Energy: Choices for Europe. Bruegel Blueprint series, Volume 1, March 2007

These challenges have been recognised by the European Commission in a recent Communication to the European Council and the European Parliament1 and have been translated into three fundamental policy objectives: (i) sustainability, i.e. environmental objectives, (ii) security of supply and (iii) competitiveness. However, an important question for Europe’s energy policy choices is to what extent trade-offs exist between these objectives . The Commission appears to suggest that all objectives reinforce each other. In contrast, this report points out that there are important national trade-offs behind these various policy objectives which need to be recognised in order to arrive at a robust framework for analysing the benefits of – and convincing Member States of the need for – a European approach. In this report we provide evidence of individual Member States’ performance in relation to the three objectives. We find that there is considerable heterogeneity in the accomplishment of each objective across Member States. This evidence is consistent with the existence of national trade-offs driving Member States towards different policy choices. Each Member State faces very different exogenous factors as regards geographical location and the availability of domestic primary energy resources, to say nothing of diverse national preferences, such as attitudes to nuclear energy. As a result of this considerable heterogeneity in energy markets, not all objectives can be achieved equally by all Member States. Or at least not at the same cost. National trade-offs exist, and to differing degrees, across Member States. This report provides some direct examples and evidence of national trade-offs. It is important to emphasise that we are not providing a comprehensive list of all possible trade-offs inherent in the three possible objectives. Such a list would depend on precise definition of the objectives. For instance, the objective of ‘competitiveness’ may have several dimensions, which may not all involve the same trade-offs. As discussed below, this report concentrates on one aspect of competitiveness, namely competition. To the extent that competitiveness is a broader concept than competition, more trade-offs need to be taken into account. We think that the correct way to analyse the costs and benefits of a European energy policy is to set the debate in terms of relaxing national trade-offs. Using this approach we identify five policy areas where national trade-offs could be significantly relaxed by the adoption of a common European approach: the internal market, a network of energy regulators, political framing, the choice of energy mix and a European plan for the development of new technologies. These five fields show that, despite national differences, a European policy can bring substantial added value. Finally, the report asks how a European energy policy can be made acceptable to Member States. We emphasise five priorities: (1) implementing flexible (marketbased) and harmonised incentive systems, (2) dealing with problem Member States, (3) focusing on energy objectives, (4) providing more rigorous impact assessments and (5) appealing to the special responsibility of France and Germany. We conclude by underlining that, if a European approach is not successful, mutually incoherent national policies will prevail. This will have long-lasting negative effects on the global competitiveness of European industry and will be an obstacle to environmental adjustment. In other words, all three objectives identified by the European Commission are at stake