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European Union is a constantly moving and adapting “mechanism” for the continental integration. Recently, the EU leaders have abandoned, in part or in whole, the previous political-economy’s theories and principles they cherished for so long; hence the EU-27, as it seems, has set aside the geopolitical corporate competition. However, the leaders are trying to prove that the block is capable of elaborating innovative means to navigate progressively in a volatile multi-centered world…
Background
The European Commission’s college (functioning since 2019 with its members as the EU-wide sectoral “ministers”; the new College is to be formed at the end of 2024) has had among main constantly altering and changing political priorities two main tasks for the member states’ governance: a) measures to withstand major geo-political, and b) mitigating macro-economic challenges. The positive thing is that the EU-wide political guidance provides for the bloc of 27 states some “unified grounds” in dealing with global challenges, growing geopolitical turbulences and member states’ socio-economic security.
Some experts acknowledge that Kantian idealism is presently very much out of political economy’s discourse; hence, the Hobbesian’s realism is slowly coming back (e.g. Thomas Hobbes believed that humans have no moral compass unless there are predetermined rules depicting good and bad actions).
However, both the realism and idealism in political economy having good and bad signs, as soon as there is “no morality in the state of nature”, there is no contract without an absolute power to enforce it, and therefore law and “justice” only appeared when the sovereign is being established.
More in: https://www.google.com/search?client=firefox-b-e&q=hobbesian; and in: https://en.wikipedia.org/wiki/Immanuel_Kant.
EU in geopolitical world
Some examples of the EU’s geopolitical actions:
= The EU successfully managed and tackled recent covid-pandemic; and the European Commission has shown its role as the guardian of European solidarity followed by a large-scale macroeconomic recovery and resilience program with an accelerated contra-austerity moves.
= The EU has found some reciprocal “answers” to withstand growing unfair competition and aggressive pressures from China and the United States.
= Rapid technological advances in clean energy, ICT, digital transition and artificial intelligence, etc. were followed by establishing new patterns in the EU-wide industrial policy.
Source: Matthijs M., Meunier S. Europe’s Geo-economic Revolution: How the EU Learned to Wield Its Real Power. – Foreign Affairs, August 22, 2023. In: https://www.foreignaffairs.com/europe/european-union-geoeconomic-revolution?utm_medium=newsletters&utm_source=fatoday&utm_campaign=Europe%E2%80%99s%20Geoeconomic%20Revolution&utm_content=20230829&utm_term=FA%20Today%20-%20112017
European strategic autonomy
The European Commission declared recently a new doctrine of “open strategic autonomy,” which was grounded in a series of new unilateral measures meant to equip the EU-27 member states for a global zero-sum economic competition and restrictions rather than striving growing openness.
Most of these new instruments have been also defensive as they seek, for instance, to secure the EU-wide supply of critical raw materials and access to essential technologies and/or to guarantee that the carbon price of imports is equivalent to the one EU producers must pay. Other measures are more offensive: they include retaliatory means against states that refuse to act reciprocally or counter efforts by other countries to coerce EU member states into adopting foreign policies that conflict with EU values such as democracy or the rule of law.
Besides, there is a recent innovative mechanism for investment screening (dated back to 2020), which intends to assist the member states’ governments reviewing foreign direct investment. During first two years of the investment screening, the EU and the states’ officials examined more than 600 inbound investments, most of them, in order of importance, coming from the US, the UK, China, the Cayman Islands, Canada, the United Arab Emirates, etc.
Lately, EU officials have also discussed the possibility of more active screening outbound investments by the member states’ governments by controlling European firms’ investment strategies abroad, especially in critical sectors such as advanced semiconductors, quantum computing, and artificial intelligence.
Thus, the EU International Procurement Instrument, which had been stuck in development for a full decade, finally starts working: the European Commission will determine if non-EU countries grant EU-based companies fair access to compete for public works contracts. If a given country fails this test, the EU will retaliate in kind: when a company from the offending country makes a bid for the EU’s own public procurement tenders, it will suffer an automatic price penalty or may be excluded from bidding altogether. Recent years has also seen the adoption of the Foreign Subsidies Regulation, which enables the EU to prevent market distortions caused by subsidies given to foreign firms that then compete with EU firms on takeover bids (in the EU or abroad) or for public procurement.
“Europe’s global influence comes from its economic strength and openness; today, this strength is weakened due to factors such as high energy bills, high regulatory burden and lengthy permitting procedures. The next EU leaders must tackle these issues while keeping Europe open to trade.”
Citation from a speech by Fredrik Persson at the BDI’s federation event “Day of Industry – Cohesion in Polarized Worlds”/ 24 June 2024.
According to the Commission’s first-ever economic security strategy, unveiled in mid-2023, the EU leaders make the usual references to multilateral cooperation and the rules-based international order, but it is obvious from a close reading of the text that in their search for partners, they will first and foremost look to like-minded countries such as India, Japan and the United States.
Accordingly, the strategy emphasizes bilateral and “plurilateral” cooperation of varying formats and degrees of institutionalization, from the G-7 to high-level economic talks, investment partnerships, and raw materials clubs. The EU has indeed come a long way from presenting itself as a guardian of the multilateral liberal order.
Providing a stable energy supply is often described in terms of a “trilemma” – a balance between supply security, environmental sustainability and affordability; and the security of supply is the easiest to achieve. Security of fossil fuel supply is particularly easy to ignore in countries that are striving to greatly reduce their fossil fuel consumption for climate reasons. The political focus is on building renewable energy and zero-carbon systems, and mitigating the economic, social, and political costs of transition; the thought was that the existing system would take care of itself until it was phased out. This was the case for much of Europe until two years ago.
There are still substantial regional differences in both energy supply and response to the crisis among the EU member states, which is tarnishing optimal possibilities in generating a EU-wide political-economy’s response in the future. Some EU member states that have not been able to or have not chosen to reduce their dependency remain highly vulnerable to Russia’s energy imports.
The EU’ s energy policy has been for decades one of constant tension between national protectionism and the EU-wide attempts to deepen integration and remove barriers to cross-border energy trade, as well as to address climate and sustainability issues, and geopolitical tensions in Northern Africa and the Middle East in achieving supply security. It was only in 2015 that the “Energy Union” framework tried to connect the EU’s climate and renewable energy goals and its energy security strategy under one roof.
Citation from: https://www.brookings.edu/articles/europes-messy-russian-gas-divorce/
Decarbonization in the EU
The realization that humans were influencing the climate came in the 1980s; in the 1997 Kyoto Protocol, the EU committed to an 8 percent cut in greenhouse gas emissions by 2012 compared to 1990 levels. In the same year, the Amsterdam Treaty included sustainable development as a cross-cutting objective.
A major obstacle to cross-border energy trade was the monopolistic structure of the national markets for generation and transmission, preventing third parties from accessing the grid. To overcome this, in 1996 and 2003, the EU adopted the first electricity directives that aimed at increasing competition in the power market and ensuring a free choice among electricity suppliers. Similar directives for gas were issued in 1998 and 2003. The third energy market package in 2009 aimed to break up vertically integrated energy utilities.
The 2009 Lisbon Treaty, for the first time, included a separate section on energy. This outlined the objectives of EU energy policy, namely to, “ensure the functioning of the energy market; ensure security of energy supply in the Union; promote energy efficiency and energy saving and the development of new and renewable forms of energy; and promote the interconnection of energy networks.”
In the past decade, climate threats have increasingly been a driving force in the EU’s energy policy. An energy and climate package agreed in 2007 set binding sustainable energy targets for 2020. These are a 20 percent cut in greenhouse gas emissions, a 20 percent share of renewables in final energy consumption, and an indicative target of 20 percent improvement in energy efficiency.
Natural gas is used quite differently from one European country to the next, for reasons including weather, industrial and household usage, and the availability and preferences for alternative forms of energy. For example, gas is important for heating homes in Northern Europe’s colder climates, while France’s vast investments in nuclear power mean that little natural gas is used in power generation.
Some uses can be more easily substituted, such as moving from natural gas-fired power generation to renewable electricity or other forms of fossil fuel generation. Building new electricity generation capacity takes time, but electricity systems are often sufficiently diversified and have enough capacity that other forms of generation can substitute. However, in the near term, this often means running more coal-fired generation. Extending the lifetime of existing nuclear reactors is another option, as is currently happening in Belgium.
Other uses of natural gas are much more difficult to substitute: e.g. electric heat pumps are a fine substitute for natural gas in home heating, but installing them in millions of individual homes and businesses is time-consuming, expensive, and requires the will and cooperation of building owners. When German economics minister Robert Habeck attempted in 2023 to force the adoption of heat pumps by law within a year, he set off a political storm (the law later passed with a longer timeframe and more exemptions). Additionally, many industries that use natural gas require combustion to achieve very high process heat. Natural gas is the cleanest fuel for these applications. Industries that use natural gas as a raw material, like the chemicals industry, find it especially difficult to substitute.
A combination of conservation and fuel switching helped Europe get through the winter of 2022-23 (along with the blessing of unusually warm weather). The winter of 2023-24 played out similarly, with gas added to storage later in the season than usual as warm weather continued into the fall. The same factor affected demand differently from one country to the next; for example, in the winter of 2022-23, about 20% of Germany’s gas demand reduction was driven by warmer weather, whereas in France the figure was 60%.
An additional factor that is buried by considering Europe as a whole is that sources of natural gas differ greatly across Europe. Although overall 40% of European gas imports came from Russia before the conflict, this statistic hides almost total dependence in some areas and little supply to others. Thus, the question became not just of replacing gas in general, but of finding mechanisms of moving gas to areas that were previously served by Russian pipelines.
LNG has been a key mechanism to replace Russian pipeline gas, achieved especially through the deployment of floating re-gasification and storage units (FSRUs). These units receive LNG from transport vessels and transform it from liquid back to its gaseous state. Facilities to connect these vessels can be built much more quickly than a full onshore re-gasification facility, and Europe secured 12 new FSRUs in 2022. Since the beginning of the war in Ukraine, Europe has added 53.5 bcm of LNG import capacity, including expansion of a terminal in France and FSRUs in Finland, the Netherlands, Germany, and Italy. In 2022 and 2023, LNG made up 34% and 37% of Europe’s natural gas consumption, respectively, up from 19% in 2021.
The EU permitted exemptions from its rules limiting state aid for the construction of LNG facilities after the Ukraine war began. Germany passed the LNG Acceleration Act, simplifying and expediting the licensing of FSRU terminals, and in November 2022 fully nationalized Gazprom Germania, a wholly owned subsidiary of Gazprom that is now known as Securing Energy for Europe (SEFE).
Additionally, although areas served primarily by LNG before the conflict were less directly affected by the gas cutoff, they did experience much higher LNG prices as competition for gas increased. As a result, these countries also paid a price for the cutoff and had incentives to reduce demand as a result.
Continental transit hub: Germany
Before Russia-Ukraine military conflict, Germany received about 65% of its gas supply from Russia and in turn supplied gas to other countries in Eastern Europe, including the Czech Republic, Austria, and Poland—it was and arguably remains the key gas transit hub in continental Europe. With the shutdown of the North-stream and Yamal pipelines, Germany lost all its Russian pipeline supply in September 2022. The extreme reliance of Germany and its neighbors on Russian pipeline gas meant that actual physical shortages were a possibility after the cutoff, unlike in other areas where the primary concern was high prices.
Germany has largely swapped dependence on Russia for dependence on Norway for its pipeline gas supply: in December 2023, SEFE signed a new $55 billion long-term contract with the Norwegian producer Equinor. The contract calls for Equinor to supply 111 Terawatt-hours (TWh) of gas (or about 10 bcm) annually for the next 10 years, about 16% of the supply that Germany received through the North-stream pipeline before the war. With this new contract, approximately 60% of Germany’s gas supply will come from Norway.
However, some of Germany’s neighbors remain dependent on Russian gas: e.g. Austria’s dependence on Russia reached 98% at the end of 2023; the partially state-owned company OMV stated that it intends to keep buying gas from Gazprom under a contract that runs until 2040. The challenge is that ending the confidential long-term contract would likely trigger an early termination fee worth more than €1 billion. However, for such moves, strong policy support would be needed, such as laws requiring the end of Russian supply that might allow OMV to claim force majeure.
The rest of Germany’s gas needs are now met by LNG supplied by the US, Qatar (still Russia, but quite confidentially); before the crisis, Germany had no LNG import terminals, although it imported gas from other countries, particularly Belgium and the Netherlands, that originally arrived in Europe as LNG. After the cutoff of Russian supply, Germany implemented a crash program to add LNG import capacity with FSRUs, and the first of these receiving facilities completed construction in a record nine months. Three FSRUs are currently in operation, with two more set to come online in early 2024. Germany’s economy ministry has stated that it expects LNG import capacity to reach 37 bcm/year in 2024.
Increasing supply from other sources has been central to Germany’s crisis response; but demand reduction also was a key component of weathering the crisis. From July 2022 to March 2023, natural gas demand in Germany decreased by about 20%, with the largest contributions from industry with a 26% reduction, and households with a 17% reduction (with help from a mild winter). Reduction in industry use came mostly from energy-intensive sectors like chemicals, paper, or fertilizer, with significant drops in production and increases in imports. For example, BASF is closing an ammonia plant in Germany, stating that, “High energy prices are now putting an additional burden on profitability and competitiveness in Europe.”
However, German industrial substitution came with negative ecological side effects, since it often switched gas for fuel oil. And despite its strong anti-nuclear lobby, Germany briefly extended the life of its last three nuclear reactors and it brought several mothballed coal-fired plants back online. Finally, the German government’s sweeping up of LNG on world markets and its immense subsidy packages for industry and consumers limited supplies for other countries and drove up prices, angering poorer EU neighbors and EU officials in Brussels.
https://www.brookings.edu/articles/europes-messy-russian-gas-divorce/
EU Clean Energy Package
In 2014, the EU adopted its 2030 energy and climate framework that called for a greenhouse gas reduction goal of at least 40 percent, at least a 27 percent share for renewables in the energy sector, and at least a 27 percent improvement in energy efficiency.
These targets form a basis for the Clean Energy Package currently being negotiated, which lays out the legal groundwork for future energy policy. But these cuts are still not steep enough to fulfill the EU’s commitments under the Paris Agreement and to keep global warming below 2 degrees Celsius.
Europe imports 54 percent of its energy. Yet the European Commission has limited competency in its external energy policies. Member states have sovereignty over foreign and security matters, and they find themselves in different positions in terms of their reliance on imports and on different suppliers and transit countries. The 2004 enlargement of the EU gave a new push for a more coordinated external energy policy, mainly because the new eastern members were dependent on Russian gas supplies.
The European Neighbourhood Policy, launched in the same year and revised in 2015, sets the framework for how the EU engages with its neighbors to the east and south in advancing its sustainable energy goals. The Energy Community, signed in 2005, aims to extend the EU energy market rules to non-members in southeastern Europe. The commitment by EU leaders to develop a coherent energy policy is based on three pillars: competitiveness, sustainability and security of supply. The repeated gas disputes between Russia and Ukraine in 2005–6, 2008 and 2009, as well as geopolitical tension in Northern Africa and the Middle East leading to the increasing vulnerability of the external energy supplies, have reinforced the need for such a policy.
The shift towards renewable energy holds untapped potential to reduce the continent’s dependence on external suppliers and enhance its energy security. Europe is beginning to look inwards and to drive forward the development of its internal energy market. The Energy Union, a project launched in 2015, tries to bring the 2030 climate and energy framework and the energy security strategy under one roof. The Paris Agreement of the same year committed the EU to deep cuts in greenhouse gas emissions: e.g. “Clean energy for all Europeans” package of 2016 aimed to align EU internal energy legislation with its Paris commitments.
Overall, energy policy is shifting from a phase of fragmentation to a period of gradual synchronization between member states and the EU. Energy lies at a crossroads between climate objectives, national interests and supranational regulation, sectoral dynamics and geopolitical conflicts.
Source: https://wiki.energytransition.org/wiki/the-eu-energy-transition/history-of-the-eu-energy-union/