The balance of power
15.09.2008 | Juhan Parts | English news
The Energy and Climate Package would challenge several current principles in the energy market and would also drive member states to reconsider national energy strategies.
The issue of electricity imports from third countries in the context of the planned emission trading system is currently particularly significant in the Baltic region, but is also as topical in all member states of the EU neighbouring with non-EEA countries.
It is vital to find solutions to all concerns of the member states; Estonia sees that the parties can come to an agreement on the way forward. The Commission and also Slovenian and French Presidencies have made impressive efforts to move towards a solution in the process of development of the energy and climate package.
Estonia is especially concerned of potential effects of the energy and climate package on the Baltic power market. At present, Baltic countries have already got extremely strong interconnections, which could supply over 80 % of total need of electricity into Baltic market area.
The importing of electricity produced outside the European Union can significantly influence the electricity industry in the Baltic countries. At the same time, there are only very limited interconnections between the Baltic market and the rest of the European Union electricity market.
Considering the needs for energy security and security of supply, it would be unacceptable to make electricity supply dependent on extensive electricity imports from third countries.
So, how to avoid the EU companies' motivation to transfer their production into third party countries? Estonia strongly believes that unfair competition should be avoided in the internal market of the EU. If from 2013, the European Union electricity producers have to start to buy their entire CO2 quota from auctions but third country producers are not be obliged to do the same, the third countries' power producers would have an unfair competitive advantage. Thus, to prevent market failure and support fair competition in the European Union energy market, electricity import has to be part of the emission trading system.
The first reason for electricity import regulation is to champion the cause of fighting against climate change.
Currently, drafted regulations could lead to a situation where a neighbouring non-EU state creates an unknown amount of greenhouse gas emissions from electricity production that is sold to the internal market. This could also motivate EU companies to transfer their production into third party countries, which would increase carbon leakage.
Market distortions
The second reason for creating a demand for electricity import control is market distortion.
Electricity produced in third countries under lower environmental requirements is likely to be cheaper compared to electricity produced in the internal market. Producers that are obliged to meet environmental requirements and EU climate policy can not compete on equal grounds with those who have no such obligations. It would be unfair to give third country producers with lower environmental and production quality standards an advantage over producers within the internal market.
The third reason for import regulation is the potential danger to national security. Energy issues today have to be considered in accord with security as far as some third countries are using energy supplies again as a measure for political influence. The energy and climate package should not degrade the conditions for investing into electricity production facilities inside the internal market. Estonia would like to see a balance between consumption and production capacity within the internal market of the EU.
Estonia has made a proposal that also the electricity importers would also be required to obtain CO2 allocation from the EU market equal to the amount that would be emitted from a coal plant to produce this electricity. This would create an equal grounding for the same power producers and would remove a major part of the unfair competition.
Currently, there is no common regulation in the EU on how to approach the issues of electricity imports from third countries.
Liberalisation of power markets and emission trading schemes have made it very attractive for the third countries' power producers to enter these markets with their power supplies and have made it difficult for member states to apply any measures against such imports.
Estonia hopes to co-operate in this topic and is looking forward to reaching an agreement on the energy and climate package by the end of the French Presidency.
Estonia is also concerned about state aid and auctioning rules. Potential state aid for using indigenous fuels is limited in the Electricity Directive to 15% of the electricity production of a member state. If, for national security reasons, a member state would be interested in supporting its local power production, then, in some cases, the need for support in the light of the climate package could be even higher.
Revising the principles of limitations to state aid in the Electricity Directive could also solve the issue of free allocations for a power sector for majority of the member states.
There are several concerns also from the member states that any kind of manipulation with auctions should be avoided. As long as not all member states have auctioning rules on the table, it will be extremely difficult to say that these threats are minimised. Therefore, the commission and presidency should draft detailed rules for the auctions that would address all of the issues raised by the different member states.
Source: Public Service Review: European Union, issue 16
