with  an  overall  European  energy  mix  that  could  include  large  shares  for 
renewables, sustainable coal and gas, sustainable hydrogen, and, for those member states 
that want, Generation IV fission power and fusion energy. 

This is a vision of Europe with a thriving and sustainable energy economy, that has grasped 
the  opportunities  behind  the  threats  of  climate  change  and  globalisation,  gained  world 
leadership in a diverse portfolio of clean, efficient and low-emission energy technologies and 
become  a  motor  for  prosperity  and  a  key  contributor  to  growth  and  jobs.  To  achieve  this 
vision  the  European  Union  must  act  jointly  and  urgently,  agreeing  and  implementing  a 
European Strategic Energy Technology Plan accompanied with realistic resources. Under the 
7th  Framework  Research  Programme,  annual  spending  on  energy  research  over  the  next  7 
years at EU level will increase by 50%, but even this will not provide the progress needed. 
The Technology Plan must be ambitious; it needs to better coordinate spending at Community 
and national level, and set clear targets with precise roadmaps and milestones. It should use 
all available EU tools, including Joint Technology Initiatives and the European Institute for 
Technology.  

Priorities of such a targeted initiative could include: 

–  More energy efficient buildings, appliances, equipment, industrial processes and transport 

systems;  

–  Developing biofuels, in particular second generation biofuels, to become fully competitive 

alternatives to hydrocarbons;  

–  Getting  large  scale  offshore  wind  competitive  within  the  short  term  and  paving  the  way 

towards a competitive European offshore supergrid;  

–  Getting photovoltaic electricity competitive to harness solar energy; 

–  Using  fuel  cell  and  hydrogen  technologies  to  exploit  their  benefits  in  decentralised 

generation and transport;  

–  Sustainable coal and gas technologies, particularly carbon capture and storage (see below); 

–  The EU should maintain its technological lead in fourth generation fission nuclear reactors 
and future fusion technology to boost the competitiveness, safety and security of nuclear 
electricity, as well as reduce the level of waste.  

These  sectoral  objectives  should  be  underpinned  by  specific  milestones  and  an  increase  in 
energy  research  spending.  The  Commission  will  propose  a  European  Strategic  Energy 
Technology Plan for the 2008 Spring European Council. 

3.7. 

Towards a low CO2 fossil fuel future 

Coal  and  gas  account  for  50%  of  the  EU's  electricity  supply  and  are  certain  to  remain  an 
important  part  of  our  energy  mix.  Long-term  reserves  are  substantial.  But  coal  produces 
roughly twice the emissions of CO2 compared to gas. Much cleaner coal generation and CO2 
abatement  will  be  necessary.  Furthermore,  developing  clean  coal  and  carbon  capture  and 
storage  is  crucial  at  the  international  level:  the  IEA  expects  twice  more  electricity  to  be 
produced  from  coal  by  2030.  That  would  release  around  5 bn  tonnes  of  CO2,  representing 

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40%  of  the  expected  increase  in  global  energy-related  CO2  emissions.  In  addition  to  the 
European  Strategic  Energy  Technology  Plan,  other  action  will  be  required  to  catalyse 
international research and action on CO2 capture and storage. 

To provide global leadership, the EU must provide a clear vision for the introduction of CO2 
capture  and  storage  in  the  EU,  establish  a  favourable  regulatory  framework  for  its 
development,  invest  more,  and  more  effectively,  in  research,  as  well  as  taking  international 
action. The EU Emissions Trading System will also need to incorporate capture and storage 
in the future. 

As  set  out  in  its  Sustainable  Power  Generation  Communication24,  the  Commission  will  in 
2007 start work to: 

•  Design a mechanism to stimulate the construction and operation by 2015 of up to 12 large-
scale  demonstrations  of  sustainable  fossil  fuels  technologies  in  commercial  power 
generation in the EU25. 

•  Provide a clear perspective when coal- and gas-fired plants will need to install CO2 capture 
and storage. On the basis of existing information, the Commission believes that by 2020 
all  new  coal-fired  plants  should  to  be  fitted  with  CO2  capture  and  storage  and  existing 
plants should then progressively follow the same approach. Whilst it is too early to reach a 
definite view on this, the Commission hopes to be able to make firm recommendations as 
soon as possible. 

3.8. 

The future of nuclear 

Currently  around  one  third  of  the  electricity  and  15%  of  the  energy  consumed  in  the  EU 
comes from nuclear which is one of the largest sources of carbon dioxide (CO2) free energy 
in Europe. Nuclear power has been one of the ways of limiting CO2 emissions within the EU 
and,  for  those  Member  States  that  wish,  is  also  likely  to  form  part  of  an  energy  scenario 
where significant emission reductions are going to be required in the coming decades.  

Nuclear  power  is  less  vulnerable  to  fuel  price  changes  than  coal  or  gas-fired  generation,  as 
uranium  represents  a  limited  part  of  the  total  cost  of  generating  nuclear  electricity  and  is 
based  on  sources  which  are  sufficient  for  many  decades  and  widely  distributed  around  the 
globe. 

As can be seen from the table attached to this document which outlines the advantages and 
disadvantages of different sources of energy, nuclear energy is one of the cheapest sources of 
low carbon energy that is presently produced in the EU and also has relatively stable costs26. 
The next generation of nuclear reactors should reduce these costs further. 

24 

25 

26 

Communication from the Commission : Sustainable Power Generation from fossil fuels: aiming at near 
zero emission by 2020 - COM(2006) 843. 
The  European  Technology  Platform  for  Zero-emission  fossil  fuels  power  plant  (ZEP  TP)  includes  in 
the Key Recommendations of its Strategic Research Agenda (SRA) adopted in late 2006 a call for early 
implementation of 10-12 integrated, large-scale CCS demonstration power plants projects in Europe. 
According to the IEA 2006 World Energy Outlook "new nuclear power plants could produce electricity 
at  4.9  to  5.7  $  cents  per  kWh  [3.9  to  4.5  Euro  cents  at  mid  November  2006  exchange  rates]  if 
construction and operating risks are mitigated" and that is, at " a price of about 10 $ per tonne of CO2 
emitted makes nuclear competitive with coal-fired power stations". 

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It is for each Member State to decide whether or not to rely on nuclear electricity. However, 
in  the  event  that  the  level  of  nuclear  energy  reduces  in  the  EU,  it  is  essential  that  this 
reduction  is  phased  in  with  the  introduction  of  other  supplementary  low-carbon  energy 
sources  for  electricity  production;  otherwise  the  objective  of  cutting  GHG  emissions  and 
improving security of energy supply will not be met. 

In  the  current  energy  context,  the  IEA  expects  the  world-wide  use  of  nuclear  power  to 
increase from 368 GW in 2005 to 416 GW in 2030. There are therefore economic benefits in 
maintaining and developing the technological lead of the EU in this field.  

As  set  out  in  a  new  Nuclear  Illustrative  Programme27,  at  EU  level,  the  role  should  be  to 
develop  further,  in  conformity  with  Community  law,  the  most  advanced  framework  for 
nuclear  energy  in  those  Member  States  that  choose  nuclear  power,  meeting  the  highest 
standards  of  safety,  security  and  non-proliferation  as  required  by  the  Euratom  Treaty. 
However,  nuclear  power  also  raises  important  issues  regarding  waste  and  decommissioning 
so  nuclear  waste  management  and  decommissioning  should  also  be  included  in  future 
Community  work.  The  EU  should  also  continue  their  efforts  to  ensure  that  such  high 
standards  are  observed  internationally.  In  order  to  make  progress  on  this  the  Commission 
proposes  to  establish  an  EU  High  Level  Group  on  Nuclear  Safety  and  Security  with  the 
mandate  of  progressively  developing  common  understanding  and,  eventually,  additional 
European rules, on nuclear security and safety.  

3.9. 

An International Energy Policy that actively pursues Europe's interests 

The EU cannot achieve its energy and climate change objectives on its own. The EU in the 
future will account for only 15% of new CO2 emissions. Furthermore by 2030, with the new 
objectives,  the  EU  will  consume  less  than  10%  of  the  world's  energy.  So  the  challenges  of 
security of energy supply and climate change cannot be overcome by the EC or its Member 
States  acting  individually.  It  needs  to  work  with  both  developed  and  developing  countries, 
energy consumers and producers, to ensure competitive, sustainable and secure energy.  

The EU and Member States must pursue these goals with a common voice, forging effective 
partnerships to translate these into a meaningful external policy. Indeed, energy must become 
a  central  part  of  all  external  EU  relations;  it  is  crucial  to  geopolitical  security,  economic 
stability, social development and international efforts to combat climate change. The EU must 
therefore  develop  effective  energy  relations  with  all  its  international  partners,  based  on 
mutual  trust,  cooperation  and  interdependence.  This  means  relations  broadened  in 
geographical  scope,  and  deepened  in  nature  on  the  basis  of  agreements  with  substantial 
energy provisions. 

The  European  Council  has  endorsed  the  vision  of  a  long  term  framework  for  the  external 
energy  dimension  set  out  jointly  by  the  Commission  and  the  Council28  and  has  agreed  to 
establish  a  network  of  energy  security  correspondents  which  will  provide  an  early  warning 
system and enhance the EU's capability to react in times of external energy security pressure.  

27 
28 

Nuclear Illustrative Programme - COM(2006) 844. 
European  Commission/High  Representative  paper  An  external  policy  to  serve  Europe's  energy 
interests,  June  2006  S160/06;  followed  by  External  Energy  Relations  -  from  principles  to  action  - 
COM(2006) 590. 

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The EU already speaks with one voice in negotiations of international agreements, notably in 
the  field  of  trade.  Ongoing  and  future  international  agreements,  whether  bilateral  or  with 
several  countries  at  a  time,  can  be  used  more  effectively  to  establish  legally  binding 
commitments.  These  can  extend  to  the  reciprocal  liberalisation  of  trading  conditions  and 
investment in upstream and downstream markets, and to the grant of access to pipelines by 
countries  situated  along  transit  and  transport  chains.  Equally,  they  can  be  used  to  promote 
international  trade  in  sustainably  produced  biofuels  or  environmental  goods,  or  to  the 
international pricing of carbon emissions. 

The EU must therefore now follow through these principles into action. The first step towards 
"speaking  with  one  voice"  is  to  set  out  clear  objectives,  and  the  means  to  coordinate 
effectively.  The  regular  Strategic  Energy  Reviews  will  provide  the  overall  framework  for 
frequent  discussion  of  external  energy  issues  in  the  EU  institutions.  The  priorities  to  be 
pursued by an effective external EU Energy Policy during the next three years are: 

•  The  EC  and  its  Member  States  should  be  a  key  driver  in  the  design  of  international 
agreements, including the future of the Energy Charter  Treaty and the post-2012 climate 
regime.  

•  EU  energy  relations  with  its  neighbours  are  fundamental  to  European  security  and 
stability.  The  EU  should  aim  to  build  up  a  wide  network  of  countries  around  the  EU, 
acting on the basis of shared rules or principles derived from the EU energy policy.  

•  To enhance relations with our external energy suppliers, further developing comprehensive 

partnerships based on mutual interest, transparency, predictability and reciprocity.  

•  To continue to develop closer energy relations with other major consumers,  in  particular 

through IEA and G8 or through intensified bilateral cooperation.  

•  Develop  the  use  of  financial  instruments,  via  enhanced  co-operation  with  the  EIB  and 
EBRD and the establishment of a Neighbourhood Investment Fund, to enhance the EU’s 
energy security.  

•  To improve the conditions for investments in international projects, working for example 
to  secure  a  clearly  defined  and  transparent  legal  framework  and  appointing  European 
coordinators to represent EU interests in key international projects.  

•  Promote  non  proliferation,  nuclear  safety  and  security,  in  particular  through  a  reinforced 

cooperation with the International Atomic Energy Agency.  

The detailed manner in which these objectives will now be pursued, as discussed in detail by 
the  European  Council  at  the  Lahti  Summit  and  the  December  2006  European  Council  is 
contained in Annex to this Review. In addition, however, the Commission considers that two 
additional priority actions should now be pursued: 

•  A  comprehensive  Africa-Europe  Energy  partnership.  The  importance  of  Africa  as  an 
energy supplier has increased greatly in recent years, but its potential is still greater. The 
dialogue  should  include  security  of  supply,  technology  transfer  in  renewable  energy, 
sustainable exploitation of resources, transparency of energy markets and respect for good 
governance. The dialogue should be launched through a joint event at the highest level.  

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•  As already mentioned above, an international agreement on energy efficiency. 

3.9.1. 

Integrating Europe's Energy and Development Policies: a win-win game  

High  energy  prices  are  particularly  damaging  for  developing  countries.  Whilst  a  few 
developing countries might benefit as producer, others can find the increased costs of energy 
imports  outstripping  their  development  aid  receipts29.  Africa  and  other  developing  regions 
have  a  vital  interest,  like  Europe,  to  boost  diversification  and  energy  efficiency  –  this  can 
make  a  major  contribution  to  the  Millennium  Development  Goals.  The  EU  is  therefore 
committed to support developing countries in promoting sustainable and secure energy supply 
and use.  

To  deliver  on  the  above  commitment,  the  EU  should  focus  on  the  delivery  of  affordable, 
reliable and sustainable energy services to the poor, notably from renewable sources as well 
as for the development of clean and efficient technologies for gas and oil production. Africa 
offers a unique opportunity to install renewable energy technology in a competitive manner. 
It  can  by-pass  the  need  to  build  expensive  transmission  grids  and  "leap-frog"  to  a  new 
generation of clean, local low carbon energy sources and technologies – as already seen for 
mobile telecommunications. This is a real "win-win" opportunity, increasing the penetration 
of clean renewable energy and bringing electrification to some of the world's poorest citizens. 
A special effort will be needed in Sub-Saharan Africa, where rates of access to electricity are 
the lowest in the world. 

The  EU  will  also  leverage  the  different  instruments  at  its  disposal  to  this  end:  the  10th 
European  Development  Fund,  the  EU-Africa  Partnership  on  Infrastructure  which  addresses 
regional  projects  on  the  generation  and  transmission  of  electricity,  the  ACP-EU  Energy 
Facility, and the EC COOPENER programme and its successor as well as the EUROSOLAR 
programme for Latin America. 

3.10.  Effective monitoring and reporting 

Monitoring, transparency and reporting will be essential elements in progressively developing 
an effective European energy policy. The Commission proposes to establish an Office of the 
Energy Observatory within the Directorate General for Energy and Transport. This Office 
should  undertake  core  functions  regarding  Europe’s  energy  demand  and  supply,  notably 
increasing  transparency  regarding  the  future  investment  needs  in  the  EU  for  electricity  and 
gas  infrastructure  and  generation  facilities  and,  via  benchmarking  and  the  exchange  of  best 
practice, the success of Member States in ensuring that their energy mix evolves in a manner 
that contributes effectively to the EU's energy goals. 

The Commission will set out the specific responsibilities of the Observatory and propose in 
2007  a  legal  base  for  financing  its  activities.  In  doing  so  it  will  examine  and  streamline 
existing  energy  related  information  and  reporting  obligations  upon  the  Commission  and 
Member States. 

29 

137 billion US$ annually for developing oil importers against an ODA of 84 billion US$ in 2005, net of 
additional debt relief. See "The Vulnerability of African Countries to Oil Price Shocks: Major factors 
and  Policy  Options.  The  Case  of  Oil  Importing  Countries".  ESMAP  Report  308/05,  World  Bank, 
August 2005. 

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4. 

TAKING WORK FORWARD 

This Strategic Review has set out a set of policies required to achieve the goals of sustainable, 
secure and competitive energy. The first step is to secure clear decisions from the European 
Council and the European Parliament on the strategic approach, an Action Plan to enable the 
EU to achieve ambitious, broad and long term targets. Future Strategic Reviews can help the 
EU  refine  and  update  its  Action  Plan  to  take  account  of  change  –  most  obviously, 
technological  advance  and  common  international  action  to  address  climate  change.  The 
pursuit  of  reduced  emissions  in  Europe  and  worldwide  is  indivisible  from  the  European 
Energy Policy. 

Were  the  EU  to  succeed  in  meeting  the  specific  objectives  proposed  regarding  energy 
efficiency  and  renewables,  this  would  put  it  on  track  to  meet  the  2020  greenhouse  gas 
reduction  of  20  %,  and  provide  a  springboard  to  achieve  dramatic  reductions  by  2050 
objectives.  Determined  action  now  will  mean  progress  towards  stabilising  our  import 
dependence, timely investment, new jobs and a technological lead for Europe in low carbon 
technologies. The EU would have set the pace for a new global industrial revolution. 

The Commission therefore calls on the European Council and Parliament to: 

•  endorse an EU objective in international negotiations of 30% reduction in greenhouse gas 

emissions by developed countries by 2020 compared to 1990; 

•  endorse already now an EU commitment to achieve, in any event, at least a 20% reduction 

of greenhouse gases by 2020 compared to 1990; 

•  confirm  that  additional  measures  are  necessary  to  make  the  potential  benefits  of  the 
Internal  Electricity  and  Gas  Markets  a  reality  for  all  EU  citizens  and  businesses  and 
specifically:  

•  Commit 

to further  unbundling 

to  deliver  greater  competition, 

increased 
investment and more choice for energy users, through ownership unbundling, or 
through  a  full  Independent  System  Operator.  In  the  light  of  the  evidence  the 
Commission considers that ownership unbundling is the most effective means to 
ensure choice for energy users and to encourage investment. On the basis of the 
conclusions of the European Council of 9 March and the position of the European 
Parliament,  the  Commission  will  come  forward  swiftly  with  a  legislative 
proposal; 

•  Ensure effective regulation in every Member State through the harmonisation of 
the  powers  and  independence  of  energy  regulators  based  the  highest  common 
denominator  in  the  EU  and  tasking  regulators  with  the  development  of  the 
Internal Energy Market as well as the effective development of national markets; 

•  Accelerate the harmonisation of the technical standards necessary to enable cross-
border  trade  to  work  effectively,  and  to  ensure  the  promotion  of  the  European 
market by establishing a new single body at EU level or, at a minimum, through a 
European  network  of  independent  regulators  which  would  need  to  take  due 
account  of  the  European  interest  and  have  the  appropriate  involvement  of  the 
Commission;  

EN 

21 

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•  Establish  in  2007  a  new  Community  mechanism  and  structure  for  Transmission 
System  Operators,  responsible  for  co-ordinated  network  planning,  reporting  to 
national  regulators  and  the  Commission.  This  should  also  be  responsible  for 
proposing  minimum  network  security  standards,  which  once  approved  by 
Regulators and the Commission, be proposed as legally binding; 

•  Endorse  the  Commission  tabling  in  2007  minimum  standards  regarding 

transparency; 

•  Welcome a new Customers' Energy Charter; 

•  Make 

in 

realising 

further  progress 

the  construction  of  essential  new 
interconnectors.  Confirm  the  need  to  appoint  European  co-ordinators  to  pursue 
the  most  problematic  priority  projects  and  invite  the  Commission  to  table,  in 
2007, a formal legislative proposal defining a maximum of 5 years within which 
planning  and  approval  procedures  must  be  completed  for  projects  of  European 
interest; 

•  Endorse the need to make further progress in ensuring solidarity between Member States 
in the event of an energy crisis or a disruption in supplies. Effective mechanisms need to 
be put in place to this end. Welcome the Commission's intention to bring forward in 2007 
a Communication on strategic stocks with, where appropriate, reinforced measures; 

•  Underline  the  priority  that  the  EU  strengthens  its  efforts  to  get  global  action  to  combat 
climate change. Welcome the Commission's intention to take all opportunities of bilateral 
and multilateral international negotiations to promote the fight against climate change, to 
coordinate energy policies and to strengthen the cooperation on clean technologies; 

•  Endorse  the  objective  of  saving  20%  of  the  EU's  energy  consumption  in  a  cost-efficient 
manner  by  2020  as  presented  in  the  Commission's  Energy  Efficiency  Action  Plan,  and 
welcome the Commission's intention to roll out concrete measures to make this a reality, 
notably to:  

–  establish  and  update  on  a  regular  basis,  minimum  efficiency  requirements  for 

energy-using equipment;  

–  realise  further  energy  savings  in  buildings,  utilising  and  developing  the 
framework provided by the Directive on the Energy Performance of Buildings;  

–  exploit the significant energy efficiency potential in transportation, using a variety 

of measures including legislation as necessary;  

–  Improve  the  energy-efficient  and  energy  saving  behaviour  of  all  energy 
consumers, including by demonstrating the benefits of available energy efficient 
technology and behaviour;  

–  continue  to  improve  efficiency  in  energy  generation,  in  particular  by  promoting 

high efficiency combined heat and power technologies;  

•  Endorse the binding targets of 20% for the share of renewable energy in overall EU energy 
consumption by 2020 and 10% minimum biofuels. Invite the Commission to table a new 

EN 

22 

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Directive  to  put  this  into  practice  during  2007  specifying  their  national  targets  and  the 
procedure for developing National Action Plans to meet them;  

•  Endorse  the  need  for  an  ambitious  and  targeted  European  Strategic  Energy  Technology 
Plan and welcome the Commission's intention to formally propose such a Plan in 2007; 

•  Confirm the priority of making rapid progress in providing a clear perspective when coal- 
and gas-fired plants will need to install CO2 capture and storage in the EU and establishing 
a mechanism to stimulate the construction and operation by 2015 of up to 12 large-scale 
demonstrations of sustainable fossil fuels technologies in commercial power generation in 
the EU;  

•  Welcomes  the  Commission's  intention  to  establish  an  EU  High  Level  Group  on  Nuclear 
Safety and Security with the mandate of progressively developing common understanding 
and,  eventually,  additional  European  rules  on  nuclear  security  and  safety  to  support  the 
efforts of those Member States that so choose to continue to rely on nuclear power;  

•  Confirm  the  importance  of  “speaking  with  one  voice”  on  international  energy  issues.  In 
addition  to  the  need  to  now  pursue  in  practice  conclusions  resulting  from  at  the  Lahti 
Summit and the December 2006 European Council on this issue, (i) endorse the proposal 
to  develop  a  comprehensive  Africa-Europe  Energy  partnership  and  welcome  the 
Commission's initiative to launch this through a joint event at the highest level in 2007 and 
(ii) welcome the objective of concluding an international agreement on energy efficiency 
and the Commission's intention to table the basis of such an agreement during the first part 
of 2007 for consideration by the Council and Parliament;  

•  use  international  negotiations  to  encourage  sustainable  methods  of  production  and  to 

promote international trade in environmental and energy efficient goods and services; 

•  Welcome the Commission's intention to put forward a new Strategic Energy Review every 
2 years and to propose in 2007, a formal legal base for financing the work of an Office of 
the Energy Observatory within the Commission to coordinate and improve transparency on 
EU energy markets. 

Annex 1: EU International Energy Policy Priorities. 

Annex  2:  The  advantages  and  disadvantages  of  different  sources  of  electrical  energy, 
based on current oil, gas and coal prices.   

Annex 3: The advantages and disadvantages of different energy sources for heating. 

Annex  4:  The  advantages  and  disadvantages  of  different  energy  sources  for  road 
transport. 

Sources for the figures contained in the annexes can be found in the Commission's Staff 
Working Document: EU Energy Policy Data30.

30 

SEC(2007) 12, web page: http://ec.europa.eu/energy/energy_policy/index_en.htm 

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23 

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Annex 1 

EU International Energy Policy Priorities 

The priorities to be pursued by a external EU Energy Policy during the next three years are: 

•  Driving  forward  international  agreements,  including  the  post-2012  climate  regime,  the 
extension of emissions trading to global partners, the future of the Energy Charter Treaty 
and  the  development  and  deployment  of  clean  and  renewable  energy  technologies.  This 
means  stepping  up  coordination  between  the  EU  and  the  Member  States  in  international 
fora and improving collaboration with the International Energy Agency. The EU shall also 
be  involved  in  multilateral  initiatives  such  as  the  World  Bank  Global  Gas  Flaring 
Reduction  Partnership  and  the  Extractive  Industries  Transparency  Initiative.  In  order  to 
enhance further coherence the EU should also strive where appropriate for membership in 
relevant international organisations.  

•  Building  up  energy  relations  with  the  EU's  neighbours,  following  up  the  Commission's 
recent proposal to strengthen the European Neighbourhood Policy (ENP)31 also in the field 
of energy, with a possible EU-ENP energy Treaty with in the long run, possibly, all of our 
relevant  neighbours.  The  Energy  Community  Treaty  already  acts  as  the  basis  for  an 
emerging regional energy market, and should seek to gradually extend beyond the EU and 
the  Western  Balkans  to  incorporate  neighbours  like  Moldova,  Norway,  Turkey  and 
Ukraine  Enhanced  energy  relationships  with  Egypt  and  other  Mashrek/Maghreb  energy 
supplier and transit countries need to be developed, as well as with Libya. Both Norway 
and Algeria deserve special attention and tailor-made relations. 

•  To  reduce  the  threat  of  possible  disruptions  or  physical  destruction  of  critical  energy 
infrastructure  beyond  the  EU  borders  through  an  exchange  of  best  practice  with  all 
relevant EU partners and international organizations based on the actions for the internal 
infrastructure  outlined  in  the  Commission’s  recent  Communication  on  a  European 
Program for Critical Infrastructure Protection.  

•  Enhancing relations with Russia through the negotiation of a new robust, comprehensive 
framework  agreement,  including  a  fully-fledged  energy  partnership  benefiting  both  sides 
and that creates the conditions necessary for new investments. This should emphasize the 
mutual  long-term  benefits  to  both  Russia  and  the  EU  and  be  based  on  market  principles 
and those of the Energy Charter Treaty and draft Transit Protocol. 

•  Deepening dialogue and relations with key energy producers and transit countries, whether 
through OPEC and the Gulf Cooperation Council or fully implementing the Memoranda of 
Understanding with Azerbaijan and Kazakhstan and moving on to establish new ties with 
other important Central Asian producers like Turkmenistan and Uzbekistan. In addition, it 
is  imperative  to  facilitate  the  transport  of  the  Caspian  energy  resources  to  the  EU.  The 
Commission  will  also  present  a  Communication  on  the  Cooperation  with  the  Black  Sea 
Council  in  Spring  2007.  This  aspect  of  the  strategy  should  also  look  further  afield  to 
maximise  the  geographical  diversification  of  EU  energy  supplies  to  areas  like  Latin 
America  and  the  Caribbean.  It  should  also  look  to  new  energy  sources,  developing  a 

31 

Communication  from  the  Commission  to  the  Council  and  European  Parliament  on  strengthening  the 
European Neighbourhood Policy - COM(2006) 726, 4.12.2006. 

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24 

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dialogue  with  Brazil  to  include  biofuels  -  and  organizing  in  2007  an  international 
conference on biofuels. 

•  Developing  a  new  Africa-Europe  Energy  partnership.  The  importance  of  Africa  as  an 
energy supplier  is still  growing, and  relations merit a comprehensive dialogue to include 
security  of  supply,  technology  transfer  in  renewable  energy,  sustainable  exploitation  of 
resources, transparency of energy markets and respect for good governance. The dialogue 
should be launched through a joint event at the highest level.  

•  Enhancing  relations  with  other  major  energy  consumers.  In  particular,  the  scope  of 
relations with partners like the US should continue to cover areas like promoting open and 
competitive global energy markets, energy efficiency, regulatory cooperation and research. 
The steps already taken with China should be developed with the focus on advanced “near-
zero-emissions”  clean  coal  technologies,  as  well  as  energy  efficiency,  savings  and 
renewables. A similar approach should be developed with India. 

•  Promoting non proliferation, nuclear safety and security, in particular through a reinforced 
cooperation with the International Atomic Energy Agency and through the new Instrument 
for Nuclear Safety Cooperation. 

To  pursue  these  goals  means  redefining  relations  with  these  partners  to  put  energy  centre 
stage.  In  addition  to  promoting  EU  energy  goals  through  dialogue  and  international 
negotiation, a variety of instruments at the EU's disposal should be used to best effect, which 
include:  

•  In  trade  negotiations,  the  EU  already  speaks  with  one  voice  and  competence  is  well 
established. International trade and investment agreements, whether negotiated bilaterally 
or  with  several  countries  at  a  time,  can  be  used  more  effectively  to  establish  legally 
binding  instruments.  They  can  help  to  create  the  conditions  necessary  for  increased 
investment,  more  sustainable  production  and  competition.  Armed  with  the  right 
instruments and mandates, the EU will, for example, be able to better pursue the reciprocal 
liberalisation of investment and trading conditions to upstream and downstream markets, 
as well as possibly access to pipelines. The same applies to the promotion of international 
pricing of carbon emissions or trade in biofuels.  

•  Improving  cooperation  with  the  EIB  and  EBRD  to  use  financial  instruments  to  back  up 
energy  partnerships  with  concrete  actions  by  financing  important  projects  such  as  the 
Trans-Caspian energy corridor or the Sub Saharan–Maghreb–EU projects. Energy projects 
could be an important element in the proposed Neighbourhood Investment Fund, designed 
to leverage of four to five times the amount of grant funding available under the European 
Neighbourhood Policy Instrument.  

•  Promoting  improved  conditions  for  investments  in  international  projects,  with  a  clearly 
defined  and  transparent  legal  framework  and  with  the  support  of  European  coordinators. 
As  a  first  step,  a  European  Co-coordinator  should  be  appointed  for  the  Nabucco  gas 
pipeline  from  the  Caspian  basin  to  Austria  and  Hungary.  Options  for  the  future  could 
include appointing co-coordinators for projects to bring energy supplies from partners such 
as Turkey, Central Asia and North Africa. 

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Annex 2: The advantages and disadvantages of different sources of electrical energy 

Energy 
sources 

Technology 
considered 
cost estimate 

for 

the 

2005 Cost 
(€ / MWh) 

Source IEA 

Projected 
Cost 2030 
(€ 
with 
€20-30/tCO2) 

/  MWh 

GHG 
emissions 
(Kg 
CO2eq/MWh) 

EU-27  Import 
dependency 

Efficiency 

Fuel  price 
sensitivity 

Proven 
reserves 
/ 
Annual 
production 

Natural gas 

Open cycle gas turbine  45 – 70 

 55 - 85 

CCGT 
Cycle Gas Turbine) 

(Combined 

35 - 45 

40 - 55 

Oil 

Diesel engine 

70 - 80 

80 - 95 

440 

400 

550 

2005 

2030 

57% 

84% 

40% 

50% 

Very high 

Very high 

64 years 

82% 

93% 

30% 

Very high 

42 years 

Coal 

flue 

(Circulating 
bed 

(Pulverised  Fuel 
gas 

PF 
with 
desulphurisation) 
CFBC 
fluidized 
combustion) 
IGCC  
(Integrated 
Gasification  Combined 
Cycle) 

30 - 40 

45 - 60 

800 

40-45% 

medium 

35 - 45 

50 - 65 

800 

39% 

59% 

40-45% 

medium 

155 years 

40 - 50 

55 - 70 

750 

48% 

medium 

Nuclear 

Light water reactor 

40 - 45 

40 - 45 

generation 

25 - 85 

25 - 75 

Biomass 

Wind 

Biomass 
plant 

On shore 

Off shore 

Hydro  

EN 

Solar 

Large 
Small (<10MW) 
Photovoltaic 

35 - 175 
35 – 110 
50 - 170 
60 – 150 
25 - 95 
45 - 90 
140 - 430 

28 - 170 
28 – 80 
50 - 150 
40 – 120 
25 - 90 
40 - 80 
55 -260 

15 

30 

30 

10 

20 
5 
26 
100 

Almost  100% 
for uranium ore 

33% 

low 

Reasonable 
85 years 

reserves: 

nil 

30 - 60% 

medium 

95-98% 

95-98% 

95-98% 
95-98% 
/ 

nil 

R 
e 
n 
e 
w 
a 
b 
l 
e 

EN 

 
  
Annex 3: The advantages and disadvantages of different energy sources for heating 

Energy sources 

market 

EU-25 
share by  
energy source 

 Market price 
(€/toe ) 

Lifecycle cost 
(€/toe ) 

GHG emissions 
(t CO2eq/toe ) 

EU-27 
dependence 

import 

2005 

2030 

Heating gas oil 

20% 

Fossil fuels 

Natural gas 

33% 

Coal 

1.8% 

Wood chips 

Pellets 

Biomass 

Electricity 

Solar 

Geothermal 

5.7% 

31% 

0.2% 

0.4% 

525 
(€0.45/l) 

230 – 340 
(€20-30/MWh) 

70  
(€100/tce) 

280  

540  

550 - 660  
(€50-60/MWh) 

/ 

/ 

300-1300 

545-1300 

630-1300 

3.1 

2.1 

4 

0.4 

0.4 

550 - 660 

0 to 12 

<1% 

680-2320 

Very low 

230-1450 

Very low 

0 

0 

82% 

93% 

57% 

84% 

39% 

59% 

0 

0 

? 

? 

? 

0 

0 

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Annex 4: The advantages and disadvantages of different energy sources for road transport 

 Market price 
(€/toe) 

Petrol and diesel 

398-58233 

CO2 emissions 
(t CO2/toe)32 

3.6–3.7 

Natural gas 

230–340 
(NB:  requires  a  specially  adapted  vehicle 
and a dedicated distribution system)  

3.0 

Domestic biofuel 

609-742 

1.9–2.4 

Import dependence 

2005 

82% 

57% 

0% 

Tropical bio-ethanol 

327-540 

0.4 

100% 

Second-generation biofuel 

898–1 109 

0.3–0.9 

/ 

2030 

93% 

84% 

0% 

100% 

15% 

32 
33 

Figures given for biofuels are those for the cheapest production techniques. 
Assuming oil price of $48/barrel and $70/barrel respectively. 

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