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Empowering Europe

European Policy Centre

Date: 11/03/2007

EU leaders were in triumphant mood after clinching an agreement on energy policy at the Spring European Council. Much remains to be defined and negotiated, but a direction has been given; a ‘critical mass’ of policy goals outlined and agreed.

There was a real air of achievement around the table at the end of the Spring European Council after the EU’s 27 leaders succeeding in clinching a deal on energy policy which many had thought might elude them.

Much remains to be defined and also negotiated with the Member States - and this not going to be an easy task - but a direction has been given; a ‘critical mass’ of policy goals outlined and agreed upon.

The German Presidency and the European Commission have worked well together to achieve these political results after a somewhat confusing start.

First, the issue of CO2 emissions in the car industry divided both the German government (the Finance and Environment Ministers) and the Commission itself (Commissioners Verheugen and Dimas). Then, the issue of “unbundling” energy infrastructure and supply networks pitted Germany against the Commission.

However, Berlin and Brussels showed a high degree of cooperation and mutual support in pushing for the innovative and ambitious agenda that was eventually accepted by the Member States at the 8-9 March EU summit.

This bodes well for the future, and may be considered a good omen for the difficult negotiations which lie ahead on the reform of EU institutions - although it remains to be seen whether this marks the beginning of what Commission President José Manuel Barroso called a “virtuous circle” for Europe.

The players

The European Council was also the first ‘at 27’, following the accession of Bulgaria and Romania on 1 January 2007. The scenes shown on television screens as Heads of State and Government arrived for the meeting reinforced the impression of an ever more crowded club in which it is increasingly hard to spot well-known faces and familiar characters.

Yet this may not necessarily be a bad thing, especially if it makes European summits less of a display of recurrent fights and reconciliations between the usual suspects: a more ‘collective’ EU would suffer less from the mutual idiosyncrasies and hunger for the limelight of some top leaders (old and new) and therefore project a more ‘compact’ image to its own citizens and the wider world.

It was also almost certainly French President Jacques Chirac’s last European Council, although he will attend the solemn celebrations of the EU’s 50th anniversary in Berlin on 24-25 March. After 12 years on Europe’s centre stage - only Luxembourg Prime Minister Jean-Claude Juncker is more senior - the 75-year-old French leader was welcomed particularly warmly by fellow participants on his arrival, in clear anticipation of his likely departure.

Yet he looked more subdued than usual at the summit, although he apparently made a long intervention during the dinner discussion on the forthcoming Berlin Declaration to underline the “relevance” of the European project in an increasingly globalised world.

British Prime Minister Tony Blair appeared to be in a more upbeat mood, even though he too is expected to leave the European stage soon. Although he is expected to announce his departure from 10 Downing Street sometime in May, he is not likely to hand over the keys until after the June summit.

It was also, of course, the first EU summit for the Bulgarian and Romanian leaders, and for a number of newly-elected or reconfirmed heads of government: Austrian Chancellor Alfred Gusenbauer, Dutch Premier Jan Peter Balkenende - both now heading Grand Coalitions - and the Czech Prime Minister Mirek Topolánek. Italian Prime Minister Romano Prodi was there again, too, after surviving the so-called “Carnival crisis” over Afghanistan.

Finally, it was also the first EU summit for new European Parliament President Hans-Gert Pöttering, who opened proceedings with a presentation followed by a brief discussion.

Merkel’s “Europe-exemple

However, all eyes (and cameras) were on German Chancellor Angela Merkel, of whom much was - and still is - expected.

As mentioned above, the German Presidency’s first steps had not been particularly impressive, in part because some of the issues it had to deal with touched on highly sensitive national interests, in part because of a certain lack of ‘spin’ and clarity in political communications.

Yet much of the credit for the European Council’s positive outcome - President Barroso went so far as to call it “historic” - goes to the Chancellor and her determination to obtain firm commitments from her 26 partners on energy, and to present the EU as a policy driver and innovator on the international stage.

Germany is also currently chairing the G8 and climate change will be very high on the agenda at its annual summit, planned for early June in Heiligendamm. For the Chancellor, therefore, presenting “her” Europe as a potential “vanguard” (as she said) on both emission reductions and new ‘green’ technologies is a double-whammy.

To paraphrase Valery Giscard d’Estaing’s famous 1995 vision of an “Europe-puissance” built alongside (or in contrast to) an “Europe-espace”, one could argue that Ms Merkel’s 2007 vision is based on an “Europe-exemple” upon which to build its internal and international credibility and legitimacy.

The new Energy Policy for Europe (EPE), first launched a year ago but now much better defined and refined, could, if properly implemented,  also prove an acceptable common ground for very diverse interests and priorities within the EU: from those which want more “energy solidarity” among partners (especially Poland and Lithuania) to those which want non-binding criteria and more freedom (the Czech Republic and Slovakia); from those which want to keep, and possibly extend, the recourse to nuclear energy (France and, in a strange alliance, some of the new Member States) to those which do not and are even phasing it out, although with occasional second thoughts (Ireland, Austria, Sweden and Germany itself); from those determined to tackle climate change decisively (with the UK now fully on board) to those already pioneering the development of renewables (the Nordics).

Between Berlin and Lisbon

The Chancellor, who is considered to be more sympathetic to the ‘green’ cause than the average supporter of her CDU party, could also reap significant domestic political dividends from pursuing this agenda.

First, it is popular with the wider German public: the costs of inaction on this front are widely discussed in the country’s media; no major interest group is voicing serious objections; and the only political party which has expressed some reservations on behalf of business, the FDP, is now in opposition.

Secondly, car emissions apart (but only in the short term), the new EPE is not necessarily hostile to industrial interests: during the final summit press conference, both Chancellor Merkel and President Barroso repeatedly underlined the unique business opportunity that developing cleaner technologies sooner rather than later will represent for European companies, hopefully heralding “a new industrial revolution”.

Thirdly, and finally, this is an agenda which is easier to push in a ‘fair weather’ economic cycle - and this is exactly what is happening in Germany now, thanks to a combination of cyclical factors and the effects of the internal restructuring carried out by the industry over the past few years.

This is, incidentally, also an important factor to take into account in the broader evaluation of the results achieved by the Lisbon Agenda to date.

The Presidency Conclusions, in fact, daringly state that “the renewed Lisbon Strategy for Growth and Jobs is beginning to deliver results” as “it is contributing to the favourable economic upturn”, including an expected growth rate of 2.7 % in 2007 and “positive developments on the labour markets, with seven million new jobs created during the 2007/08 period”.

This sounds rather like an excess of ‘spin’, as most analysts underline a) the cyclical character of the upturn; and b) the central role of the German economy in this. The Lisbon ‘scorecards’ for Germany hardly put it top of the list in terms of, for example, labour market reforms.

Still, a more positive economic climate across the continent does provide an opportunity for further economic reform, innovation and competitiveness – and should be used to this end.

The Better Regulation section of the Conclusions is limited to reiterating the three core objectives of simplification, better legislation and reducing the administrative burden arising from EU legislation, especially for small and medium-sized enterprises. EU leaders have set an indicative target of cutting this by 25 % by 2012 - nothing particularly new, in other words, and further evidence that this EU summit was dominated by the EPE, with the Lisbon Agenda relegated to a secondary role.

The targets: 20 x 3 = 2020

But what exactly has been agreed upon by the EU-27? The key decisions of the summit can be summarised as a “triple 20” formula. By 2020, the EU’s Member States have committed themselves to:

1. Reducing greenhouse gas emissions by at least 20 % as compared to 1990.

This target is more ambitious than that adopted by the EU in the framework of the Kyoto Protocol (8 % by 2012). The Presidency Conclusions add that it could even be raised up to 30 % “provided that other developed countries commit themselves to comparable emission reductions, and economically more advanced developing countries to contributing adequately” - a not-too-veiled hint to both the US and to China, India and Brazil, amid fears that they could try to ‘free-ride’ on Europe’s unilateral reduction and, indeed, “example”.

2. A 20 % saving on EU energy consumption compared to projections for 2020.

This target is a follow-up to last year’s Commission Green Paper on energy efficiency, and emphasises the need for a more rational use of energy - especially in private households, as exemplified by the planned switch to energy-saving light bulbs. Some Member States have underlined the difficulty of meeting this target in such energy-intensive sectors as construction and steel.

3. A “binding” target of increasing the share of renewables in the overall EU energy ‘mix’ to 20%.

This target proved the most contentious before and during the summit, with virtually every Member State stressing its own particular situation - in terms of the current energy mix and/or potential for developing renewables (geography, climate and even size) - to argue for a more flexible approach. A secondary but related target is a “binding minimum of 10 %” for biofuels’ share of overall petrol and diesel consumption, again by 2020.

In the end, consensus was reached among the 27 by accommodating a series of different demands.

The controversy over the role of nuclear energy, for instance, was solved – at least for now - by acknowledging its contribution in terms of security of supply and low carbon emissions, but without accepting its inclusion in the broader ‘renewables’ target.

More importantly, on ‘burden-sharing’ issue, the Presidency Conclusions state that “differentiated national overall targets” will be elaborated “with Member States’ full involvement”. Work on the national action plans to be agreed with each and every country will begin in the autumn, starting with the preparation of an overall assessment of the state of play, with a view to revisiting it next spring.

The overall target of 20 % will not, as Barroso has pointed out, apply to every single country but rather to the EU as a whole, inside which huge differences already exist.

This will leave time and room for all sorts of adjustments, compensations and compromises. In other words, decisions on the potentially explosive issue of burden-sharing have been postponed, allowing all 27 Member States to accept a “binding” target that still has to broken down into specific and consensual national plans.

As for the legal instruments that would make the target “binding”, the Conclusions mention the possibility of resorting to “a new comprehensive directive”. In the final summit press conference, however, both President Barroso and Chancellor Merkel were less assertive on this point.

In fact, the only legal basis currently available for EU legislation in this area is the single market, as there is no Community competence for energy policy - and there are limitations on what it can deliver and enforce. Above all, the imperative of reaching a political deal at the summit necessitated some vagueness concerning implementation, including, arguably, the way in which the whole process will be funded.

Still, taken together, the targets and the overall ‘package’ represent a remarkable pledge by the 27. For, as President Barroso underlined at the end of the summit, no country or group of countries has ever made such ambitious commitments.

From carbon for all to low carbon: coming full circle?

Has climate change changed the climate in the EU? It is too early to tell. However, the new centrality of energy policy as a driver of common efforts raises at least a couple of interesting points.

First, it is notable that European integration began with energy: at that time, in 1950, it was all about sharing coal (and steel) in a long-contested region of Western Europe, but this helped to trigger the broader process that resulted in the Treaties of Rome (which, incidentally, included also Euratom). Today, 50 years on, new impetus may come from the shared goal of a low-carbon future. Is Europe - now East and West together - coming full circle in unexpected ways?

Second, energy policy may prove a bridge between Europe’s past and the future in another sense as well: although nobody mentioned it at the summit, the Constitutional Treaty (through Article III-256) would indeed establish a better legal basis for a common energy policy.

It is not unlikely that such considerations lay behind the German insistence on delivering the new EPE right now and right here, as the need to meet those targets may foster greater awareness and understanding of the usefulness of most of the provisions enshrined in the ill-fated Treaty.

Negotiations on what to do about the Constitution will begin shortly. The ambitious agreement on energy reached at the Spring European Council will certainly help improve the climate in which those negotiations will take place, regardless of the many political unknowns and difficulties that still lie ahead. But that - as Raymond Chandler used to say at the end of his novels - is another story.

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