ARENA Working Papers
WP 00/5



EU Energy Policy: Interest Interaction and Supranational Authority*

Svein S. Andersen**

EU energy policy: what are the driving forces?

The struggle over a common EU energy policy is a special case of Europeanisation of policy-making (Usherwood 1998), and up to the 1980s it was regarded as a spectacular failure (George 1985:100). Energy policy is characterised by strong conflicts between a common policy, on the one hand, and divergent national policies, on the other. The focus here is the emergence of a common EU energy policy during the 1990s. Despite its inclusion in the very first treaties on the European Community energy was until very recently more or less unaffected by common market legislation, and few energy policy decision were taken at the central EU level (Schmitter 1996). The most important changes in the last few years are related to the internal market directives on the electricity and gas markets (Hancher 1998).

This chapter does not intend to identify all EU regulations that affect energy. Neither does it deal with the impact of national energy policies, which has played a key role in the sector. Rather, it focuses on the interrelationship between attempts to create a common EU energy policy, on the one hand, and the institutional development of EU (and its predecessors), on the other hand. We can distinguish four stages in the development of EU energy policy:

In the first, from 1946-57, energy supply was a major problem facing the (then) six members (of the ECSC). Energy was mostly indigenous coal supplies. Energy co-operation fuelled wider economic and political co-operation. In the second period, from 1957-72, energy was not regarded as an issue of great concern. Cheap imported oil replaced coal, and although this was a period of marked advances in European co-operation, this was not reflected in the energy sector. In the third period, 1972-1985, energy re-entered the EU agenda and this time as a problem of oil prices and supplies. Common policies largely failed. The last stage, from the late 1980s to the late 1990s represents a revitalisation of attempts to introduce a common EU policy.

The EU is still far from a common energy policy, but since the late 1980s a number of important EU initiatives have been taken to strengthen the supranational influence on the energy policy (Matlary 1991, Lyons 1992, 1994, Padgett 1992). Energy issues have increasingly been linked to three general perspectives. First, the EU's internal-market programme where competition policy plays a major role. Second, the EU's attempts to establish a common environmental policy with fiscal measures as key instrument. Third, the European Energy Charter and the Charter Treaty which were attempts by EU to create international market regimes that could support reform in the former East Bloc and thereby secure EU's energy supplies.

Such initiatives all reflect the desire to establish European policies in areas that before were dominated by national authorities. They were linked to the revitalisation of the EU, based on institutional reforms and the general support for increased EU co-operation where liberalisation was a key element. Changing perceptions of energy in relation to environmental concerns and with respect to the international supply situation were additional factors. During the early 1990s the proponents of common EU policy dominated the agenda setting. As will be discussed in detail later, attempts to achieve Europeanisation of energy policy experienced serious problems, but there are also some important successes (Matlary 1997). The new initiatives have opened up for changes that may make it impossible to preserve important parts of national energy markets in the long run

One major perspective explains the development of supranational authority and common policy by pointing to the gradual emergence of common and overlapping intergovernmental interests. The process is driven by rational actors building coalitions (Morgenthau et al 1973, Waltz 1979). This would be consistent with the co-operation over coal (and steel) policy during the post World War II years. The Six (who had lost the war) saw co-operation on coal as a requisite for successful reconstruction, but also in the new spirit of a unified Europe.

The lack of overlapping interests between member countries (and national energy sectors) is consistent with the lack of a common EU policy in the energy sector up to the late 1980s. From the late 1950s to the early 1970s such co-operation did not seem necessary. During the 1970s national interests were too diverse. However, it is not possible to explain the elements of common energy policy since the late 1980s in terms of overlapping interests. On the contrary, such a tendency would seem highly unlikely from this down-up perspective since the lack of, or small degree of, overlap is a consistent characteristic of the energy sector.

Important new EU energy policy initiatives have been driven by the Commission which has exploited institutional rules to take the initiative, to redefine the energy sector in relation to the internal market, environmental policy and foreign policy. The areas to which energy is linked all represent areas where supranational institutions have been assigned tasks what the neo-functionalists call inherently expansive (Cameron 1991: 25). This is perhaps most obvious in the case of the internal market and in environmental policy, but also in relation to EU's ambitions to exercise international leadership during the dramatic transformations going on in the former Soviet and Eastern Europe after the end of the Cold War. The new EU initiatives in the energy policy did not happen automatically, but seem to have been part of a deliberate plan. Key actors in the Commission and in some member countries wanted to exploit the momentum of success in other areas. Such initiatives managed to reinstate energy policy as an important concern on the EU level.

A key to understanding this development is how the EU – as an institutional framework and a set of central institutional actors – interacts with underlying interests in the energy sector in the different stages of the EU development. This interaction demonstrates the close link between EU decision-making, the problem of defining collective interests and the impact of the EU's political cycles. The development of energy – and especially petroleum – policy during the 1990s in the EU is the topic for the rest of the chapter. Central questions are: What drives the development in this policy area? How is a common EU energy policy linked to the development of EU institutions and the movement towards The European Union? Under what conditions can we expect a development of supranational authority and common EU policy?

Common energy policy initiatives

New proposals for common EU energy policy in the late 1980s and early 1990s were closely related to the revitalisation of the EU. The Single Act (1987) and the Maastricht Treaty (1993) strengthened supranational authority in a number of policy areas, although not specifically in relation to energy policy (Wallace and Wallace 1996, Hix 1999). The reforms did, however, create a new dynamic where actors in other policy areas became more active in redefining traditional energy policy issues. Such initiatives represent a form of political spill-over, where resourceful actors exploited new opportunities within a new institutional framework. The new initiatives did not get much support from traditional energy sector interests. New EU level perspectives challenged national policy paradigms and vested interests, and shifted issues over to new arenas with new decision-making procedures. Diverse national energy interests – including new member countries – were forced to relate to new types of games on the EU level.

One important source of change was EU's internal market programme. This reflected not only the internal development of the EU, but also general policy international orientations reflected in OECD. The latter had for some time pushed towards more liberal arrangements in the energy sector. One important source of change was EU's internal market programme. The internal market opened up for a number of initiatives in the energy sector, as part of a general deregulation policy (COM 88 174> 1988) Matlary 1991). This was an area covered by new rules of majority decision-making, and where the commission had a strong role. In this perspective the question was not whether national energy sectors performed well in relation to various national objectives, but whether the organisation of industries was consistent with principles of competition policy and detailed law.

Another major source of policy initiatives affecting energy was environmental policy (Iversen 1992, Bergesen 1991). Initiatives from this sector differed from deregulation in that policies were directed towards the realisation of specific objectives with growing popular support. There was, however, no agreement on what would be the best ways to achieve them, except that environmental interests should play a key role in formulating solutions. Also in this area, after Maastricht (1994), it was possible to make decisions according to majority rules, although there were exceptions for issues involving fiscal matters. And with respect to environmental policy relating to international climate negotiations the Commission was empowered by strong political signals from the European Council (Simont and Duhot 1994).

The third policy area was foreign policy that became linked to the wider EU co-operation through the Maastricht Treaty. There was some uncertainty as common foreign policy objectives were not clear, and decisions should still be firmly controlled by member states according to traditional rules of international co-operation. The changing status of this policy area was, however, reflected in ambitions about a more active leadership role for the EU in international matters. As it turned out foreign policy interests wanted to use energy policy as an instrument in relation to reforms in the former East Bloc countries. Again, however, there was no clear idea about the way that nergy policy could best do this. The details were left to those usually involved in EU energy policy formulation, reflecting the tug of war between sector interests and general market perspectives (Dore and De Bauw 1995).

Below we will describe new attempts to create common EU energy policy, distinguishing between policies of deregulation, on the one hand, and initiatives reflecting policy objectives relating to environmental and foreign policy.

Common energy policy as deregulation: The Single Market

The Single Act of 1987 laid the foundation for the revitalisation of EU and for the conclusion of the internal market before the end of 1992. However, it contained nothing on a common energy policy. This was no coincidence, as energy was regarded as a very problematic area. This did not mean that energy, or any other area of economic activity, was to be exempted from the internal market programme. The energy objectives adopted by the Council of Ministers (Energy) in September 1986 explicitly mentioned the need for greater integration of the internal energy market (SPRU-report 1989, Stern 1990).

Up to this time, energy was partly regarded as a national problem. As to oil and gas, both security of supply and price risk related to factors outside the control of the EU. These were traditional concerns for the EU as well as the member states. At the EU level they had been dealt with through stockpiling of oil and efforts to increase energy efficiency. In member countries oil dependency has been reduced through taxation and comprehensive regulation – often through oligopolistic or monopolistic arrangements – had been instruments to reduce demands and promote diversity of energy. Natural gas, which was mostly imported, made it necessary to balance supplies from a small number of sellers. Sometimes energy policy had also been motivated by the desire to preserve regional employment. Such regulation had a price, and this became clear as oil prices fell in the early 1980s.

The internal market in energy was to be realised through three different types of policy instruments (Lyons 1994:5). First, through specific energy directives removing barriers to competition and trade, by translating general Treaty principles into new sector regulation. Second, general internal-market directives that would also affect energy; like the directive on public procurement. Third, more active application of existing competition law to the energy area. However, the latter also faced political limitations, and rulings could only address specific instances of violations. The following discussion focus is on attempts to introduce specific directives in the energy sector. It is important to keep in mind, however, the interaction between these three sources of change.

Energy policy was discussed in a special White Paper on Energy Policy in 1988 (<COM 88 174> 1988). The Commission took a close look at energy sectors in Europe within the framework of the internal market programme. The study concluded that the (down stream) oil industry was already, with some exceptions, operating within a free market. In addition, coal and nuclear sectors had since the 1950s been covered by detailed Treaty provisions. It was primarily in the gas and electricity sector that there was a need for new directives.

In the coal industry the major problem was to apply Community legislation to reduce subsidies, while there was a need for cost transparency for equipment and components in the nuclear sector. The priorities for the (down stream) oil industry were coupled to general measures of taxation and standards. The Commission's conclusion was that existing law and general internal market directives would solve most of the problems in the energy sector. The exceptions were the gas and electricity industries, and here the Commission focused on down-stream activities. In addition came up stream oil and oil and gas (Lyons 1994: 6/7).

Major parts of the European energy industry were in violation of the internal market principles. The suggestions made were not motivated by positive objectives related to energy, they were part of a general deregulation policy. The point of departure for the Commission's initiative were Articles 86 and 90 in the Treaty of Rome about state-owned and other monopolies and abuses of market power. Such articles seemed especially relevant in the gas and electricity sectors, where the degree of monopolisation on the national level was extremely high. These sectors, to a large degree, would have to submit to market forces that would lead to greater efficiency and lower prices. They now became the target for the Commission through a number of directive proposals.

The internal market programme consisted of 279 proposals to create directives that could remove non-tariff trade barriers and create a single market across the EC. In the Commission the push to link energy to the internal market came from Directorate General IV, which was responsible for competition, and General Directorate XVII with responsibility for energy policy. Other General Directorates were also involved, especially DG XXI (General customs union and indirect taxation), DG III (Single market and industry) and not least, DG XI (Environment). This participation by several DGs in the formation of energy policy, reflects two important circumstances: Energy was being coupled to a number of EU policy areas, and the commissioners did not have the same degree of control within a policy area which ministers usually have in a national ministry. The Commission passes all motions by majority votes, and all the (then) 17 commissioners were involved in all policy fields.

The first conflicts over electricity and gas directives

The Commission had a three-stage approach to the introduction of internal market directives in the energy sector. The initial focus was on the downstream side of the electricity and gas sectors, but the plan was to move upstream as reforms progressed.

During the first stage the Commission wanted to introduce elements of competition into the distribution of electricity and gas. This should be accomplished through the introduction of transparency of prices and investment plans and transit rights for other grid operators. Proposals for such directives were adopted by the Commission and sent to the Council of Ministers (Energy) in July 1989.

The price transparency directive – covering both gas and electricity producers – was uncontroversial. It was adopted by the Council in June 1990 and became operative in mid 1991. The new directive required suppliers to provide the Statistical Office of the European Communities – SOEC – with three types of information on a regular basis: prices, pricing systems and break down on consumers and consumption volumes. Based on this the SOEC would publish statistics which would improve the information available to market actors (Lyons 1994: 7). Such a system was established in Great Britain already in 1988, as the new controlling authority OFGAS pressured the privatised British Gas by threatening to take them to court (Andersen 1993).

Two other directive proposals concerned transit right for other grid operators in the electricity and gas sectors, respectively (Capouet 1992). The aim was to ensure that a grid operator in one member state should not impede the trade of electricity or gas between other member states. Both proposals were short and simple, basically focusing on procedures for handling of transit requests. The electricity directive was passed already in October 1990, and came into force in July 1991. In contrast to other cases the Commission found that the electricity industry, represented by Eurelectric, was co-operative to the proposed transit rights. However, the industry also made it clear that the Commission's ideal of a common carrier system was completely unacceptable.

The proposal for transit right in the gas sector proved more controversial. It took almost two years before it was adopted by the Council of Ministers (Energy) and entered into force in January 1992. Germany and the Netherlands- with their national monopoly suppliers Ruhrgas and Gasunie – were most actively against. However, there was widespread scepticism against the proposal. These reactions from affected interests may be regarded as a positioning to fight future and more far reaching Commission proposals.

The fourth of the first stage proposals also signalled that there were clear limitations to what member states would accept in the energy sector. The aim of the investment transparency directive was to ensure exchange of information to achieve a better coherence of large-scale investment projects in the Community. However, at the Council of Ministers (Energy) meeting in May 1990 member states voiced their opposition to this plan. The Commission was forced to step back from the directive approach and, instead, to make better use of existing regulations.

The second stage in the deregulation EU's electricity and gas markets introduced more ambitious objectives and more comprehensive regulatory measures. This led to strong political reactions from member countries and their industries (Austvik 1991, Capouet 1992). The new proposals attacked `the heart of he gas and electricity industries with practising monopolies' (Lyons 1994:5). The Commission wanted to introduce competition that would fundamentally alter the relationship between suppliers, transmission operators, distributors and consumers (Stern 1992, Austvik 1995).

By that time, it was already clear that many member states and affected industries were opposed. For this reason the Commission established working groups to be part of the Commission's preparatory work. For each industry there was one committee of experts and one consisting of member state representatives. These groups met through out 1990. Based on their reports the EU-commission prepared directive proposals during the last half of 1991. The proposals were presented to the Council of Ministers (Energy) in January 1992.

The complex proposals basically required that member states did three things (Lyons 1994:10):

  1. Abolish exclusive rights regarding electricity generation and the building of gas and electricity transmission lines
  2. Oblige vertically integrated companies to unbundle their accounting and management systems
  3. Introduce third party access (TPA) rights to a limited number of high volume gas and electricity consumers so that they could chose suppliers from throughout the Community

Despite all the consultations that had taken place, more than half of the member countries were against the proposals. On the other hand, the Commission had strong support from big industrial customers. During the autumn of 1992 a stalemate developed between the Commission and its closest ally Britain, which held the EU-presidency, on the one hand, and almost all other member countries and their industries, on the other hand. In an unprecedented move, the Council of Ministers sent the proposal back to the Commission without a comprehensive committee discussion, with detailed political instructions for the future work. It was a deadlock, and it was clear that an agreement on the proposals on electricity and gas markets could not be reached in the short run.

An early success: oil and gas licensing

By early 1992 the Commission was well aware of the political problems involved in pursuing an internal market for energy. The second stage faced serious difficulties. This meant that the third stage was delayed. However, in relation to up stream oil and gas the Commission faced fewer adversaries than in the areas of electricity and gas liberalisation. This opened for a directive proposal for hydro-carbon licensing. This directive was to regulate the granting and use of authorisation for prospecting, exploration and production.

The proposed directive would introduce market principles also in up-stream petroleum activities. It should no longer be possible to grant special privileges to national or state-owned companies. This would also fill a gap between the proposed directives for gas and electricity movement, on the one hand, and existing public procurement legislation regulating contracts in the oil, gas (and coal) exploration and production industries. The procurement directive from September 1990 opened up for a simplified procedure in the petroleum sector, if regulation fulfilled the internal market conditions. The full procedure could complicate certain contracts. It turned out, however, that getting exception from it was more problematic than foreseen (Lyons 1994: 15/16, Andersen 1995: Ch. 4).

For the Commission – and Britain, which was its close ally in this area – the license directive was important to keep up the political momentum in the energy sector. The UK, which held the EU-presidency during the first half of 1992, made the completion of the license directive a priority. This would be consistent with reform already carried out in Britain during the early 1980s. The EU-parliament was quick to give its first opinion. For this reason it would have been possible to reach a common position in the Council of ministers (Energy) by the end of 1992.

However, at the Council of Ministers' meeting on November 30 1992 Denmark managed temporarily to postpone a common position. Eventually, the special interests of Denmark and Norway, as the two major oil and gas producer in Western Europe except Britain, managed to delay and alter the proposal substantially. A key issue for Denmark was the preservation of state participation in infrastructure (gas transportation) and the relationship to historical obligation entered into during the early 1960s. Norway was the major petroleum exporter in Western Europe and represented a strong statist tradition. It was not an EU-member, but through the European Economic Area agreement and later membership negotiations it became directly involved with internal EU deliberations.

The License directive demonstrated, again, that strongly affected minorities might create considerable political problems for the Commission's plans. The fact that a non-member country could achieve access to the EU internal decision-making was another confirmation of the political weight that energy issues were given by member states in the EU, although one could argue that there were special interests at stake for Norway. The license directive was passed in May 1994 and entered into force in mid 1995. It was the last energy-specific directive-proposal from the Commission. The `grand plan' from the early 1990s was abandoned, at least for the time being. This reflected not only the opposition in the energy sector, but also more general political problems in the EU.

Counter mobilisation and limited success

The license directive was one of the few directives influencing the structure of the industry, which was actually passed during the first half of the 1990s. The price transparency and transit directives had limited effects in this respect. There were, however, other directives that affected the energy sector. Such directives were mostly related to general efforts of the internal market. The procurement directive has already been mentioned. Another was the harmonisation of (minimum) excise taxes for mineral oils in 1992. Parallel to the introduction of directives, the energy sector had been under pressures to change due to the application of existing competition law. For political reasons the Commission had to exercise caution, but a number of cases eliminated deviations from the internal market.

Competition law was, for instance, used to push for liberalisation of down-stream oil markets in Greece, Portugal and Spain. However, practises in a number of other countries, involving different sectors were targeted by the Commission. Sometimes the threat to raise a case was enough to bring about changes. In other cases changes were enforced through Court rulings (Lyons 1994: chapter 3). Such decisions differ from the directive approach in that they limit themselves to the issues at hand, and do not attempt to formulate new general regulations. However, in the long run they create precedence that may open up for and influence new directives. This interplay between the directive approach and the use of competition law is important in the long run (Stern 1992, Noreng 1994).

The focus for efforts to change EU's energy markets – through political initiatives or through court decisions – had mainly been transportation systems and concession regimes. National consumer prices vary considerably (figure 2.3), and this is likely to be the case for a long time to come.

The process from radical Commission proposals to complicated negotiations, watering down original intents, reflects the duality of the Commission's role in the EU decision-making process. On the one hand, it is supposed to be a radical supporter of the EU's visions. On the other hand, it shall try to reach complicated political compromises. There were strong forces at the EU level dissatisfied with national industries and with national authorities defending arrangements on a collision course with EU visions. On the other hand member states and national industries had strong vested interests. This meant that the Commission's suggestions often would be changed considerably during the lengthy process towards a final passing of a directive.

The formal changes in the EU institutions and decision-making procedures since the late 1980s had been limited, but important. Among other things, the door was opened for majority decisions in the Council of Ministers. The lobbyists swarmed to Brussels and laid siege to EU institutions. This indicates that EU institutions and general EU policy were in the process of being strengthened compared to national interests. The Council of Ministers was still important, but energy policy was no longer the exclusive domain of member countries and national industry. The Commission was on the offensive, not only because of DG XVII and its responsibility for energy matters. DG IV, responsible for competition policy, was often pushing the Commission.

The failure of common CO2 tax

Another tendency in the development of EU energy policy started parallel to ongoing deregulation efforts of the internal market. Again it was not the traditional, national energy actors who were on the offensive. Just like in the area of deregulation the initiatives came from political forces outside the energy sector also at the EU level. Energy was increasingly coupled to the environmental protection and foreign policy. Environmental impact from energy had top priority with DG XI (Environment) as well as in a number of member countries (Lyons 1990, Matlary 1991, Andersen 1995).

Around 1990 environmental policy was one of the most important forces behind a new energy policy in the EU (Bergesen 1991, Iversen 1992). The EU had been occupied with environmental policy since the early 1970s. The focus of the first environmental programmes had been special problems of pollution. By 1990 two important changes had taken place. First, environmental policy, in contrast to energy policy, had become part of the Treaty of Rome through the Single Act reform in 1987. Second, environmental protection had been defined as a horizontal policy area; a general concern to be taken into account in other policy areas. These changes gave the environmental policy greater weight.

The Single Act established a foundation for environmental policy in the EU constitution, namely articles 130R, 130S and 130T.

The goal of Article 130R is to preserve, protect and improve the environment, and to contribute to better health and a rational use of natural resources.

Article 130S concerns decision procedures, and states that in the Council of Ministers motions are to be passed by unanimity. This was changed to qualified majority after the treaty conference in Maastricht, effective from January 1, 1993.

Article 130T states that the introduction of EU regulations in this field shall not deprive member countries of the right to introduce stronger measures.

In addition, Article 100A concerns the creation of uniform and effective regulations in the EC. It states that regulations shall be based on a high level of protection of health, environment and consumer interests. EU environmental policy comprises air pollution, changes in the climate, water quality, waste disposal, control of chemicals and noise. Pollution and the climate are the fields that until now have had the greatest impact on energy policy.

Demands for reduced pollution were not solely linked to use of energy, but burning of fossil fuels was a serious source of pollution. Energy efficiency and alternative energy had been on the EU agenda for some time. Some directives have been passed to reduce emission from cars and industry. However, the climate policy, which surged to the top of the political agenda around 1990, created a new context for EU energy policy (<COM 92 226> 1992, Lyons 1994: 53). This led to new demands for cleaner energy forms and regulations. There were strong coalitions outside the energy sector that drove the process onwards, even though the atomic industry had nothing against stronger rules for CO2 emissions.

International research co-operation led to strong and united report in 1990 where climate change was viewed as a major international political challenge. Without a rapid stabilisation of climate gas emissions the results would be serious negative and irreversible effects. The report gave momentum to the proponents of environmental policy in the EU, in the Commission as well as in a majority of member states. As a result the EU introduced a stabilisation target in 1990 and a radical proposal for a common EU CO 2 (later CO2 /energy) tax in 1992 (<COM 92 226> 1992). The EU also hoped to win support for such a tax from all OECD (and other) countries on the Rio Conference in 1992.

A CO2/energy tax would have introduced substantial energy price increases and also two new price formulas for different energy sources. However, once more the complex decision-making process surrounding the directive proposal ran into difficulties. This was partly because international trading partners were reluctant to support EU's proposal about a tax, but also due to complex interests within the EU. Political visions that dominated the first years were eventually undermined by the opposition representing energy and general industry interests. In December 1994 it became clear that a common EU CO2/energy tax could not be achieved.

The set back for a common CO2/energy tax does not, however, mean that environmental policy in EU is dead. A number of less radical measures have been introduced. In relation to the CO2 issue the new monitoring mechanism strengthen those who want to keep up the pressures for action. Also, a number of member countries are actively supporting new initiatives, although it seems that fiscal measures will be introduced on the national level. The new emphasis on unemployment and other economic problems have, to some extent, weakened the commitment to environmental policy. The attempt to link the solution of unemployment and improve environmental protection though a new tax structure was not successful in the short run. However, environmental concern, with strong popular support, may well be an important challenge to energy policy in the years to come.

On the other hand, it is important to keep in mind that taxation of energy is also linked to fiscal interests of the member states. As Austvik (1996, 1997) has pointed out since the mid-80's there has been an increase in consumer taxes on energy, in particular oil products. This has two important implications. The first is that it reduces the import bill, since all member countries, except Britain and Denmark, are dependent on import. The second is that the profits are transferred from exporting to consuming countries. The import of both oil and gas into the EU is expected to increase significantly over the next 20 years. This means that the CO2-tax initiative is partly realised through other instruments, although not consistently in relation to CO2-emissions. In some cases the worst polluter in this respect, namely coal, is even subsidised. Tensions of this nature are also reflected in the proposal for a directive on Restructuring the Community Framework for the taxation of energy products (Com 97: 30 Final 97/ 0111).

The Energy Charter Treaty

Another consideration that has increasingly influenced EU energy policy over the last years was foreign policy. This was a result of the Gulf War and, especially, the events in the former Soviet and Eastern Europe after the end of the Cold War. In both cases the security of supplies was a central concern. However, the foreign policy concerns also go further than the energy implication. This was most obvious in the case of the European Energy Charter and Treaty (Dore and De Bauw 1995, Andersen 1997).

The Gulf War created an increased understanding of the fact that war in the Middle East was not a dramatic one-time event, but a symptom of underlying problems which may flare up again any time. In short: the problem is not a lack of stability in the oil market, but that the Middle East “does not work”. Such preoccupation strengthened the view that energy is a strategic commodity. This perspective has always been central for the Commission's General Directorate XVII with responsibility for energy questions.

In the short run, the answer to the uncertainty in the Middle was to create a crises depot corresponding to 90 days' consumption, as in the US. In a further perspective, creating economic ties between some Arab countries and the EU could have a stabilising effect. The general idea behind the latter is that increased interdependency will strengthen a communality of interests and increase stability. Such efforts came in addition to the work done on a more effective use of energy in the member countries.

Earlier, EU's energy risk related to the Soviet Union's stemmed from dependency on gas import (Moe 1988). This could, in principle, be used to exert political pressure. Now the situation was quite different. The gas industry in Russia had huge infrastructure problems. There had been several great leakages in the pipelines to Western Europe. (Some have argued that as much as 30 per cent was lost before the gas reached the market). Through the Energy Charter and the Treaty, the EU wished to strengthen the framework for market-based solutions and to offer security to foreign investors. In addition, Russia has large oil resources that could reduce dependency on the Middle East (Ebel 1994).

The point of departure was a somewhat unclear political initiative sent to the European Council, the so-called Lubbers Plan in 1990. During the Commission's work on this plan, focus was placed on a mixture of foreign policy, aid programs and energy policy, which, in the long run, could contribute to lasting and cheap access to energy for the EU. Energy was also one of five sector programs aimed at assisting the changes in Russia. The last program aimed at using 105 million ECU. About 50 percent would be spent on strengthening security in the atomic industry, 20 percent would be spent on reducing energy consumption, and the electricity and gas sectors would each get around 15 percent.

Through these programs, the EU wished to secure its own future supply. By helping Russia in the energy sector, an important contribution would also be made in relation to the dramatic changes taking place in that country. If the EU program could contribute to a successful transformation in the oil and gas sector, it could also function as a model for new institutional solutions in the rest of the economy. The oil and gas sector was also one of the few sectors where Russia had export potential, making it a source of much-needed foreign currency incomes.

One element of the Energy Charter was that, to a certain extent, there were over-lapping interests between national industries and the EU-commission, in contrast to the adversary orientation which was evident in other fields of energy policy. The Charter and Treaty was meant to strengthen the market framework prevalent in the West, but there was room for solutions with elements of Western European traditions, i.e. power concentration around large companies. Also, it was unrealistic to imagine pure market solutions in the energy sectors in the former East Bloc countries. This provided room for a communality of interests between parties that in other areas are strong adversaries.

The preparations for the Energy Charter Conference took about a year. The Charter was concluded within 6 months after the conference opened and signed in December 1991. The negotiations over the Treaty were a time consuming process, and there were major changes in perspectives and ambitions along the way. The Treaty was signed in December 1994. Important issues were too complicated to deal with in the short run, and had to be taken out of the Treaty to reach an agreement. These outstanding issues were the subjects for a new round of negotiations that started immediately after the signing of the first treaty. The implementation and effects of the Charter Treaty is still uncertain.

The increased weight of foreign policy was related to institutional changes in a context of radical changes. Foreign policy became formally linked to the wider EU co-operation through the Maastricht Treaty, but without room for Commission activism or majority decisions. However, political ambitions about a more active role for the EU in international politics played an important role. For this reason the European Council – the regular meetings by EU's heads of state – has been active. Such initiatives have played a major role in connection with Eastern Europe.

The late 1990s: break through for electricity and gas market liberalisation

The fist round of the decision-making procedure on the liberalisation of the European electricity and gas markets had demonstrated that these were very controversial issues. In May and November 1993 the Council discussed the proposal which the Commission has introduced already in 1990. Although almost all countries were against the present proposal, the Council stated that electricity and gas markets had to become more open. However, it was not clear how this could be achieved. In this situation the European Parliament – through its energy committee – took an active role in finding a compromise acceptable to both the Council and the Commission. This active role of the Parliament reflected not only that the two major EU institutions were unable to find a workable compromise. It was also linked to a more general struggle for increased influence in the EU. The Parliament's proposal (CERT 1993) was the basis for a new Commission proposal presented to the Council of Ministers in December 1993.

The Commission had invested considerable prestige in the proposal, and went a long way to find compromises that could solve the political stalemate. Compared to the first proposal changes were substantial. Most importantly the idea of public service obligation was strengthened, and third party access should be voluntary. The latter meant that the Commission had to settle for a solution which was not very different from the existing practice of the industry, although the burden of proof now shifted to the industry when access was denied due to lack of `free capacity'. The first results were, therefore, a long way from the ambitious objective of common carrier, or free access to the transport systems for everyone (Austvik 1995).

In early 1994, the Commission re-sent a revised version of its proposal. It took into account some of the inputs from by the Council and the Parliament. The changes are reflected in the final directive, and they were related to two areas. The first opened up for gas producers also being able to negotiate access to transmission lines. The other established a framework for liberalisation providing the member countries with various options. In addition, criteria for third party access to transmission lines were suggested. The following process was complicated, reflecting that member countries had quite different interests at stake reflecting resource base, energy mix, sector arrangements and attitudes to state roles and regulation (Matlary 1997, Eldevik 1999). The Commission therefore chose to focus on the electricity first, since this politically easier.

By the end of 1995 there was a Commission agreement to include the French proposal for a so-called single buyer model (where the company responsible for power procurement and/or transmission system operation to carry out both tasks). The French were also instrumental in the introduction of public service obligation that, in some countries, may be necessary to ensure security of supplies and consumer and environmental protection (Hancher 1998:5/7). The Council and Parliament finally adopted the directive concerning a single market for electricity in December 1996, entering into force on February 1, 1997. It implies a deregulation of both production and transport of electricity. From February 1999, all countries must open at least 25.3 per cent of their market to free competition, increasing to 28 per cent in 2000 and 32 per cent 2003, and so on (Nylander 1998).

The electricity directives paved the way for key elements in the gas directive. However, the Council (Energy) had to meet four times before all countries could agree. In addition the working group for energy and the COREPER had intense meetings to clarify issues of a legal and technical character. In the spring 1997 the Dutch presidency discovered that important political issues still remained where countries were still far apart. Under the Presidency of Luxembourg the member council finally managed to agree, in December 1997. The directive came into force on June 22,1998, and it is to be implemented from 1999. Within two years the member countries must make the necessary changes in national law to open for changes. Just as in the electricity directive the liberalisation is to be implemented gradually over a number of years. In addition, even more than in the case of electricity, the gas directive is really a framework for national adaptation. To a large extent it is up to the member countries to decide on how fast and effective reforms are to be carried out (Stern 1998).

The content of the electricity and gas market directives in some ways differ dramatically from the Commission proposals introduced in 1992. It has been a long and torturous process, but it has lead to a transformation of the European electricity and gas markets. The changes in member state and industry perspectives are in some ways dramatic, and may have radical consequences in the long term. An important precondition for the continued efforts towards liberalisation, despite frustrations and conflicts, has been the renewed dynamics of the EU in the late 1990s.

Energy and European integration

This chapter has described the development of a common EU energy policy. When common energy policy finally emerged, it was partly because the traditional energy actors were loosing their exclusive control over the energy arena. In this sense the emergence of a common energy policy has demonstrated the momentum of European integration. Initiatives relating to the internal market and environmental protection have been based on supranational authority, which the Commission and its allies have tried to extend into the energy sector. The premises for the energy policy were also introduced in two new ways. Firstly, `in from the side' stated by other parts of the Commission than DG XVII, the DG XI (Environment). Secondly, `from above' through general political summit meeting decisions in the case of CO2-tax and the Energy Charter initiative.

One may characterise the development in the energy sector as political spill-over, but not in the neo-functional sense. In the latter theory spill-over is based on a concept of interest group politics, where rational actors pursue their interests and there is little concern with contextual factors. The recent development of EU energy policy, on the other hand, demonstrates how interests in a sector have been overwhelmed by actors invoking different policy context within a general framework of EU development, based on broader and more robust supranational authority. It is the dynamic interaction between several policy contexts and the impetus of the more general development that explains the direction of EU energy policy.

Energy is not covered by the Treaty of Rome. The tension between national interests and the EU is the main reasons why energy did not formally become a field of common policy during the treaty revisions in Maastricht and Amsterdam. When it was proposed during the negotiations over the Maastricht treaty, Britain was against it as part of strategy to limit the scope of supranational authority. This happened despite the fact that Britain had already gone further in the direction of liberalisation than the Commission has proposed. This also illustrates the lack of a common vision for a positive energy policy at the EU level.

In this situation the Commission has a certain freedom as to how directives affecting energy should be defined. As `energy' directives may be handled though the decision-making procedure laid down in the Treaty, which requires unanimity. However, it may also be defined in relation to the internal market and the majority rule of decision-making (article 100a) introduced with the Single Act reform, and further developed in the Maastricht and Amsterdam treaties. Given the high degree of monopolistic tendencies in the energy sector and the barriers to trade between countries, the Commission here has a strong case for the internal market.

It has been argued that the completion of the internal market seriously undermine the role of the DG XVII (Energy), and that energy policy in the future will be dominated by environmental interests (Evans 1998). The position of environmental policy has been strengthened in the Maastricht and Amsterdam treaties. These treaties also strengthened the basis for joint EU foreign policy. Indirectly this may increased the capacity of the Community to deal with supply issues. The EU is highly dependent upon import of oil and gas, and that this is likely to increase even more in the next decade (Lord 1997).

It is, however, important to keep in mind that EU policy is not the only source of change. Policy initiatives will interact with other factors which have more piecemeal effects, but which may be less vulnerable to the political cycles in the EU. The first stems from the interaction between policy-making, the role of the EU court and market strategies. Such interaction is most likely to have an effect on deregulation efforts. However, the Court can also play a role in environmental matters. The other reason is the increased emphasis on subsidiarity, which opens up for more active national strategies within the framework of general EU principles. The other source of change is that some private companies may pursue strategies that can alter existing market structures. Together such forces of change can open up for and support new policy initiatives, as has already happened in relation to the electricity and gas market directives. This also means that issues will not necessarily come back on the political agenda in the same way.


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[*] To be published in: Making Pokicy in Europe, Andersen, S. S. & Eliassen, K. A. (eds.) Sage London 2000

[**] Professor, ARENA

[Date of publication in the ARENA Working Paper series: 15.02.2000]