EU ENERGY CORE SCRIPT
The Energy Policy for Europe
In Spring 2007, European leaders reached a historic agreement for the first time to create a common European energy policy. The resulting Energy Policy for Europe sets out the EU's vision for Energy in the period to 2020 and is based on three fundamental 'pillars':
- Sustainability - to ensure that the EU addresses climate change by reducing its emissions to a level that would limit global temperature increases to 2°C above pre-industrial levels. The EU will do this by committing to a 20% reduction in greenhouse gas emissions; a 20% improvement in energy efficiency; and deployment of 20% of energy generation from renewable sources, all by 2020. These are known as the 20:20:20 targets
- Security of Supply - to minimise the EU's vulnerability concerning imports, shortfalls in supply, possible energy crises and uncertainty on future supply. The EU will do this by introducing measures which ensure solidarity between member states, the diversification of supply sources and transportation routes, and improved security of oil stocks, gas supply and electricity generation.
- Competitiveness - to ensure the effective implementation of the internal energy market. The EU will do this by introducing reforms to ensure clearer separation of gas and electricity transmission from production and supply, thereby creating a more competitive market and by harmonising the competencies of national energy market regulators and ensuring their collaboration.
The 3 packages
The EU has driven forward each of these 3 pillars by proposing separate packages of legislative and regulatory reform on:
The Third Package on the Internal Market
In this third package of legislative proposals for Europe's electricity and gas markets, the Commission proposed measures which aim to benefit every single EU citizen by giving consumers greater choice, fairer prices, cleaner energy and security of supply.
In order to reach those goals, the Commission proposed:
- to separate production and supply from transmission networks
- to facilitate cross-border trade in energy
- more effective national regulators
- to promote cross-border collaboration and investment
- greater market transparency on network operation and supply
- increased solidarity among the EU countries
The implications of the package for Scotland are particularly important as the original proposals could have changed the way in which electricity is generated, transmitted and distributed in Scotland. Under the current system, Scotland's electricity grid is owned by Scottish Power and Scottish & Southern Energy in their respective operating areas. However, it is managed on their behalf by National Grid, the independent system operator. Under the Commission's original proposals, because of a technicality, it looked likely that Scottish Power and Scottish & Southern Energy would have been forced to divest of their transmission assets as part of the objective to separate production and supply from transmission networks. This was in spite of the fact that an independent system operator was recognised by the Commission's proposal.
Following significant lobbying by the companies, by the Scottish Government, the UK Government and Scottish MEPs, a compromise agreement was reached in the Council during June 2008 which recognised that where arrangements were already in place to separate transmission ownership from transmission network operation, such as in Scotland, that these arrangements could continue. This is a significant success for Scotland and shows the value of our approach to collaborative working with Scottish companies and the UK Government. The final detail of the package is expected to be agreed in December 2008
The Climate & Energy Package
The European Commission announced its wide ranging and ambitious Climate and Energy package on 23 January 2008. Since then work on securing agreement between The European Council of Ministers and the European Parliament has dominated the policy platform in Brussels, with the French Presidency pressing for political agreement on the package in December. The package aims to deliver on the EU's commitment to reduce CO2 emissions by 20% relative to 1990 levels as well as furthering the wider sustainable energy agenda. It comprises:
- A directive on Renewable Energy (which will establish national renewables targets for each Member State);
- A directive on Carbon Capture and Storage (CCS);
- A communication on the development of 12 CCS demonstrators within the EU;
- Effort Sharing amongst Member States of Green House Gas (GHG) reduction targets; and
- A review of the EU Emissions Trading Scheme (ETS).
In spite of the global financial turmoil both French President Nicholas Sarkozy and European Commission President Jose Manuel Barroso have insisted that tackling climate change and creating the conditions for a sustainable and secure EU energy sector remain at the top of the EU's agenda. Throughout the negotiation process between Council and the European Parliament the Scottish Government has been active in ensuring that Scottish interests are understood and as far as possible reflected in the package.
So, what are the challenges and opportunities that the package presents to Scotland?
The challenge is considerable. Scotland will have a major role to play in helping the UK meet its emission reduction and renewables targets and key to this will be creating the right conditions to ensure that the public and private sectors can work together to deliver.
But the opportunities for Scotland are also potentially huge. Energy is a key component of the Scottish Government's Economic Strategy which aims to match UK GDP growth by 2011. The 2020 package offers major opportunities both to create jobs in Scotland and also develop further Scotland's status as an international centre of excellence.
Renewable energy:
Scotland is extremely well placed to develop further as a major energy producer from renewable sources, in particular electricity, given that it has some of the world's most favourable natural conditions and intellectual centres for developing new technologies, of which Scotland is already an exporter. Scotland is already well on its way to achieving its own targets (for electricity generation from renewables) of 31% by 2011 and 50% by 2020. Onshore wind electricity generation is well developed and offshore wind technology and installations continue to move forward with the recent announcement by the Crown Estate on the opening of the Pentland Firth for further research and development into wave and tidal technologies. The oil and gas industry also has a lot of expertise to offer the renewables sector given its knowledge of developing offshore oil installations and many companies in the North East are turning their attentions to this issue.
Besides the big operations centred on electricity, a great deal of work is also taking place on other methods of using renewable energy. Bio technologies are important for obligations in the transport sector (10% from renewables as proposed in the directive) and heating and cooling is also an area of activity.
Carbon Capture and Storage
The North Sea offers huge potential as a carbon sink. There is still debate in some sectors over the safety and the status of CCS as a key component to reduce GHG emissions, but it is widely acknowledged in the political, industrial and scientific communities that it does present significant opportunities in the overall fight against climate change and the drive to develop low carbon economies. The Commission proposals in this area are therefore of particular interest to Scotland, both in setting the legal framework within which this technology can be developed and deployed, and in the hope of seeing demonstration operations that will go some way to answering the questions that are outstanding. It is hoped that Scotland can secure one of these demonstration operations and work is being taken forward on this in partnership with others through the Scottish European Green Energy Centre.
Effort Sharing of GHG Emissions Reductions
These will also place obligations on Scotland across industry sectors as the proposals cover transport, buildings, services, smaller industrial installations, agriculture and waste. Progress on achieving Scotland's contribution to the UK's effort will involve a number of policies across Government and the continued co-operation between the public and private sector but the impetus is there and increasing. These proposals are complex and so far negotiations in the Council and the European Parliament have been difficult.
EU ETS Review
As the EU ETS increases in significance as the key mechanism for the trading of GHG emissions allowances, so will it become more significant to Scotland. There are some difficult issues in the proposals that demand a balance between the Climate and Energy package and industrial competitiveness interests. Nonetheless, it will affect cross sector operations with all main emitters included and new sectors added, with the power sector facing full auctioning as soon as 2013. The Scottish Government supports the Commissions proposals in this area and sees them as a positive move that Scotland will embrace.
The 2nd Strategic Energy Review Package
The 2nd Strategic Energy Review sets out a comprehensive package of proposals to enable the EU to meet its security of supply objectives, alongside the sustainability objectives being addressed by the Climate & Energy package and the competitiveness objective being addressed in the liberalisation package. Specifically, the Communication proposes:
1) The adoption of a new EU Energy Security and Solidarity Action Plan;
2) The promotion of new infrastructure to ensure EU energy security, in particular:
- a Blueprint for a North Sea Offshore Grid to interconnect national electricity grids in northwest Europe and planned offshore renewables projects;
- a future European Supergrid of which the North Sea Grid would form a key building block;
- funding of these by the creation of a new EU Energy Security and Infrastructure Instrument to replace the TEN-E instrument;
3) The essential role of Norway in ensuring EU security of supply, not just for gas but in development of offshore wind in the North Sea;
4) Improved reporting on oil and gas stocks;
5) A new Energy Efficiency Package to speed progress towards the 20% target
6) A communication on Overcoming Barriers to Renewable Energy in the EU, focusing on practical issues such as grid constraints that could hamper the 2020 target;
7) The creation of an EU Energy Fund, supported by the European Investment Bank, to mobilise large-scale funding from capital markets to invest in new low carbon technologies;
8) Additional measures to make 12 EU CCS demonstration plants a reality, including Community-level funding;
9) Preparation of a Roadmap for a 2050 Energy Policy for Europe
The Strategic Energy Review is of particular interest to Scotland because of the proposals that it contains on the development of a North Sea Offshore Grid, of the emphasis it places on developing links with Norway, and on the additional measures it proposes for carbon capture & storage, which are all priorities for the Scottish Government in the Energy section of its EU Action Plan. The First Minister has committed Scotland to working with partners across the North Sea and with the European Commission to deliver on the North Sea Grid priority through our proposed feasibility study on a North Sea Grid. We will also work closely with partners in Norway through the Scottish European Green Energy Centre on the development of marine offshore renewables and on CCS. The Scottish European Green Energy Centre will work with the Scottish Centre for Carbon Storage to create a research partnership investigating demonstration of a CO2 transport and storage network for the North Sea, linking the demonstrator projects that the Commission outlines its support for in the Strategic Energy Review.
Conclusion
The EU's Energy Policy for Europe presents Scotland with major opportunities. The commitments made by EU leaders and by the EU institutions have now set out concrete proposals for renewable energy, carbon capture and storage, and the development of new grid infrastructures where Scotland has significant potential to play a leading role in delivery. When taken together, the proposals set out in the package on CCS, the development of offshore renewable energy, the construction of a North Sea Offshore Grid, and with the considerable remaining reserves of North Sea oil and gas, show that Scotland is ideally placed to play a central role in ensuring the security of Europe's energy supplies in future
If the EU continues to show leadership to make sure that the right technologies are developed and deployed to allow Scotland to harness her huge natural resource base, then the benefits could be considerable. These would range from enhanced economic growth, greater energy security and intellectual ownership, a cleaner environment and the enhancement of Scotland's status as an international centre of excellence in the field of renewables technology. It is in Scotland's interests that Heads of EU Member States reach an agreement on the 3 pillars of the European Energy Policy in December in Brussels.