EUROPE NEEDS ENERGY UNION / PROJECT SYNDICATE

Europe Needs Energy Union

As EU leaders head to Brussels for this month’s summit, they must confront head-on the failures that have hamstrung progress toward energy union. Whereas energy packages, like regulations or sanctions, have a limited shelf life, a consolidated energy market does not.

Ana Palacio

MADRID – Since Russia’s unprovoked invasion of Ukraine in February, the European Union’s frantic efforts to adapt its energy markets and infrastructure to new geopolitical realities have been an object of fascination in media and policy circles alike. 

Not a day has passed, it seems, without a flurry of commentaries and discussions about the dilemmas Europe faces. 

Yet, after nearly ten months, the EU is nowhere near forging a coherent energy policy. 

The just-completed meeting of the EU’s Extraordinary Energy Council was telling: member states’ energy ministers wrangled over common gas cap prices and effectively kicked the can down the road.

To be sure, the EU has made some progress this year. 

The Kremlin’s brutal war of aggression against Ukraine finally forced Europe to confront the consequences of its self-induced dependency on Russian energy. 

Compounding the challenge were pipeline bottlenecks, the legacy of insufficient upstream investment, and the halving of France’s nuclear capacity, owing to unforeseen maintenance shutdowns.

The EU’s initial response to the energy-market upheaval was chaotic. 

Reminiscent of the beginning of the COVID-19 pandemic, every member state was effectively left to fend for itself. 

As individual member states scrambled to secure alternative supplies, they sometimes ended up bidding against one another.

But EU-level action soon began to take shape. 

A slew of proposals and plans emerged, starting with REPowerEU, the bloc’s roadmap for reducing energy consumption, developing renewable sources, and diversifying its energy supply away from Russia. 

The EU has also implemented a temporary tax on energy companies’ windfall profits and advanced a plan to purchase gas jointly.

Today, Europe seems on a somewhat surer energy footing. 

Absent a particularly cold or protracted winter, it has adequate gas supplies (though the International Energy Agency warns of a possible shortfall next summer – when Europe should be replenishing its stores for the following winter – owing partly to rising Asian demand for liquefied natural gas). 

The bloc’s members seem broadly to be working together to address the energy challenge.

But we should not overestimate the EU’s unity of purpose on energy. 

In fact, the bloc seems to have reverted to what often seems like its default condition: tension, squabbling, and muddling through.

This was apparent in the effort to enact a price cap on Russian oil. 

Agreement on a cap of $60 per barrel was ultimately reached – paving the way for a broader G7 deal – but not without considerable bickering along the usual fault lines and wrangling over the details. 

While the process highlighted the significant potential of EU policies – especially in the energy realm, where Europe retains considerable influence – it also underscored just how discordant the bloc’s internal energy dynamics remain.

Perhaps the best example of the EU’s muddle-through approach has been the effort to create a European energy union. 

Like the EU itself, the energy union represents a grand vision born of a brilliant idea. 

But its realization is proving to be an arduous process, driven largely by reactive policies and last-minute breakthroughs, rather than tactical clarity and skilled statecraft.

At least when it came to trade and commerce, the policy contours of the EU’s vision were clearly defined. 

But in the realm of energy – much like the Economic and Monetary Union – the bloc’s approach, including its regulatory framework, remains uneven, at best.

The first efforts to open European electricity markets were undertaken during the 2002 Barcelona summit. 

Nothing came of them, but momentum did slowly develop over the subsequent years, culminating in the 2015 launch of an energy union strategy, with policymakers envisioning a design that would mimic that of the internal market.

The EU’s rise as a global regulatory superpower – particularly in the realm of sustainability – helped. 

The EU’s determination to lead the battle against climate change – reflected in the creation of the European Green Deal – has been front and center during the last two European Commission mandates, which have emphasized the bloc’s unique influence and competency in this area.

Through this effort, the EU has cemented the primacy of the energy transition within its own policy narrative and helped spur net-zero commitments elsewhere. 

It has also fueled advances in renewables, though continued progress is now in doubt, owing to the protectionist tenor of the US Inflation Reduction Act.

But the EU’s approach also reflected a deplorable lack of foresight, exemplified by inadequate investment in energy infrastructure. 

Moreover, sustainability is but one pillar of the European energy union, and the other two – energy-supply security and affordability – remained squarely within the ambit of the member states. 

Member states jealously protected these competencies, even as the associated responsibilities largely fell off policymakers’ radars. 

A cohesive vision for the EU’s energy transition never emerged.

The shortcomings of the EU’s approach were less perceptible before Russia invaded its neighbor. 

But now the dangers of such oversights have become apparent, leading to constrained energy supplies, soaring inflation, fears of de-industrialization, and an emerging global subsidy competition.

As was true during the EU’s construction, the bloc’s leaders have often resorted to temporary, piecemeal, and ad hoc solutions on energy. 

The inclusion, after much disagreement, of certain nuclear and gas activities in the EU’s taxonomy for classifying green investments – both are classified as “transitional” fuels – is a case in point. 

Even REPowerEU – which similarly recognizes nuclear as central to the energy transition – lacks the kind of overarching long-term framework that an energy union would provide.

As EU leaders head to Brussels for this month’s summit, they must commit not only to achieving final agreement on a plan to stabilize gas prices and ensure secure supplies, but also to taking stock of their wartime energy policy. 

Equally important, they must confront head-on the failures that have hamstrung progress toward energy union. And they must recognize that energy packages, like regulations or sanctions, have a limited shelf life. 

A consolidated energy market does not.

Ana Palacio, a former minister of foreign affairs of Spain and former senior vice president and general counsel of the World Bank Group, is a visiting lecturer at Georgetown University.