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Brussels Energy Brief - January 2007

January 2007

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KEY DEVELOPMENTS

German Presidency of the European Council Puts Energy as a Priority

Frank Schoneveld

At a briefing in December, Germany's Permanent Representative to the European Union described energy as a "difficult issue" for Germany's Presidency of the European Council in the first half of 2007. He suggested that issues and proposals on energy efficiency, bio energy and innovation were likely to be more readily acceptable than those touching on energy solidarity, the national energy mix and national energy champions.

Commission Accepts Twelve National Allocation Plans for 2008-2012 Emissions Trading Period

Elena Kostadinova and James Arneill

The European Commission has accepted the National Allocation Plans (NAPs) of Belgium, Germany, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Sweden, the Netherlands and the UK for the 2008-2012 trading period on condition that certain changes are made. These include a reduction in the total number of emission allowances (one allowance corresponds to one tonne of CO₂) by almost seven per cent below the emission levels proposed by the Member States and seven per cent below the 2005 levels. Another condition is that they eliminate the possibility of changing the number of allowances in total or per installation in the NAP after its final adoption. The NAPs determine for each Member State the “cap” on the total amount of CO₂ that installations covered by the EU Emissions Trading Scheme can emit, and set out how many CO₂ emission allowances each plant will receive. The Commission reviewed the NAPs against 12 allocation criteria listed in the Emissions Trading Directive.

Commission to Take Action Over Missing National Allocation Plans

James Arneill

The European Commission has announced that it will send final written warnings to Austria, Denmark, Hungary and Italy, specifying that they will face court action unless they rapidly submit their national allocation plans (NAPs) for the second trading period of the EU Emissions Trading Scheme from 2008 to 2012. The NAPs had been due by 30 June 2006. A first written warning was issued by the Commission in October. The Commission is also taking infringement action against seven Member States for failing to provide complete reports on their progress in limiting or cutting greenhouses gas emissions, as required by a 2004 Commission Decision on monitoring emissions which implements the Kyoto Protocol.

Commission Proposes to Include Air Transport in EU Emissions Trading Scheme

Elena Kostadinova

The European Commission has proposed an amendment to the Emissions Trading Scheme (ETS) Directive in order to include aviation. The scheme will cover both EU and foreign-based airlines operating flights between EU airports, and will start in 2011. As of 2012 the EU ETS should also cover emissions from all international flights to or from an EU airport. Whereas national caps for industrial emissions are fixed in national allocation plans, the cap on aviation emission allowances for the next three trading periods, ie, until the end of 2022, will be set at EU level. The allocation of allowances among aircraft operators will also be decided at EU level on the basis of each airline’s share of overall passenger and cargo traffic on the ETS covered routes. Each airline will calculate its annual emissions on the basis of its fuel consumption multiplied by a standard emission factor. Failure to surrender sufficient allowances in a given year will result in a financial penalty of EUR 100 for every tonne of CO₂ not covered, and could also result in suspension of the airline’s licence. The Commission expects that this amendment will produce a significant positive environmental impact and only a limited increase in prices for air transport services.

Kazakhstanand EU Sign Memorandum of Understanding Establishing Framework for Energy Relations

Patrice Corbiau

During the visit to the European Commission of Kazakh President Noursoultan Nazarbaev, the EU and the Republic of Kazakhstan have signed a Memorandum of Understanding (MoU) that establishes a framework for enhanced energy security and industrial cooperation. Kazakhstan is one of the most important energy players in the Caspian region, with oil reserves estimated at nine billion barrels and natural gas reserves estimated at almost two trillion cubic metres. Kazakhstan also holds approximately 20 per cent of the world’s known reserves of uranium.

The MoU concerns in particular the regular exchange of information on respective energy polices, cooperation on energy transportation infrastructure and the development of environmentally clean technologies. Similar MoUs have already been signed between the EU and other countries such as Azerbaijan and Ukraine. A MoU with Algeria is currently at an advanced stage of negotiation.

Commission Pursues Member States for Failure to Liberalise Energy Market

Andrea Hamilton

The European Commission has taken the second step in infringement proceedings against 16 Member States for failing to open their national energy markets, as required by EU law. According to the 2003 Directives on the opening of gas and electricity markets, Member States must liberalise their energy markets in order to establish an internal EU-wide market. The Commission sent initial warnings to the 16 Member States in April 2006, alleging that they had not transposed the 2003 Directives into national legislation. After reviewing each Member State’s response to the initial warning, the Commission concluded that the Member States still had not taken sufficient action to implement the 2003 Directives. As a result, the Commission sent reasoned opinions to the targeted Member States, commencing the second step of the infringement proceedings. These Member States have two months to respond to the reasoned opinions, and they may ultimately face court action.

Commission Inspections in the German Electricity Sector

Geert Dierickx and Elena Kostadinova

European Commission officials accompanied by their German counterparts have carried out unannounced inspections (“dawn raids”) at the premises of some electricity companies in Germany. The Commission said there were reasons to believe these companies may have kept electricity prices artificially high, for example by lowering the output of certain power plants. The companies are also suspected of trying to freeze out new rivals by delaying the construction of new transmission infrastructure. According to the Commission, the inspections were not carried out as part of the energy sector competition inquiry. These unannounced inspections follow a series of similar dawn raids on energy companies in Austria, Belgium, France, Germany and Italy in May 2006.

Gasoline Distribution – Agents and Independent Resellers

Philip Bentley QC

The Spanish Association of Petrol (Gasoline) Service Stations complained to the Spanish Competition Authority that the petrol company CEPSA’s standard agency contract restricted competition by fixing the price at which service stations had to sell to third parties. The Spanish Competition Tribunal rejected the complaint on the grounds that the service stations were commission agents of CEPSA, not independent traders. Upon reference to the European Court of Justice, it was ruled that when service stations undertake non-negligible financial and commercial risks related to the sale of gasoline, the gasoline supplier cannot impose the price of sale to third parties. In the contrary case, the gasoline supplier can determine such price, but the contract could still infringe the competition rules to the extent that exclusivity and non-competition clauses had the effect of “locking up” the market. The case illustrates how competition rules must be reckoned with in all forms of distribution, whether based on agents or independent resellers.

EU Takes Action to Prevent Disruption of Russian Oil Deliveries

Andrea Hamilton

The European Commission and EU Presidency have taken joint action to address a recent disruption in crude oil deliveries that arose from a dispute between Russia and Belarus. Russia temporarily stopped supplying crude oil to Belarus through the Druzhba pipeline, which also serves EU customers further west. First, the Commission and Presidency sent a letter to Russia and Belarus, advising both countries of the need to be reliable in their crude oil deliveries and cautioning them to avoid taking unilateral action that would affect EU consumers. In parallel with this letter, the EU convened the Member State delegates of the Oil Supply Group to review the status of the dispute between Russia and Belarus, coordinate Member State responses, and evaluate the levels of strategic stocks. These latest events confirm the need for a coherent EU energy policy to facilitate common EU action and strengthen the security of EU supplies.