Commission staff working document - Accompanying document to the Proposal for a Regulation of the European Parliament and of the Council concerning measures to safeguard security of gas supply and repealing Directive 2004/67/EC executive - Summary of the impact assessment {COM(2009) 363} {SEC(2009) 979}
Date: 2009-07-16
Institutions: European Commission
Subjects: energy policy, gas, gas supply, harmonisation of standards, natural gas, report, safety standard, security of supply

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 16.7.2009 
SEC(2009) 980 final 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying document to the 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

concerning measures to safeguard security of gas supply  
and repealing Directive 2004/67/EC 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

{COM(2009) 363} 
{SEC(2009) 979} 

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1. 

PROBLEM DEFINITION 

The Commission set out in the 2nd Strategic Energy Review an EU approach to security 
of  energy  supply,  including  a  five-point  EU  Energy  Security  and  Solidarity  Action 
Plan1.  The  approach  and  the  Action  Plan  have  been  solidly  endorsed  by  Council, 
Parliament  and  European  Council2,  also  by  stakeholders3.  This  impact  assessment 
concerns  one  element  in  the  Action  Plan  -  the  strengthening  of  provisions  for  crisis 
prevention  and  response  in  the  gas  field  and  in  particular,  the  revision  of  Directive 
2004/67/EC on measures concerning the security of gas supply. 

The  basic  idea  in  the  Directive,  as  in  the  earlier  and  subsequent  internal  gas  market 
Directives, is that the internal gas market should be well-functioning and flexible enough, 
with sufficient infrastructure, to mitigate most gas supply disruptions. At the same time, 
for  disruptions  which  turn  out  to  be  beyond  the  capacity  of  the  market  to  mitigate,  the 
2004  Directive  establishes  a  framework,  compatible  with  the  internal  market,  for 
emergency  measures.  This  joint  focus  on  the  functioning  of  the  market  and  emergency 
measures if needed is a fundamental structure in gas security of supply policy in Europe.  

In  recent  years,  much  has  changed  as  regards  Europe's  security  of  gas  supply. 
Dependence  on  imports  is  increasing  and  at  the  same  time,  supply  and  transit  risks  are 
growing.  The  Russian-Ukrainian  gas  crisis  in  January  2009  brought  an  unprecedented 
disruption  of  gas  supplies  to  Europe,  far  greater  than  any  earlier  disruptions.  30%  of 
Europe's imports were cut off for two weeks. This is now a realistic gas supply disruption 
scenario.  The  situation  within  Europe  has  also  been  changing.  With  the  growing 
importance of long-distance network flows of gas and the development of the internal gas 
market, gas supply crises are quickly felt across large parts of Europe and by the same 
token,  the  internal  gas  market  is  offering  an  increasingly  powerful  means  of  mitigating 
gas  supply  disruptions.  The  increasingly  important  European  dimension  requires  an 
adequate regulatory framework for security of supply at EU level. 

There  are  two  main  issues.  One  is  whether  flexibility  in  the  internal  gas  market  is 
developing sufficiently to mitigate gas supply disruptions such as that of January 2009. 
Are updated standards or some other incentive needed? The second is the effectiveness of 
emergency  arrangements  as  currently  implemented  at  national,  regional  and  EU  levels, 
their  impact  on  capacity  of  the  internal  gas  market  to  mitigate  disruptions  and  on 
solidarity. Is a better organization needed?  

The  January  2009  gas  crisis  provided  a  practical  demonstration  of  the  European 
dimension  of  today's  gas  supply  disruptions  and  of  the  response.  By  the  time  Russian 
supplies  via  Ukraine  reached  Europe  again,  action  within  Europe  had  largely 
compensated  for  the  supply  gaps.  At  the  same  time,  the  crisis  demonstrated  that 
investments  in  infrastructures  across  Europe  to  prevent  disruptions  becoming  crises  are 

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3 

COM(2008)  781,  "2nd  Strategic  Energy  Review:  An  EU  Energy  Security  and  Solidarity  Action 
Plan". 
EP Resolution of 2 February 2009 on the 2nd Strategic Energy Review (2008/2239(INI)); Energy 
Council  Conclusions,  19  February  2009  (6692/09);  Presidency  Conclusions,  European  Council, 
19 March 2009. 
See report of public consultation, Annex 5. 

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still  needed  (e.g.  storage,  reverse  flows,  some  new  interconnectors)  and  that  further 
market integration would improve security of supply. The question of the compatibility 
with the internal market of emergency measures of Member States has arisen. The crisis 
thus supports the two issues identified.  

In  addition  to  risks  of  underinvestment  in  infrastructure  and  supplies  intended  to  be 
available  for  mitigating  disruptions,  preventing  crises,  there  seems  also  to  be  a 
regulatory/implementation  failure.  The  notions  used  in  the  2004  Directive  to  specify 
security of supply standards and planning for emergencies are not sufficiently precise and 
effective in today's context. Moreover, implementation has been uneven across the EU, 
as  demonstrated  in  the  Commission's  report  on  the  implementation  of  Directive 
2004/67/EC4.  

The ultimate sufferer from inefficient gas security of supply arrangements in Europe are 
European  citizens  (dependent  on  gas  for  cooking  and  heat,  directly  or  via  district 
heating;  many  dependent  on  gas-fired  electricity  generation)  and  industry  (e.g.  power 
sector,  chemicals,  fertilizers).  While  costs  for  security  of  supply  will  normally  be 
reflected in tariffs, impacts of disruptions are likely to be much greater. Substantial job 
losses could be a result of continuation of inadequate gas security of supply arrangements 
in  Europe.  There  could  also  be  a  substantial  impact  on  the  environment,  climate  and 
sustainable development. With insecure gas supplies, the issue of back-up fuels, often 
more  carbon-intensive  comes  to  the  fore.  Doubts  about  security  of  supply  could 
undermine  the  contribution  expected  of  gas  in  the  transition  to  a  high-efficiency,  low-
carbon energy system, notably in the period before renewables are competitive.  

2. 

ANALYSIS OF SUBSIDIARITY 

The  inclusion  of  security  of  energy  supply  in  the  Lisbon  Treaty  energy  article  and  the 
endorsement of the 2nd Strategic Energy Review point to an EU role, consistent with the 
growing reality of the internal energy market.  

The adoption of the 3rd internal energy market package will strengthen the market. In a 
situation  in  which  national  markets  are  being  integrated,  it  will  not  be  possible  to 
consider security of supply primarily as a national concern. Consequently the legal basis 
of the related EU legislation should no longer be disconnected from the internal market 
rules of the EU  Treaty.  Any  proposal  should –  consistently with the legal basis for  the 
internal energy market of which it is arguably an extension – be based on Article 95. This 
is  the  legal  basis  of  a  similar  instrument  adopted  in  2005  in  the  field  of  electricity 
(Directive 2005/89/EC). 

No single Member State, acting on its own, can assure sufficient regulatory framework 
and investments in the internal market for security of gas supply. Only EU-wide action 
can  do  this.  No  single  Member  State,  acting  on  its  own,  can  ensure  that  all  Member 
States  have  effective  provisions  in  place  to  handle  gas  supply  emergencies.  Moreover, 
individual non-coordinated actions by Member States might hamper further development 
of  the  internal  market;  lead  to  discriminatory  treatment  and  might  even  put  security  of 
supply in other Member States at risk. 

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November 2008 evaluation report on the implementation of Directive 2004/67/EC. 

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3. 

OBJECTIVES  OF  THE  EU  INITIATIVE  :  WHAT  ARE  THE  MAIN  POLICY 
OBJECTIVES?  

The general policy objective is to secure an adequate level of preparedness in Europe 
for gas supply disruptions. The weaknesses made evident in the 2009 gas crisis must be 
tackled quickly, before any further crisis.  

This  initiative  is  complementary  to  the  3rd  internal  market  package  which  enhances 
market transparency; facilitates cross-border trade and investment and enables increased 
solidarity among the EU countries.  

Reflecting the two issues identified, the specific/operational objectives are: 

(i) 

(ii) 

Achievement of sufficient flexibility in the internal gas market to mitigate most 
gas supply disruptions, by establishing the necessary incentives for investments 
in infrastructures and gas and the well-functioning of the market.  

Effective  cooperation  in  dealing  with  gas  supply  emergencies  in  Europe,  with 
pre-defined  emergency  plans  involving  all  players,  at  Member  State  and  EU 
levels, geared to supply disruptions of the size and scope experienced in January 
2009.  

4. 

POLICY OPTIONS: WHICH OPTIONS HAVE BEEN CONSIDERED AND WHICH HAVE 
BEEN ASSESSED IN DETAIL?  

Five options have been identified: 

1. No new EU action 

2. Better enforcement of the 2004 Directive 

3. Voluntary approach by industry 

4. A new directive 

5. A new regulation 

The baseline scenario – no new EU action - may well partially deliver the objectives over 
the next years, through the 3rd internal energy market package, the European Economic 
Recovery  Plan,  the  revision  Council  Regulation  (EC)  No  736/96  on  notification  of 
investment projects in the gas, electricity and petroleum sector, the TEN-E programme, 
the  existing  2004  gas  security  of  supply  Directive  and  cooperation  on  emergency 
planning following the January gas crisis, In terms of timing, as the 3rd package will not 
be fully operational until 2011 and a new gas supply disruption could happen at any time, 
cooperation on network development planning has been started in advance. Nevertheless, 
there is arguably need for clear guidance and support at EU level, such as agreement on a 
security  of  supply  standard  for  infrastructures  could  provide,  to  enable  regulators  and 
Transmission  System  Operators  to  tackle,  at  Member  State,  regional  and  EU  level,  the 
difficult questions of which additional investments make most sense, who should pay for 
them.. The current security of supply standards in the 2004 Directive are too imprecise.  

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As  regards  option  2,  the  Commission's  report  on  the  implementation  of  the  2004 
Directive  demonstrated  very  heterogeneous  results  and  uneven  implementation.  With 
such imprecise standards and unclear obligations, strict enforcement is impossible, which 
is  why  the  option  2  "Better  enforcement  of  2004  Directive"  has  not  been  analysed 
further.  

A  voluntary  approach  by  some  stakeholders  involved  to  some  aspects  of  security  of 
supply  inadequately  covered  by  the  Directive  could  be  imagined  and  some  initiatives 
have  already  been  taken.  A  disadvantage  of  a  voluntary  approach  is  that  reliance  on 
market  forces  to  deliver  security  of  gas  supply  has  limits.  Provisions  for  emergencies 
cannot be left to the market. A further disadvantage is that participation of all participants 
cannot be guaranteed. Many aspects of security of supply rely on a collective effort. Any 
work  of  industry  on  developing  standards  would  need  to  be  followed  through  into  a 
binding instrument. On these grounds, option 3 has not been analysed further.  

The  two  policy  options  (4  and  5)  will  introduce  new  elements:  clear  standards  for 
security  of  supply  and  confidence  that  they  will  be  met;  clear  definition  of  emergency 
plans at Member State and EU level. These two policy options as well as "No new EU 
action" have been assessed in details in sections 5 and 6.  

5. 

ASSESSMENT OF IMPACTS: WHAT ARE THE MAIN ECONOMIC, ENVIRONMENTAL 
AND  SOCIAL  IMPACTS  OF  EACH  OPTION  PARTICULARLY  IN  TERMS  OF 
(QUANTIFIED/MONETISED)  BENEFITS  AND  COSTS  (INCLUDING  ESTIMATES  ON 
AND 
COMPLIANCE 
OTHER 
ADMINISTRATIVE 
IMPLEMENTATION COSTS FOR PUBLIC ADMINISTRATIONS)?  

BURDEN), 

COSTS 

The  economic  impacts  of  both  short  listed  Policy  Options  would  be  dominated  by  the 
investment costs and the resultant benefits of the implementation of the n-1 standard and 
subsequent  Preventive  Action  Plans.  The  preliminary  calculations  of  n-1  can  give  an 
appreciation of the improvements in infrastructures and supplies which may be necessary 
across  Europe  to  reduce  the  risk  of  unmanageable  gas  supply  disruptions.  Eligible 
projects under the European Economic Recovery Plan, except reverse flow projects (for 
data reasons), have been included in the following chart:  

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PRELIMINARY CALCULATION OF N-1 FOR MEMBER STATES: 

300%

250%

200%

N-1

150%

100%

50%

0%

DK GR DE BE SK AT PL NL LV CZ EE ES IT HU FR UK RO SE LU PT BG SI

LT IE FI EU

Normal

EERP

The  major  infrastructure  –  "1"  in  "n-1"  -  is  the  main  import  pipeline  in  most  Member 
States.  For  UK,  Netherlands  and  Denmark  it  is  the  main  production  facility.  For  Spain 
and Portugal it is the main LNG terminal. In many of the importing countries, storage is 
important but  the  usually the  main import pipeline has a higher capacity than the  main 
storage facility.  

Based on this preliminary calculation, nine Member States do not meet the proposed n-1 
standard. These Member States are in a variety of situations, and can bring a variety of 
security  of  supply  measures  to  bear.  A  good  idea  of  necessary  infrastructure 
developments can be developed. Many if not most of the necessary infrastructure projects 
are  in  the  list  of  eligible  projects  in  the  European  Economic  Recovery  Plan.  The  total 
European  Economic  Recovery  Plan  support  for  gas  infrastructure  projects  is  1440 m € 
over  2  years,  a  maximum  of  50%  of  the  eligible  project  costs.  Thus,  as  an  order  of 
magnitude,  the  n-1  standard  applied  Europe  wide,  could  imply  an  investment  cost  of  a 
few  b €.  However,  if  the  projects  are  alre ady  launched  under  the  European  Economic 
Recovery  Plan,  the  extra  investment  costs  from  the  application  of  the  n-1  standard 
Europe-wide would be smaller.  

There  would  be  a  positive  interaction  with  the  internal  market  through  strengthening 
incentives  for  investment,  creating  a  level  playing  field  in  terms  of  security  of  supply 
obligations,  and  clearly  delimiting  emergency  situations 
in  which  non-market 
instruments could be brought into play. The infrastructure improvements, such as more 

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flexible  interconnections,  should  improve  trade  possibilities,  liquidity  and  price 
formation in the internal market as well as security of supply.  

The  administrative  costs  for  businesses  and  for  public  authorities  of  both  short-listed 
Policy Options would be marginal compared to investment and other costs.  

As regards jobs, the substantial use of gas in industry suggests that job losses are possible 
as a direct result of any lack of confidence in supplies. Some 25% of gas consumption in 
the EU is in industry (fertilizers, other chemicals etc.).  

As  regards  the  environment,  inadequate  provisions  for  security  of  gas  supply  will 
encourage ad hoc recourse to substitute fuels. In power generation, in the period before 
renewables  are  competitive  and  the  necessary  grid  developments  have  been  put  into 
place, and before Carbon Capture and Sequestration is commercially available, this could 
mean  more  investment  in  coal-fired  generation  and  the  lock-in  of  high  CO2  emissions 
technologies.  

6. 

COMPARISON OF OPTIONS: WHAT IS THE PREFERRED OPTION ON THE BASIS OF 
WHICH CRITERIA/ JUSTIFICATION?  

The impacts of the baseline option and two short-listed Policy Options can be compared 
as follows:  

Effectiveness in 
achieving objectives 
May partially deliver, 
through the 3rd IEM 
package, the European 
Economic Recovery 
Plan, TEN-E, 
awareness of the need 
for effective 
cooperation on crises. 
However, timing issue, 
as 3rd package not be 
fully operational until 
2011. Also, absence of 
clear security of supply 
standard for 
infrastructure could 
make work of TSOs 
and regulators on 
network development 
more difficult. 
Yes 

Policy 
Option 
No new 
EU policy 

Revision 
of 
Directive  

Efficiency 

Coherence 

Not relevant 

Implementation of 3rd 
package likely to need 
support, notably 
assessments of 
potential gas supply 
disruptions at EU 
level and practical 
guidance to 
regulators; current 
security of supply 
standards in the 2004 
Directive too 
imprecise. 

Would imply well-
focused, limited 
investment costs; also 
provisions by market 
participants, similarly 
well-focused and on a 

Would have a positive effect 
on the development and 
functioning of the internal 
energy market; positive effect 
on the environment, notably 
by reducing unplanned 

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New 
Regulation  

Yes 

recourse to higher-emissions 
substitute fuels; positive 
effect on competitiveness and 
jobs in gas-using industry, 
and on households.  

If it can be achieved, it would 
constitute a more direct 
engagement of public 
authorities and market 
participants in security of gas 
supply in an EU perspective, 
with systems in place earlier. 
The costs would not be very 
different from those implied 
in the revision of the 
Directive  

level playing field; 
would diminish 
disincentives to 
investment in security 
of supply by market 
participants, thus 
relieving the burden 
on the public and 
public authorities; 
would imply 
administrative burden 
on public authorities 
as regards emergency 
provisions  
Compared to a 
revision of the 
Directive, would have 
the advantage of being 
operational more 
quickly; a major gas 
supply disruption 
could happen 
anytime; also a more 
direct impact on 
provisions and 
investments by market 
participants; would be 
more effective in 
achieving clear 
arrangements for 
cooperation around 
emergencies with 
clear obligation to 
cooperate; comparable 
administrative burden 
on public authorities 
as regards emergency 
provisions;  

Both short-listed Policy Options would have similar economic, social and environmental 
impacts compared to the no new EU policy option. The major difference between them 
concerns  the  speed  and  effectiveness  of  their  implementation.  Arguably  the  Regulation 
option  is  more  likely  to  be  effective  (clearly  attributing  responsibilities  to  market 
participants),  fair  (a  level  playing  field  in  terms  of  security  of  supply  obligations)  and 
could be in place and in effect more quickly.  

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7. 

7.  MONITORING  AND  EVALUATION:  WHAT  ARE  THE  ARRANGEMENTS  TO 
ESTABLISH THE ACTUAL COSTS AND BENEFITS AND THE ACHIEVEMENT OF THE 
DESIRED EFFECTS? 

A reporting and monitoring system is in place for the internal energy market. In addition, 
the role of the Gas Coordination Group could be expanded to include regular monitoring 
and  assessment,  drawing  from  the  envisaged  reviews  of  risk  assessments  by  Member 
States. EU-level analyses should support evaluations of security of supply risks. 

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