ARENA Working Papers
WP 02/12


The process of Europeanization-

the case of Norway and the Internal Energy Market


Dag Harald Claes



This paper approaches the study of national adaptation to the EU as a process involving institutional constraints and actors� interactions across levels of decision-making. The argument is that domestic adaptation to the EU is a matter of ability and willingness to conduct integrative political bargaining rather than a matter of matching institutional structures. The paper provides an empirical case study of the Norwegian adaptation to EU energy sector legislation, denoted as the Internal Energy Market (IEM). The various outcomes to different directives in this sector indicate that the structural feature of a particular state or policy sector is inadequate to fully explain variations in national and domestic adaptation to EU legislation. Thus, the paper focuses on characteristics of the process of adaptation itself, focusing on issues like affectedness, policy similarities, bargaining opportunities, and potential for arbitration.


Explaining variations in domestic adaptation to the EU

The willingness of member states to abide by EU decisions or, more generally, support the process of integration has been a key issue since the establishment of the Coal and Steel Community in 1951. The role of national or domestic interests relative to institutional or functional factors have constituted a key dividing line among scholars for decades (Haas 1958, Moravcsik 1998). Empirically, the Luxembourg compromise highlighted the balance between national or domestic interests on the one hand and the integrative forces of the Community on the other.


Following the Internal Market and the increased use of majority voting in the Council, study of the implementation of EU regulations has become more important since the member states are obliged to implement not only decisions they agree to, but also decisions they are opposed to. Thus, variations across member states in implementation efficiency have attracted more academic attention. Although the term �Europeanization� is used to describe different social phenomena (Olsen 2002:4), most scholars seem to associate the concept with this relationship between the EU and the member-states. [1]


The main focus in the academic literature on Europeanization to date has been on the compatibility between the EU and domestic policies and institutions (Börzel and Risse 2000, Knill 1998, Knill and Lehmkuhl 1999). In particular, Cowles et al. (2001) develops the concept of �goodness of fit� and identifies the extent of institutional and policy �match� between the two levels of governance. This approach tends to emphasize structural factors rather than processes, and tends to make the analysis static rather than dynamic.


The ambition of this paper is to supplement these studies with a more process-oriented approach. The argument is as follows: The incompatible policies or mismatching institutional structures, i.e. cases of low �goodness of fit�, is followed by a dynamic process of adaptation. In this process, the interaction among actors can, given institutional constraints, lead to re-evaluation of interests, re-formulation of conflicting issues and adoption of new perspectives or knowledge. Such processes are likely to change both actual and perceived �goodness of fit�, and cause domestic adaptation independent of the initial compatibility or incompatibility of European and domestic institutional structures.


The �goodness of fit�

The essence of the �goodness of fit� argument is spelled out by Cowles et al. (2001:7): �The degree of adaptational pressure � depends on the �fit� or �misfit� between European institutions and domestic structures. The lower the compatibility (fit) between European institutions, on the one hand, and national institutions, on the other, the higher the adaptational pressures.� If related to the actual policy of a member state this proposition seems trivially true. If domestic policy is identical to EU policy, no adaptation is needed. However, if restricted to differences in institutional structures, the relationship between fitting or misfitting institutions and the congruence of policy outcomes opens the potential for empirical variations since integration does not always lead to domestic institutional adaptation. �While European integration has dramatically changed the environment of the domestic administrative institutions, they have responded to these changes in a modest, incremental and differentiated manner � within their existing structures� (Sverdrup 2000:3). If �dramatic� changes at the EU level cannot be traced in domestic institutional changes it might be because policy changes occur within existing institutional structures. Likewise, as Gerda Falkner concludes her empirical study of the Austrian case: �At least on the general, issue-unspecific level, the dominant approach of EU-related implementation theory stressing the misfit between EU and national patterns as the main predictor of implementation problems does not seem to fit this case very well� (Falkner 2001:13). The important observation, for the purpose of this study, is that misfitting institutions can produce fitting policies. In order to avoid confusion I will use the concept �policy similarities� rather than matching or fitting of institutions or structures.


Variations in domestic adaptation are often regarded as a product of the characteristics of the political, economic or administrative systems of the member states or characteristics of the relevant policy sector. The standard approach to domestic adaptation to EU legislation is to start by describing the wide variation among member countries concerning implementation of internal market regulations (Wallace and Wallace 2000:100). Differences in adaptation are then ascribed to differences in political and administrative capacities, or political willingness to comply. How, and to what extent, member states adapt to European integration thus depends upon characteristics of the individual state. This suggests differentiated, not unitary, attitudes towards and responses to European integration from the various states affected by it. Concluding a study of the national institutional adaptation of eleven European states, Hanf and Soetendorp (1998:186-7) found that �in handling the new requirements of EC/EU membership, governmental adaptation was a series of ad hoc responses to emerging problems and demands. It appears that even the intensification of joint policy-making and the broadening of the range of national policies that fall under the EC/EU competence � have not triggered any kind of systematic, centrally directed adjustment to the demands of further Europeanization.� Likewise, Mény et al. (1996:7) argue that �because European policies are the outcome of complex compromises and interactions, and because the Community institutions have no infrastructure at their disposal, the implementation of policies gives back to the national actors a significant margin for maneuver.�


Other widely recognized determinants of variation in domestic adaptation are the characteristics of various policy areas. In the EU, the level of integration, and thus the binding force constraining domestic actors, varies among policy areas. Both the competencies of EU institutions and the political rationale and ambitions for the co-operation among member countries vary across policy sectors. Furthermore, the internal organization of the Commission and the notion of different �pillars� in the EU suggest that different policy sectors will be subject to different pace of integration and thus different pressure for domestic adaptation. It follows that empirical studies of integration and adaptation tend to be organized along policy sectors. [2]


Scharpf (1999:190-191) provides a more fundamental reason for emphasizing national and sectoral differences. He argues that national governments �not only have powerful incentives, but are duty-bound and opposition-pressed to represent what they and their constituents consider to be important national interests in European negotiations � [consequently] � it should not come as a surprise that � researchers focusing on different policy areas should have come to widely differing conclusions with regard to the problem-solving capacity of European decision processes.� Accordingly, Cowles and Risse (2001:223-224) organize their conclusion regarding domestic adaptation along countries and policy areas, but find no �easily identifiable pattern of fits or misfits�. This encourages the search for other explanations of variations in implementation efficiency, moving beyond contextual factors like nation and sector.


Dynamics between integration and adaptation

The notion of fits or misfits between domestic and EU institutions and structures represents a static approach to adaptation. This is fruitful for comparative studies of domestic adaptation across countries and sectors. However, the relationship between the EU and the national decision-making level is interactive and dynamic (Bulmer and Lequesne 2002:20). National governments can �adapt to Europe� by influencing the �making of Europe� through participation in EU decision-making. Even in cases of severe �misfits� interaction between the EU and the national actors can lead to domestic adaptation. The political goals of member states or powerful domestic actors will naturally feed into the bargaining process among state representatives at the EU level. Since both bargaining and individual actors� preference formation are simultaneously processes, member states might constantly review their own position in light of their information about the position of other member states, of EU bureaucrats in various institutions, and of Brussels lobbyists representing different interest groups. The process of decision-making in the EU provides states with ample opportunities for estimating the likelihood of achieving one�s national or domestic interests. Furthermore, formal and informal institutional factors play an important role in defining and refining a states� perceived opportunity set and the utility that individual states attach to possible outcomes (March and Olsen 1989:21-25; Kerremans 1996). The process of integration can thus be regarded as a process of institutional bargaining (Young 1994), where individual states will try to serve their interests and regard the EU institutions� and the other states� behavior as constraints on their ability to pursue national or domestic interests.


Simultaneously, a process of domestic adaptation takes place. As national ministries formulate positions in EU level bargains, domestic actors affected by prospective regulations are likely to try to influence this position. If there are perceived gains by being a first mover, national institutions and policies might be changed in advance. If the domestic adaptation commences before the often long and cumbersome integration processes at the EU level is ended, the member state�s position in the integration process might be influence by the adaptation process at the domestic level. On the other hand, by influencing the integration process a country might bring the common legislation in line with its own interests. Then there is less need for domestic policy changes when the same legislation is to be implemented. Thus it is �fruitless to debate whether domestic politics really determine international relations, or the reverse. The answer to that question is clearly �both, sometimes�� (Putnam 1988:427). Nevertheless, such bargaining processes themselves contain features that influence the probability of national and domestic adaptation to EU legislation. The rest of this paper is thus motivated by the observation of Radaelli (2000:1): �We do not know enough about the processes of Europeanization and its effects. Thus, empirical analysis is essential.�


The process of adaptation

In order to use the concept of Europeanization for the purpose of empirical research, structural factors, characteristics of the process, and possible outcomes of Europeanization should be kept analytically distinct. [3] As argued above, structural characteristics of the state or policy sector is regarded as contextual aspects in the following empirical discussion. The aim is to supplement the literature that emphasizes such factors by focusing on the effects of characteristics of the process of adaptation, in particular the dynamics between institutional features and actors� interests.


The effects of four different factors will be investigated in the empirical analysis. The factors are affectedness, policy similarities, bargaining opportunities and arbitration. These factors represent cumulative analytical stages in the process of adaptation. If the country is not affected by the EU regulation the problem of policy similarities do not arise. Only if policies are not similar the need for bargaining opportunities arises. And finally, only if bargaining opportunities are not available, the need for arbitration arises (see table 1 at page ##).


Affectedness: In some sectors and in some member countries EU legislation has very little impact. Representatives of member states are obliged to participate in the decision-making process even in cases where they are totally indifferent over possible outcomes. In such cases they will most likely be �going through the motions� and let those more affected by the legislation have their will. It is assumed that lack of affectedness, i.e. that no national or domestic interests are identified, would initiate an �automatic� implementation process with little or no political attention.


Policy similarities: In cases where the legislation does affect important sectors or policy issues we will assume that higher administrative attention is paid to the adaptation process. The question now becomes to what extent the legislation is in accordance with existing practices or institutional arrangements. If important directives are in accordance with existing policy and institutional arrangements we can assume that they will be adopted through administrative procedures without any substantial political process. This category is equivalent to the notion of �goodness of fit� used by Cowles et al. (2001). Due to the importance of the policy area, the legislation will be recognized and studied carefully and the affected domestic parties might be invited to give their opinions, but the process will be handled at the bureaucratic level.


Bargaining opportunities: This category contains situations where the legislation in question is important and contradicts existing policy. Furthermore, the state has opportunities to voice and express its opposition. In such cases, some kind of political bargaining processes are likely to be triggered. The EU the member states have several ways of expressing their opposition towards proposed legislation. Such expressed opposition of a single state is then confronted with the interests of other member states and the aims and ambitions of the Commission. Furthermore, institutional mechanisms of socialization and the consensus-driven mode of decision-making create an environment where legislative propositions often come out as a compromise among the affected and interested parties.


A non-member country will usually be outside these mechanisms. They will thus be left to more hard-nosed bargaining in a traditional international negotiation mode or will have to operate as a lobbyist in Brussels. Nevertheless, the EU is involved in several negotiations with other actors with the implication that these actors gain influence on the decision-making and legislation of the Union.


Arbitration: This category contains situations where the legislation in question is important and contradicts existing policy, but where the adapting state does not have access to the decision-making processes inside the EU, nor can it engage in bargaining with EU institutions. In such cases, a conflict-filled process of adaptation can be anticipated. In the absence of arbitrating institutions, such situations are likely to lead to a deadlock or stalemate. If there are institutions for arbitration, adaptation might follow the rulings of such institutions. Such rulings can have the same substantive content as political compromises but their legitimacy is based on the parties� recognition of the arbitrators� authority.


In order to evaluate the importance of these factors one could study domestic adaptation in a large number of countries and sectors. If domestic adaptation in different countries and different sectors were characterized by similar outcomes, factors other than characteristics of country and sector would have to explain the similarities, where the afore mentioned factors serve as possible candidate.


This paper follows a different strategy. By keeping the characteristics of the country and the sector constant, observed variations in the adaptation processes will indicate that other factors are needed to at least supplement differences across nations and sectors. The chosen strategic case would still have to display variation across the factors outlined above. This paper will show that there is considerable variation in domestic adaptation to the EU even within the case of Norwegian energy adaptation. This is partly due to variations in the policy fits and misfits, but more interestingly due to the dynamic interactions between actors� interests and the institutional aspects of the adaptation processes.


The Norwegian adaptation to the Internal Energy Market (IEM)


Norway�s adaptation to the EU in the energy sector cannot be discussed without some general remarks concerning Norwegian policy towards the European integration.


Norway has applied for membership in the EC/EU four times: 1962, 1967, 1970 and 1992. The 1962 and 1967 applications were vetoed by France, as was also the case for the UK. In 1972 53.5 percent of the Norwegian voters, in a referendum, rejected the 1970 application. In 1994 52.2 percent of the voters rejected the 1992 application. Both in 1970-72 and 1992-94 long and hard negotiations between the EU and Norway took place. Before the EU referendum in 1994 Norway entered the EEA-agreement (European Economic Area), an intergovernmental agreement between the EU members and the members of EFTA (European Free Trade Association). [4]


Under the EEA-agreement, Norway has implemented the regulations for free movement of goods, capital, labor and services, and thus secured Norwegian businesses and citizens equal opportunities in the Internal Market. The EFTA-countries do not participate in the internal EU decision-making. They do, however, have experts in various preparatory committees under the Commission. The EEA-agreement implies, in essence, a one-sided adaptation by the EFTA-participants to the EU legislation. Although the agreement provides the EFTA-partners with an option to reject EU legislation, to date Norway has never exercised this right. About 70% of Norwegian exports and about 67% of Norwegian imports are with the EU. Being subject to the same regulations is thus important for a substantial part of Norwegian trade interests. On the other hand, the EEA-agreement has made it possible for the EU to influence the regulation of the Norwegian economy in general, and some important industries, for example energy.


The energy sector is the most important sector of the Norwegian economy. The oil and gas activities on the Norwegian Continental Shelf represent more than 22 percent of GNP, 46 percent of the value of exports, and on average over the past five years, more than fifteen percent of state revenues. Furthermore, the accumulated savings in the so-called Petroleum Fund were 73.5 billion Euro at the end of 2001. Regarding the other part of the energy sector, the supply of electricity and heating to industry and households, Norway has an almost entirely hydro-based power system. Until 1990 this system was characterized by state control, ownership and participation. Large, power-intensive industries were built close to waterfalls and assigned long-term power contracts with a substantial element of subsidized power supply. The state control over petroleum resources at Continental Shelf and control over conditions for power supply are regarded as issues of the highest national importance. The Norwegian petroleum industry is also significant in a European context. Norway accounts for almost half of the total reserves and production of crude oil and around twenty percent of natural gas in Europe. Norway accounts for 18 percent of total oil imports and about 16 percent of gas imports to the EU. In the European energy sector Norway is not a small country.


The IEM directives have triggered quite different political responses in Norway. The discussion in the following sections is organized along the explanatory factors outlined above because the adaptation processes associated with different IEM directives reflect the various factors.


Low affectedness � the price and transit directives

In 1985 the Commission of the European Communities regarded the establishment of an internal market in the energy sector as too difficult to pursue (McGowan et al. 1989:1). By 1988 this view had changed and the Commission presented a communication advocating the establishment of such a market. [5] During the following decade the integration process in the energy field has been concentrated around the preparation, negotiation, decision and implementation of five directives.


With the 1988 communication, the Commission expressed a deep commitment to the IEM. The member states, however, have had different views as to how far the integration and liberalization of the energy sector should be pursued. At the October 1989 Council meeting the energy ministers agreed on price transparency towards large electricity and gas consumers, [6] and at the October 1990 Council meeting they agreed on free gas transit among gas transmission companies, against the votes of the Netherlands and Germany. [7]


In 1991 the Norwegian Ministry of Petroleum and Energy, in a larger study, concluded that the EU directives adopted to date had little or no consequences for Norway. [8] In the electricity section the prospect of open transit is discussed but not regarded as consequential for Norway. In the gas section the price and transit directives are not even mentioned. In both sections the assumption was that the proposed directives would not disturb the monopolistic and vertically integrated structures of the European electricity and gas sectors. This view was repeated in a 1992 study. [9] Here the price and transit directives were recognized as being part of the EEA-agreement, but the report identified no need for any changes at all in Norwegian policy or legislation following these directives. When discussed and negotiated inside the EC, they were hardly recognized by the Norwegian authorities or by any domestic actors. Norway�s formal attachment to the EC was not yet in place as the EEA-agreement entered into force in January 1994. The directives were included when the EEA-agreement was signed, without recognition of any problems regarding their implementation. The implementation of these directives was regarded as politically and institutionally unproblematic. The process of adaptation was almost �automatic�.


Policy similarities � the electricity directive

The price and transit directives were inadequate to break the monopolistic structure and create competition in the gas and electricity sectors in the EU. Stronger measures were needed and the Commission drafted two directives set to establish competitive trade in electricity and gas. Since the gas and electricity networks were regarded as natural monopolies such trade would not appear spontaneously in the market, but had to be created through regulation. The directives for gas and electricity were drafted simultaneously. However, because the Commission regarded the obstacles and resistance among member states to the gas directive to be stronger than towards the electricity directive the decision-making process was split up. Both processes came to a halt in 1992 as almost all countries opposed the proposed directives. �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� (Andersen 2001:113).


Many of the discussions in the electricity sector centered on a model for third party access. In such a system, the owners of the network are obliged to allow producers and consumers to engage in electricity trade. The electricity directive that was agreed upon in the July 1996 Council meeting included two models. [10] The first model is called a 'Negotiated Third Party Access', where �grid owners on the one hand and competitive suppliers or customers on the other, negotiate conditions of access to the grid� (Johnson and McCann 1997:75). This model presupposes some kind of governmental monitoring of the behavior of the grid owners. The other model is called the �Single Buyer Model� and was included after pressure from France. Here a single buyer is chosen by the authorities and operates as the only purchaser of electricity. The directive specified the extent of market opening, which was defined as the percentage share of the electricity market that should be opened to competition immediately, and the expansion of this opening after a period of time. The member states were free to choose among the different regulatory models.


Traditionally, the ownership in the electricity sector of Norway has been extremely fragmented. Of the 337 distribution companies, 76 percent had less than 5000 consumers attached to their network (Barth Jacobsen 1998:70). Lack of maintenance and investments in technical upgrades to the network was widespread. Prices differed substantially across local electricity companies, the most expensive charging almost four times the tariffs of the cheapest utility. The individual end-user was bound to their local supplier. Although the national electricity company had established a system of common utilization, the fragmented structure was regarded as containing considerable inefficiencies. Thus, there were many reasons for modernizing the organization of the Norwegian electricity system. The fact that it ended up as one of the world's most liberalized systems might be ascribed to internal government processes as well as individual political entrepreneurs pushing for a highly liberalized solution (Barth Jacobsen 1998:172-191).


The proposed changes on the table in the late 1980s were not far reaching. The change of government in 1989 and proposals following a contracted research report were the two events that revolutionized the Norwegian electricity system in less than one year. The end result was new energy legislation in 1990 that reduced the number of utilities, unbundled services, provided full third party access, and free choice of supplier for all consumers. The production and transmission of power were split so that each end-consumer, even the individual household was free to choose their supplier among all producers. The tariffs charged for transmission is still regulated, while the price of supplied electricity fluctuates according to supply and demand conditions.


A common power exchange between Sweden and Norway and an invasion of traders and brokers facilitating a working spot market, thereby reducing the consumer's information costs, have created market dynamics beyond predictions only a few years back. It is fair to say that the Norwegian electricity industry is more liberalized than what is likely to be the case in most parts of the EU for many years to come, notwithstanding the Commission's increased efforts to fully implement the electricity directive. When the EU developed its electricity directive during the 1990s, the Norwegian system served as a model for a liberalized electricity sector. Having changed its policy and institutional arrangements ahead of the EU, the Norwegian authorities could include the directive into Norwegian legislation with no changes in either policy or institutional arrangements. The EU decision-making process regarding the electricity directive was closely followed by the Norwegians, but the adaptation process can best be characterized as administrative.


Bargaining opportunity � the licensing directive

Crude oil is not traded through networks like electricity and gas and, thus, not subject to the same potential for monopolies in transport and transmission. However, the Commission noted that oil-producing countries had developed a strong national or state control over the exploration of hydrocarbon resources (Johnson and McCann 1997:65). To open up the downstream segments of the product-chain to competition while simultaneously leaving the upstream production in the hands of national (state) monopolies would contradict the aim of the Internal Market project. Thus, in 1992 the Commission proposed a directive ensuring non-discriminatory and transparent procedures for granting licenses for prospection, exploration and extraction of hydrocarbons. [11] The jurisdictional control over natural resources remained in the hands of the states, with the sole right to decide if an area was to be opened for prospection and exploration. However, when the governments had decided to open up an area, common rules should apply concerning granting of licenses. Initially, technical and financial capabilities of the applicants were the primary criteria for granting of licenses. However, the final agreed upon text in 1994 also included an opening for member states interference in the exploration and production due to concern for inter alia national security, public safety and health, environmental protection, and planned management of hydrocarbon resources. Intervention in the decision-making process had modified the proposed directive. Norway played an important part in this process.


When the licensing directive was first drafted in the Commission in the spring of 1992 it caught the attention of Norwegian media and politicians. Initial rumors had it that European oil companies were behind the directive in order to gain control over Norwegian oil and gas resources. [12] The Norwegian government regarded the directive as redundant: �Norway's status as a major supplier of energy to the EC makes it natural and necessary for us to participate actively and on equal terms in discussions of policies related to the energy sector. We are confident that our EC partners will understand how some proposals, particularly the draft Hydrocarbon Licensing Directive - for which we see no obvious need, give rise to serious concern.� [13] �Norway doesn�t need any licensing directive. Our policy is reasonable viewed both from the position of Norway and the EU.� [14]


One of the biggest challenges to the Norwegian regulatory regime was the consequences of the directive for the role of the state owned oil company � Statoil. The privileged role of Statoil had been a cornerstone in Norwegian petroleum policy since the company was established in 1972. Statoil had automatically gained at least a 50 percent share of all new licenses and the so-called �sliding scale� implied that the government could increase Statoil�s share if prosperous discoveries were made. [15] In 1993, partly as a pre-emptive move in the upcoming EU membership negotiations, the provision of a 50 percent share and the �sliding scale� were abandoned. By the time the licensing directive was to be implemented several aspects of the controversial role of Statoil had already been handled. Only the division of the bookkeeping for Statoil and The State Direct Ownership (called SDØE) needed to be adjusted in the final rounds.


Another problem for the Norwegian government in the first draft of the directive was the lack of leeway for state control and involvement in the licenses. The Norwegian authorities initially regarded the proposed licensing directive as being in direct conflict with fundamental national interests regarding the exercise of sovereign control over natural resources. For instance, the criteria for granting a license were restricted to non-discriminatory criteria based on the companies' technical and financial capabilities, price and efficiency. [16] In the adopted directive of 1994, other unspecified relevant and non-discriminatory criteria are allowed when applicants had equal merits on the stated criteria. [17] The final draft thus left more to the discretion of the member states.


Such changes in the directive came after increasing Norwegian involvement in the internal EU negotiations on the directive. With the opening of the Norwegian membership negotiations in April 1993 a formal setting for Norwegian participation was added to the existing informal channels. Norway was more or less treated as if it were member of the EU. In June 1993 the Council agreed �that all efforts should be made to resolve the remaining issues � facilitated by the intensive contacts that the incoming Presidency and the Commission intend to maintain with Norway.� [18] During the Belgian Presidency in the autumn of 1993 discussions on the directive were held between the Belgian and Norwegian prime ministers. In EU documents Norway appears as an important partner in the directive negotiations: �Text inserted in order to meet the Norwegian concern � DK [Denmark] reservation on the text as it may not meet the Norwegian concern � Cion will contact Norway on this subject.� [19] Based on interviews both with Norwegian and EU bureaucrats involved in the negotiations, Nygård (2000:57) concludes that the �directive was designed to suit Norway.� Johnson and McCann (1997:66) conclude that Norway �played an influential role in toning down the final directive.� The EU council accepted the Norwegian involvement due to Norway�s strong interests, its dominant position in the European oil and gas industry, and to the institutional frame created by the fact that Norway was negotiating membership in the EU. The final text of the licensing directive could, as such, be regarded as the result of a political compromise between Norway and the EU member states. In this case, the Norwegian process of adaptation was characterized as a bargaining process that influenced the EU legislation it subsequently had to implement.


Arbitration � the gas directive

In 1991 the Commission proposed a directive for the gas market similar to that proposed for the electricity market (see above). After long negotiations, it was adopted in 1998. [20] The directive established common rules for the transmission, distribution, supply and storage of natural gas. Previously, gas producers sold to pipeline owners, who then sold the gas on to consumers. Now the owners of the gas pipelines had to open up for producers and consumers also to engage in this trade, similar to the network owners in the electricity sector. This implied a system of third party access in the gas sector as well. [21] Ownership of the pipelines had thus been separated from the transmission of gas in the pipelines.


The main problem in implementing the gas directive is the position of statutory or de facto monopolies in gas transmission. Simply privatizing national transmission companies is not sufficient to promote competition since a single pipeline will usually be more economically efficient than two parallel and competing pipelines. The challenge is, therefore, to develop legislation necessary to create competition within the single pipeline. This in turn requires a regulatory body with power to arbitrate in the commercial negotiations between sellers and buyers, and the ability to prohibit price discrimination. A possible next step in the development of the IEM is therefore to replace the desired deregulation at the national level with the establishment of regulations and regulatory institutions at the EU level. [22]


Norwegian gas exporters have been skeptical of the consequences of the gas directive since the Commission presented the first draft in 1991. The gas directive is primarily focused on regulating the relationship between the large transmission companies and large industrial end users and distribution companies. However, several aspects of the directive have been regarded as problematic for Norway.


Gas production on the Norwegian shelf requires large investments. This makes it necessary to secure large gas volumes when entering into export contracts. The so-called �take-or-pay� contracts guarantee the producer payment even if demand should disappear since the buyer will have to pay for the contracted volumes even if he cannot take the physical gas. The giant Troll field, the backbone of Norwegian gas production, may possibly not have been developed without this type of contract. With the liberalization following the gas directive the Norwegian government and gas exporting companies have feared that it will be difficult to find buyers with the necessary financial capacity to enter into such long term binding �take-or-pay� contracts. The risk connected to development of large and costly gas fields will then be transferred from the gas buyers to the gas producers.


Another problematic aspect following the gas directive is the application of the principle of �Third Party Access� to the pipelines on the Norwegian Continental Shelf. As pointed out above, �Third Party Access� implies that eligible buyers can purchase the gas from any producer in the market. The pipeline owner is obliged to transport the gas if the pipeline has spare capacity. An application of this principle to the network of pipelines on the Norwegian Continental Shelf would make it difficult to co-ordinate the gas flows from different fields and through the various pipelines to the designated landing points on the Continent. The Norwegian government has argued that such co-ordination is vital for optimal management of the Norwegian gas resources. It might also have implications for oil production since many fields on the Norwegian Shelf are so-called condensate fields, with both oil and gas reserves. From the EU's point of view, the question is how to design a system that ensures optimal resource extraction without having unnecessary negative effects on competition in the gas market.


A third problem for the Norwegian government is the challenge to the nationally co-ordinated and state controlled gas sales. When Statoil gained an automatic majority in all licenses in 1973 the company also took charge of the gas sales negotiations. In 1984, the two other Norwegian oil companies, Norsk Hydro and Saga Petroleum, were included in the gas sales activities through the establishment of the gas negotiating committee (GFU). �Given the strong concentration and co-ordination on the buyer side, Norwegian gas exports must be co-ordinated and all main negotiations lead by one entity.� [23] The reason for excluding foreign companies was that they had substantial downstream interests and thus might be on both sides of the table if included in GFU. GFU thus explicitly contradicted the fundamental rules of the Internal Market regarding discrimination due to nationality: �With respect to the central co-ordination of the marketing of gas that takes place through the GFU, there can hardly be any doubt that this will be negatively affected by the competition rules. Only the Norwegian companies Norsk Hydro, Saga Petroleum and Statoil are represented in the GFU. To refuse foreign companies participation solely on the basis of their nationality will undoubtedly be in contravention of the EEA Agreement article 4� (Arnesen 1992:470, my translation). In the spring of 1993 foreign licensees were included as participants in the sales negotiations: �Dependent upon the actual field selected as supply source and guarantor for new contracts, GFU must to an increased degree include in the sale process the holders of rights.� [24]


Although not discriminatory, the system of co-ordinated gas sales could still be regarded as reducing competition in the gas market. This was conspicuously demonstrated when one of the GFU partners, Saga Petroleum, tried to sell gas to the German company Wingas in 1995. [25] When Saga Petroleum applied to GFU to purchase Norwegian gas for sale to Wingas, the two other GFU companies, Statoil and Norsk Hydro, refused to sell gas to Saga. [26] GFU was clearly revealed as a trade-hindering organ. The German Bundeskartellamt placed the Saga-Wingas affair before the EU Commission. [27] In 1996 the EFTA Surveillance Agency (ESA) at the request of the Commission, conducted an inspection in the offices of the Norwegian companies as well as the Ministry of Petroleum and Energy. Two investigations were then initiated. One was based on the possible GFU violation of EEA-agreement article 53. [28] That concerns unlawful fixing of prices, sales volumes and other aspects of cartel behavior. This was directed towards Statoil, Norsk Hydro and Saga Petroleum. It was pursued by the Commission because the co-operation among the GFU companies had potential market-distorting effects in the EU. The other investigation was pursued by ESA on the basis of EEA-agreement article 59, [29] which considers the extent to which the GFU should be regarded as a public undertaking, which  performs tasks of �general economic interest�, and thus should be exempted from the competition rules of the agreement. In 1997 the latter investigation triggered a response from the Norwegian Ministry of Petroleum and Energy to ESA in the form of a memorandum concerning the GFU. [30] Here the GFU is regarded as an integrated part of the Norwegian resource management system and thus the Ministry �does not consider the EEA-agreement applicable to the establishment and functioning of the GFU.�


The investigations by ESA were later put on hold since it wanted to see the effects of the implementation of the gas directive. [31] In the Commission investigation, there was not much progress until 2001. In June 2001 the Commission issued a statement of objections to Statoil and Norsk Hydro warning that �the joint sales of Norwegian gas through the GFU infringe article 81(1) of the EC treaty and Article 53(1) of the European Economic Area (EEA) Agreement.� [32] Such infringement procedures could ultimately lead to large fines for the companies involved. A week earlier the Norwegian government had abolished the GFU. [33] The Commission argued, however, that existing gas contracts negotiated by the GFU would continue to have detrimental effects in the European gas market and thus pursued the case against the companies even though the GFU had been abolished. The Norwegian government is regarded only as an affected third party in this case despite the fact that the companies' behavior in the GFU was based on formal legislation by the Norwegian government. [34] In February 2002 the government formally proposed to parliament that Norway adopted the gas directive. [35]


From the first 1991 draft of the gas directive until 2001, the Norwegian authorities have tried to influence all the aspects of the directive. However, contrary to the case of the licensing directive, the EU and its member states have been reluctant to let the gas directive be marked by Norwegian views. The lobbying for Norwegian interests has been directed towards both the EU institutions and towards particular member states in order to have these countries voice Norwegian concerns in the Council. In the end, Norway backed down and abolished the GFU, once regarded as the backbone of Norwegian gas exports. The Norwegian adaptation to the gas directive was a process characterized by conflict and confrontation. [36]


Conclusion - the process of Europeanization

By keeping country and policy sector constant the focus of this study has been on the process of EU adaptation. The empirical case, Norwegian response to directives in the field of energy, shows a variety of responses ranging from disregard to strong resistance. Table 1 summarizes some characteristics of the Norwegian adaptation to the five categories of EU energy directives.


The Norwegian adaptation to the transit and price directives was characterized by almost total ignorance. The issues were regarded as having no relevance for the Norwegian energy sector. They were perceived as concerning other countries and were consequently hardly noticed by Norwegian politicians. The Norwegian adaptation of the electricity directive was somewhat different. Here the issues were regarded as very important, but the existing policy and institutional arrangements in Norway were in line with, or even went further than the directive. Had this occurred ten years earlier, the electricity directive would have caused political turmoil. However, since Norway had already revolutionized its electricity market, the electricity directive was registered and adopted with an attitude of �welcome to the club�. In the case of the Norwegian adaptation to the licensing directive the Norwegian authorities immediately recognized strong contradictions between the Norwegian policy and the one proposed in the directive. Due to a concurrence of events the Norwegian authorities had the opportunity to be included in the internal bargaining processes in the EU. This lead to a legislative output at the EU level that explicitly took Norwegian concerns into account.


Finally, in the case of the Norwegian adaptation to the gas directive, strong conflicting interests were perceived but bargaining opportunities did not emerge. Strong resistance and threats of legal prosecutions thus characterized the process of adaptation.


Table 1: Categories of Norwegian adaptation

Directives under the IEM

Low Affectedness

Policy similarities

Bargaining opportunities

Arbitration or �surrender�


Transit and prices




















Characteristics of the process

Ignored, �automatic�


Political compromises




The importance of the bargaining opportunities shows that even in cases of strong misfits institutional arrangements can facilitate political processes that lead to acceptable outcomes for all parties involved, at the national, domestic and at EU levels. Thus, the key issue is not the fit or misfit itself but the institutional preconditions to resolve existing or potential misfits and the ability and willingness of the actors involved in the political bargaining process to pursue strategies that facilitate compromises.


When a country influences legislation one can assume that the implementation of the same legislation will be easier. In order to understand the mechanisms of Europeanization we need not only to identify the presence of 'fits' or 'misfits' between EU and domestic structures but also to explain how this match has come about. The process of Europeanization is different if domestic institutions adapt to the EU due to pre-existing policy similarities, after political bargains or due to legal arbitration.


What additional general lessons can be learned from a case study like this? First, by tracking concrete processes of integration and adaptation one can reveal the dynamics between integration and adaptation. Secondly, by studying adaptation in one sector in one country the observed variation cannot be ascribed to differences between countries or policy areas. This suggests that traditional comparative studies should be supplemented by process-oriented studies of domestic adaptation. Thirdly, such process-oriented studies could also serve as an instrument for the further development of more open and dynamic models of Europeanization.


To some extent this study leaves open the relative status of the identified factors. A case study like this cannot decide if affectedness, policy similarities, bargaining opportunities or legal arbitration are widespread factors that influence most cases of domestic adaptation to EU integration. Only further empirical studies of the processes of adaptation in other countries and sectors can determine the relative importance of such factors compared to other explanations of the variation in domestic adaptation to EU integration.




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[1] Even within this realm of studies the definition of Europeanization is contested. While some scholars use the term Europeanization as the development of political institutions at the European or EU level (Risse et al. 2001:3), others focus on the effect of such institutions on domestic politics and policies (Hix and Goetz 2001:16). Ladrech (2001:3) defines Europeanization as �a set of processes through which the EU political, social and economic dynamics become part of the logic of domestic discourse, identities, political structures and public policies�. This definition is based on Ladrech (1984), developed by Radaelli (2000), and commented by Ladrech (2001:3). Thus it is called �the Ladrech/Radaelli definition of Europeanization.�

[2] See for instance Andersen and Eliassen (2001) regarding EU policy-making in general; Kassim and Menon (1996) on different industries; and Claes and Tranøy (1999) on the Norwegian case.

[3] This is also pointed out by Radaelli (2000). While he relates the distinction between structure and process to the methodological need to keep interacting phenomena analytically distinct, the distinction between Europeanization as a process and the outcome of the same process is related to the definition of the concept.

[4] The EEA-agreement was originally between twelve EU members and all the EFTA-countries. Since the agreement was signed Switzerland rejected participation and Finland, Sweden and Austria joined the EU, leaving Iceland, Liechtenstein and Norway as the three EFTA-partners of the EEA-agreement. The relationship between the two sides of the EEA-agreement has become very asymmetric.

[5] EC Commission: The Internal Energy Market, COM (88) 238.

[6] Directive 90/377/EC

[7] Directive 91/296/EC

[8] Utredning om EF og EØS i departementenes regi [Report on the EC and EEA by Norwegian Ministries], Ministry of Finance, Oslo 1991 p.105.

[9] Norsk økonomi og næringsliv ved ulike tilknytningsformer til EF [Norwegian economy and industries in different forms of attachment to the EC], Report from a Working Group under the Junior Minister committee for European Studies, Report October 1992, p. 66-67.

[10] Directive 96/92/EC

[11] Directive 94/22/EC

[12] Dagens Næringsliv (Oslo), 22 September 1992.

[13] Minister of Trade Bjørn Tore Godal, in his remarks at the opening of the membership negotiations between Norway and the EC in Luxembourg, 5 April 1993, printed in UD-info 13 April 1993 - no.15 p.6.

[14] Minister of Petroleum and Energy Finn Kristensen, Aftenposten (Oslo) June 9 1993 (my translation).

[15] In 1984 Statoil�s dominant position was somewhat reduced by the introduction of a direct state ownership (SDØE). The state took a direct share of investments and profits in several fields. Thus, part of the state income by-passed Statoil.

[16] Article 6 in Commission proposal for council directive on the conditions for granting and using authorizations for the prospection, exploration and extraction of hydrocarbons, COM (92) 110, Brussels, 11 May 1992.

[17] Article 5, Directive 94/22/EC.

[18] Summary of discussion at Council (Energy) Meeting June 25. 1993, cited in Andersen 1995:101.

[19] Note from Working Party on Energy to Permanent Representatives Committee of 6 December 1993 on Proposal for a Council Directive on the condition for granting authorizations for the prospection, exploration and production of hydrocarbons. 10840/93 Restraint Ener 114. Brussels: The Council; quoted in Nygård 2000:57.

[20] Directive 98/30/EC

[21] Member states were also obliged to open up 20 percent of the gas market for competition by 2000 and 28 percent by 2003. By 2000 most countries, except France and Germany, had exceeded the required market opening.

[22] COM (2001) 125 provisional version, Brussels, 13.3.2001.

[23] Report to the Parliament, no. 46 (1986-87):59, my translation.

[24] Report to Parliament, no. 2 1992-93:104-105.

[25] Saga Petroleum had negotiated an agreement with Wingas for the leasing of transport and warehousing capacity for a 15-year period, and an agreement on sales of gas of volume 1.5 billion cubic meters annually. Dagens Næringsliv (Oslo) 21 April 1995.

[26] �Saga Petroleum gives up its attempt to sell gas to Germany. Under pressure brought to bear by Statoil and Norsk Hydro, the company withdraws from the gas negotiations with the German company Wingas� Dagens Næringsliv (Oslo) 18 August 1995.

[27] Aftenposten (Oslo) 22 June 1996.

[28] Equivalent to EC Treaty article 81.

[29] Equivalent to EC Treaty article 86.

[30] Ministry of Petroleum and Energy, Memorandum on the Establishment and Functioning of the GFU, Oslo 20 January 1997.

[31] Dagens Næringsliv (Oslo) 7 April 1999.

[32] IP 701/830 13 June 2001.

[33] Press release from the Ministry of Petroleum and Energy 67/01, 29 May 2001.

[34] Parliamentary Report no. 46 (1986-87) latest revision by instruction from The Ministry of Petroleum and Energy based on Kgl. Res 28 January 2000.

[35] St.prp. no. 42 (2001-2002).

[36] The former president of Norsk Hydro, Torvild Aakvaag, recently characterized the EU policy towards Norway as a case of badgering. He suggests that this attack on Norwegian sovereignty should be retaliated by refusing to sign any new contracts for gas sales, stop all planned pipeline constructions, and freeze the authorization of licenses in prospective gas fields. Aftenposten (Oslo) 01 October 2001.