On 19 September 2007, the European Commission announced its third package of legislation on the European energy market. The key provisions of the third package provided for the unbundling of the ownership and operation of transmission networks, improved third-party access to key infrastructure and further cross-border cooperation between Member States. For more information on the third package, please see McDermott On the Subject "A New Momentum for Energy Policy?", dated 20 September 2007.
The Commission also intends the implementation of the third package in the European Union (EU) over the next few years to be a catalyst for the increased use of renewable energy, and also to improve the efficacy of the European Emissions Trading Scheme (EU ETS). The goal is that both of these factors will contribute to a more sustainable energy future for Europe.
The Renewable Energy Road Map
At the beginning of 2007, as a result of intensifying global pressures affecting the future of energy in Europe (such as climate change, increasing dependence on fossil fuels, growing levels of imports and rising energy costs), the Commission put forward a proposal for a "Renewable Energy Road Map".
The Road Map is a long-term vision for increasing the usage of renewable energy sources throughout the EU. The intention is to provide long-term stability for renewable energy, thus enabling businesses to invest in renewables with confidence and allowing the EU to move towards a cleaner, more sustainable, secure and competitive energy future. Amongst other things, the Road Map does the following:
- Proposes as a mandatory target, to be legally binding upon all Member States, that 20 per cent of the EU’s energy consumption come from renewable sources by 2020
- Proposes a strategy for bringing renewable energy into the mainstream of EU energy policy and markets
- Introduces a legislative framework to enable the promotion and use of renewable energy in the EU.
The Third Package and Renewables
The Commission’s view is that without full unbundling and improved third-party access to infrastructure, there is little incentive for operators to develop the network in the overall interest of the market. Therefore, with unbundling, all participants in the energy supply chain (i.e., the generators, network operators, owners and suppliers) would have an incentive to invest in a diverse range of energy generation methods, including renewables. Moreover, unbundling will also open the energy markets up to smaller players, which could include, for example, niche suppliers who only invest in renewables. Furthermore, in light of the drive for 20 per cent renewable-sourced energy by 2020, the national regulators of various EU Member States, together with the newly formed Agency for the Cooperation of Energy Regulators, have an incentive to encourage environmentally sustainable energy markets, and to promote investment in renewables and low-carbon technologies.
Moreover, a fully competitive market will also give consumers a wider selection of energy suppliers. Many no doubt will choose their supplier based purely on price. However, as environmental issues become increasingly important, it is expected that many will base their choice on a supplier’s "green" credentials, and will be prepared to pay more for energy that is generated from renewable sources. It is hoped that, in time, this will provide further incentive for energy suppliers to boost their investment in renewable sources and technologies.
Improving the EU ETS
Since the EU ETS’s inception in 2005, certain commentators have questioned the extent to which the EU ETS has managed to provide a platform for the reduction of greenhouse gases and the promotion of cleaner energy (two of its major goals). Some have gone so far as to suggest that, as a result of the over-allocation and mis-pricing of emission credits, the EU ETS has in fact rewarded polluters rather than penalising them, and failed to boost alternatives.
The Commission’s position, as detailed in supplementary material from the third package, is that the perceived problems with the EU ETS to date have all stemmed from the fact that it has been operating in a market which is not yet fully liberalised. The Commission holds that, once the EU ETS is operating within the context of an EU-wide, fully competitive energy market with adequately allocated and priced carbon credits, low emissions will give market players a real advantage, which will in turn lead to increased demand for efficient power plants, renewable energy and carbon capture and storage technology.
If the full unbundling of transmission networks is realised in the way the Commission envisages, the EU will achieve a number of goals. First, it will create a long-delayed competitive energy market. Furthermore, should the Commission then issue a mandate (binding upon all Member States) that 20 per cent of energy in the EU must be supplied from renewable sources by 2020, the Commission states that there will be an unprecedented focus on renewable and other carbon-reducing technology in the EU. If the Commission is correct, the stage will have been set for an improved EU ETS as well. This, it is hoped, will be the reality of a single internal energy market which two sets of liberalisation directives have so far failed to realise.