The energetic path to decarbonising the EU — how to reconcile security, sustainability and affordability
Editorial by Gaston Moonen
Perhaps you’ve been hearing the same radio spot as me during the past few months. I initially thought it was a campaign ad for the recent Dutch elections. But then it ended ‘This is a message from the EU’. The spot was aired throughout the EU in various languages. It starts justifiably from the premise that everyone wants a clean future and European energy. ‘Let’s ensure together that we have clean, renewable energy — made in Europe. It is only with a united effort that we can achieve these goals.’ I did some research, and it transpires that this is part of the European Commission’s ‘You are EU’ campaign. What struck me was that it focuses on two key elements: values and energy transition. And, in turn, the overriding focus of energy transition is sustainability — the part each and every one of us can play in meeting to the emission targets the EU has set for 2030 and 2050, with the ultimate aim of a zero-emission society that will keep climate change under control and preserve the planet as we know it.
While the campaign focuses on sustainability through the use of renewables, last year’s Russian invasion of Ukraine accentuated two other key aspects of the energy transition equation. Second in line is energy security, which showed up Europe’s addiction to energy imports. High demand led to a surge in energy prices, exposing the third element needed to secure popular support for the EU’s energy transition path: energy affordability. This aspect is very close to home, as people quickly felt the impact of the energy crisis directly on their wallets. For example, my own sister had the bad luck to need a new energy contract with one of the many providers in the Netherlands which suddenly stiffened their prices, and saw her energy bill soar from €300 to over €750 per month.
When a crisis occurs, something taken for granted quickly becomes an insecurity, be it financial wellbeing, health, heating, or — as we also saw last year — peace. And with insecurity come changed priorities. Thus it was that energy security quickly came to the foreground, followed by affordability, while sustainability (investment in renewables) had to take a back seat for the time being. This shift was reflected in the Commission’s REPowerEU proposals, where the rollout of renewables was obliged to take account of security and funding concerns. Paradoxically, many experts agree that renewables are exactly what is needed to reconcile all three key aspects of the energy dilemma. But in what timeframe? And how much will it cost?
As Nathalie Tocci of the Istituto Affari Internazionali explains on page 16 of this Journal, energy security and sustainability are not incompatible aspects of transition, even though the latter can only be achieved in an EU that is economically thriving, which is not yet possible without fossil fuels. Camille Defard of the Jacques Delors Energy Center (page 20) considers the EU’s economic and green ambitions from a global perspective, and argues that the economic leap into the transition may be endangered by the fact that the EU has the highest energy prices in the world, not to mention the impact of recent plans to stimulate the US economy. Jana Caulier’s analysis (page 26) shows that externalities are a core factor in the evolution of the EU’s energy policy. But what is the current state of the energy transition in the EU? Two experts from Enerdata (page 7) discuss the trends for each energy source, with a breakdown by user sector and insights on where shifts occur, for example in gas consumption.
The Commission’s role in addressing the challenges of transition has been given a boost since the energy crisis, when EU leaders placed a premium on EU unity, coordination and solidarity. According to Kadri Simson, the Commissioner for Energy (page 30), the crisis has made it possible not only to agree on a market correction mechanism to curb price spikes, but also to substantially increase structural investment in renewables, including through REPowerEU. As well as renewables, she highlights the cross-cutting emphasis on clean energy in multiple policy areas, which is also a product of the ‘do no significant harm’ principle.
As was the case for the Commissioner, the 2022 energy crisis significantly affected the focus and workload of Commission staff working in the energy area. Commission Director-General Ditte Juul Jørgensen (page 37) describes the dilemma of working on long-term transition challenges while addressing short-term crisis needs. The same dilemma can also be a major concern for national energy regulators, as Stanislav Trávníček, Chair of the Czech Energy Regulatory Office, points out (page 41). His office not only has to deal with increasing numbers of complaints from people in the same situation as my sister, but also looks into the ‘surplus’ revenues of energy suppliers. This group includes renewables producers, whose profits, according to Heymi Bahar of the International Energy Agency (page 47), may not be that easy to establish. He explains that the Russian invasion of Ukraine was a turning point for renewables in Europe.
The very necessary change to renewables raises other security, sustainability and affordability challenges. The energy transition is also a materials transition, since it requires a switch in mining from oil, coal and gas to the ‘critical raw materials’ of rare metals and minerals. Experts from the Commission’s Joint Research Centre (page 128) join Guillaume Pitron (page 110), investigative journalist specialising in rare metals, in flagging the security risks of the fact that the mining and processing of critical raw materials lies in the hands of just a few countries — mostly outside the EU and not necessarily maintaining environmental values the EU would wish to be associated with. Many EU countries are out of the metals game because, while we are eager to have an electrical vehicle in our driveway, we don’t want a mine in our backyard. Given the enormous growth expected in demand for critical raw materials, a price surge is just a matter of time, which brings us back to affordability. This will affect the EU’s energy transition ambitions, but also its digitalisation ambitions, which depend just as much on the same materials.
Where do public auditors come in regarding an energy transition where there still seems such a long way to go? Unlike some other policy areas, energy is very much science-driven, so data on all sorts of aspects is not only relevant for public policy-makers. This gives auditors important input with which to assess the risk of discrepancy between the commitments entered into and the progress made. Given the near-universality of scales of measurement, one would hope that assessing transition issues is straightforward. But as Jöelle Elvinger, ECA Member and Dean of the audit chamber dealing with energy issues, points out (page 53), some key ECA findings on issues such as energy efficiency or the actual experience of transition in member states relate to the shortage of data for a comprehensive assessment. The ECA has published audit observations on the EU electricity market (page 61), energy savings (page 67) and renewables, and will soon publish on batteries, a key driver for the transition (page 72). As well as data gaps, it has often encountered governance weaknesses that prevent the full policy impacts from being achieved.
What the ECA has recently done and will publish in the near future is covered by Florence Fornaroli (page 57), while Olivier Prigent (page 76) takes a methodical look at the EU’s concrete response to the energy price spike in 2022. Among other things, he touches on the price capping measures adopted in December 2022. Professors Marco Haan and Maarten Pieter Schinkel (page 101) have analysed and published on price-capping measures in the Netherlands. The Dutch experience has become highly relevant since the Commission decided to model its proposals for the EU electricity market on the Dutch price ceiling system, which, as they see it, raises various concerns.
Electricity seems to be key to making the energy transition happen. Consequently, the electricity grid is an important audit topic, both for the ECA and for national audit institutions. Helena Lindberg, Auditor-General of Sweden, and her colleague Johannes Österström highlight (page 83) how they are reviewing the development of the electricity system in Sweden, and emphasise the increasing strain the energy transition will place on the system. Experts from the German Federal Audit Office, led by Thomas Schmidt-Wegner (page 87), likewise warned in reports published in 2018 and 2021 of various security and reliability risks to the electricity supply. Their observations, comparing ambitions and progress, were not in vain, since they and the 2022 energy crisis resulted in policy changes by the German government.
Policy-makers often express a need for clear choices in connection with the transition, both in regard to the financial means to be used and to the framework that should guide, if not regulate, transition needs. Christian Bușoi MEP (page 92), Chair of the European Parliament’s committee dealing with energy issues, gives details of the European Parliament’s wish for direct action to address immediate crisis concerns such as energy prices, while at the same time promoting legislation on long-term energy efficiency and hydrogen projects. Both aspects are also key for Finland, according to Hanna Kosonen MP, Chair of the Environment Committee of the Finnish Parliament (page 97), who also explains how her country intends to become emission-free as early as 2035.
Financing this challenge does not only have to come from EU or national budgets. Two energy specialists from the European Investment Bank (page 117) show how the EIB’s lending policy can fuel a faster and more affordable transition, both in the EU and by providing support worldwide. Inspiration for new measures to accelerate the transition also comes from civil society organisations, writes Elif Gündüzyeli of Climate Action Network Europe (page 122). The innovations range from distributed energy sources to examples of how the EU can lead by example globally. Equally inspirational is the future painted by Erik Rakhou (page 133) regarding hydrogen, in a glimpse of energy discussions in the years to come, though with the observation that the real choice lies not between electrons and molecules but in electing regulatory models that foster competitiveness.
While solving the puzzle of energy security, sustainability and affordability in the EU may look like an impossible task, the best way forward may be to go back — back to just what it is that makes the EU such a ‘one of a kind’ project; the EU as value setter of what matters for the future, not just for Europeans but for everyone. From a financial perspective, many experts agree that failing to do what is needed now will only add to the future cost of transition. The younger generation seems to increasingly understand this. In the recent elections in the Netherlands, younger voters overwhelmingly favoured green parties. Whether or not they were inspired by the energy transition messages in the ‘You are EU’ ads, they seem to realise there is only one spaceship available — Spaceship Earth.
This article was first published on the 1/2023 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.
