Brussels Energy Brief - November 2006
November 2006
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Please note that due to the closure of the Commission and other European Institutions over the Christmas period, the next Brussels Energy Brief will be published in January 2007.
KEY DEVELOPMENTS
Member States Required to Intensify Efforts to Reach Kyoto Targets
James Arneill
An annual progress report released by the European Commission has revealed that the 15 pre-2004 Member States (the EU-15) may only just reach their Kyoto targets for cutting greenhouse gas emissions, provided that specific further action is taken. The EU-15 are committed to reducing their collective emissions in the 2008 - 2012 period to 8 per cent below the levels of their "base" year (in most cases, 1990). With existing policies, emissions are expected to be just 0.6 per cent below base year levels by 2010. Additional measures already agreed at EU and national levels would take the reduction to 4.6 per cent provided they are fully implemented on time. Ten of the EU-15 plan to obtain emission reduction credits from third country projects, carried out under Kyoto's market-based mechanisms. If realised, these would further reduce emissions to 7.2 per cent below base levels by 2010. With the addition of afforestation and reforestation activities, which create biological "sinks" that absorb CO2 from the atmosphere, total reduction could reach the Kyoto target of 8 per cent. Seven EU-15 States (Austria, Belgium, Denmark, Ireland, Italy, Portugal and Spain) have projected that their emissions will be higher than permitted under the EU "burden-sharing" agreement, which translates the 8 per cent reduction commitment into legally binding individual emission targets.
Worldwide Test Procedures for Measuring Emissions From Buses and Trucks
Elena Kostadinova
A new Global Technical Regulation (GTR) adopted by the United Nations sets new harmonised standards for the exhaust emissions of buses and trucks. It is expected that this new GTR will enable bus and truck manufacturers to develop a single family of engines for all major markets. The GTR also includes improved exhaust emissions measurement technology with the potential for accurately measuring the pollutants from future low emission engines. All major industrialised countries, including China, the EU, Japan and the US have signed the GTR, which will enter into force within eight months.
High Level Group Report on Europe’s Long-Term Energy Future
Maria Scimemi
The High Level Group on Competitiveness, Energy and the Environment has adopted a report on Europe’s long-term energy future. The purpose of this report is to offer advice to policy makers in order to develop close co-ordination between policy and legislative initiatives. To this end, the report includes concrete recommendations on the way in which policy options can be developed to deliver a sustainable, low carbon and competitive energy system for Europe’s future. The report focuses on three main areas: future power generation and energy efficiency, international co-operation and R&D. In particular, the group calls on the Commission and Member States to improve the emissions trading scheme by promoting low carbon and secure energy technologies, to set a long-term reduction of greenhouse gases and CO2 emissions and to take further action to engage major emitters worldwide in the climate change challenge, through co-operation in technology development and deployment.
EIB Reviews Target Areas for Financing
Elena Kostadinova
The European Investment Bank (EIB) has published an energy review paper to define its policy in the energy field, in order to reflect priorities given to energy matters within the EU. The EIB is the European Union's financing institution, which operates like a development bank, making long-term loans for capital investment projects and financing up to 50 per cent of total project costs. In its energy review the EIB focuses its energy operations on five target areas: (i) large projects of highest EU priority, including trans-European networks; (ii) energy efficiency, including investment in combined heat and power; (iii) renewable energies with emphasis on new technologies and less mature renewable markets such as biomass; (iv) research and development, especially within the Innovation 2010 Initiative (i2i); and (v) co-operation on energy outside the EU, in particular energy import routes and projects enhancing energy supply. In 2005 approximately 89 per cent of EIB financing went to projects located within the EU.
EU to Legislate on Car Emissions of CO2
Philip Torbøl
The European Commission is considering new legislation that would force car manufacturers to reduce CO2 emissions. Up until now, the Commission has relied on a voluntary agreement with the car industry to bring emissions from new cars down to 140 milligrams per kilometre (mg/km) by 2008 and 120mg/km by 2012. However, a recent study by the European Federation for Transport and Environment revealed that most car makers would not meet this target. Some of the largest manufacturers have only improved fuel efficiency at less than half the rate necessary to honour the agreement. Although the Commission initiative is only at an early stage, it is expected that a proposal would be based largely on the terms of the existing voluntary agreement.
Investigation of New Swedish CO2 Energy Tax Reductions
Elena Kostadinova
The European Commission has opened a State aid investigation into Swedish plans to grant a full or partial tax exemption on fuel consumption in installations covered by the EU’s Emissions Trading Scheme (ETS). The Swedish scheme aims to eliminate the double burden on businesses arising from (i) payment of the tax and (ii) purchase of ETS allowances. The Energy Tax Directive, however, has set out EU-wide minimum tax rates. Under the Swedish plans, the energy tax would be less than these minimum rates, which in the Commission’s view may distort competition. Furthermore, the Swedish plans could be contrary to the EU “polluter-pays” principle. It should be noted that national tax exemptions may be affected by the Commission’s plans to integrate energy efficiency considerations and environmental aspects in an amendment to the Energy Tax Directive.
Commission Pushes Common Energy Policy
Geert Dierickx
Recent power cuts in Germany, France, Italy and Spain have confirmed the need for a proper European energy policy. As energy security is better delivered through a common European approach, the European Commission is calling for wider powers over energy issues at EU level. The Commission is planning to propose a set of measures in January to reform EU energy policy. The Commission has now made it clear that its proposals would include formalising the current European grouping of Transmission System Operators and drafting standards for network use, including technical rules for using national grids and regulators. In the future, companies investing in energy interconnectors can expect clearer guidelines from the Commission identifying which projects are of clear European interest.
EU and Azerbaijan Sign Energy Accord
Michal Cieplinski
European Commission President Jose Manuel Barroso and Azerbaijan President Ilham Aliyev have signed a memorandum of understanding to establish an energy partnership amid EU efforts to reduce dependence on Russian energy. The new “Strategic Partnership” on energy calls for “gradual convergence with the EU’s internal energy market, aiming ultimately at its integration” as well as “increased transit of oil” and “possible transit of natural gas” from the Caspian Sea basin via Azerbaijan to the EU. Azerbaijan has some seven billion barrels of oil reserves and sits on a key route for potential EU imports of natural gas from Kazakhstan and Uzbekistan. The EU’s current oil imports from Azerbaijan are relatively small. These figures are likely to rise significantly following the inauguration last July of an oil pipeline linking Azerbaijan with the Turkish pipeline system, bypassing Russia.
Commission to Propose Revision of EU Emissions Trading Scheme in 2007
Elena Kostadinova
The European Commission has presented its report on the application of the European Union’s Emissions Trading Scheme (ETS). The report is accompanied by proposals for revision of the scheme, which would require broad stakeholder consultation. A working group including stakeholders should present a report by 30 June 2007, after which the Commission could make new legislative proposals. The focus of the review will be on expanding the scope of the scheme by including new greenhouse gases, such as nitrous oxides, and new sectors. Another objective is the harmonisation of the methods for determining the cap on emissions and for allocation of emission allowances. This review comes in addition to an EU initiative for bringing aviation into the ETS.
Commission Gives Conditional Clearance to GDF-Suez Merger
Yannis Virvilis
After a second phase in-depth investigation, the European Commission has decided to clear the merger between the two energy companies Gaz de France (GDF) and Suez, subject to a number of conditions, including the divestment of entities controlled by the two companies. The initial investigation by the Commission had shown that, mainly due to the high barriers to entry in the sector, the combination of the two entities would significantly impede effective competition on the gas and electricity markets in France and Belgium. However, the commitments presented by the parties were deemed adequate to remove these concerns. Under this commitments package, Suez will divest Distrigaz, a company active in the gas market, and it will relinquish control over Fluxys, a gas network operator. GDF will divest (i) its stake in the joint venture SPE, a Belgian player in the electricity and gas market, and (ii) its subsidiary Cofathec Coriance, which is active in the French district heating market.
Commission Orders Suspension of Payment by Italy to AEM Torino
Mélanie Bruneau
The European Commission has approved under EC Treaty State aid rules a EUR 16 million subsidy to be granted by Italy to AEM Torino, an Italian utility company that produces, distributes and sells electricity and heating. The aid that Italy intends to grant to AEM Torino is intended to compensate for costs incurred in the liberalisation process within the electricity sector. However, AEM Torino has received a significant amount of illegal aid in the past which has not yet been reimbursed. Given the potential distortion of competition, the Commission has ordered Italy to suspend payment of the new aid until AEM Torino reimburses the previous illegal aid. The Commission has recently decided to refer Italy to Court for failure to act on this matter.
MERGER NOTIFICATIONS
End October – November 2006
M.4359 - PETROPLUS / EXXONMOBIL (17 November 2006)
MEETINGS
December 2006
Transport, Telecommunications and Energy Council (11 – 12 December 2006)
