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Wolfram Hilz, Rafal Ulatowski (ed.)

Energy Policy in Europe

Internal Dimensions and External Perspectives

1. Edition 2019, ISBN print: 978-3-8288-4388-2, ISBN online: 978-3-8288-7373-5, https://doi.org/10.5771/9783828873735

Series: Bonner Studien zum globalen Wandel, vol. 25

Tectum, Baden-Baden
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Bonner Studien zum globalen Wandel Bonner Studien zum globalen Wandel Herausgegeben von Prof. Dr. Wolfram Hilz Band 25 Wolfram Hilz (Ed.) Energy Policy in Europe Internal Dimensions and External Perspectives Tectum Verlag Wolfram Hilz, Rafał Ulatowski (Ed.) Energy Policy in Europe. Internal Dimensions and External Perspectives © Tectum – ein Verlag in der Nomos Verlagsgesellschaft, Baden-Baden 2019 E-Book: 978-3-8288-7373-5 (Dieser Titel ist zugleich als gedrucktes Werk unter der ISBN 978-3-8288-4388-2 im Tectum Verlag erschienen.) Umschlagabbildung: shutterstock.com © chinasong Alle Rechte vorbehalten Informationen zum Verlagsprogramm finden Sie unter www.tectum-verlag.de Bibliografische Informationen der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Angaben sind im Internet über http://dnb.ddb.de abrufbar. Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available online at http://dnb.ddb.de. 5 Contents 1 Introduction............................................................................. 7 Wolfram Hilz/Rafa Ulatowski I. Internal Dimensions 2 The “Energy Union“: Fixed Goal or Open Process? ......... 13 Wolfram Hilz 3 The German Energy Transition – An Economic Perspective ............................................................................. 35 Hubertus Bardt 4 Why There is No Energy Transition in France .................. 49 Florian Engels 5 Poland’s Energy Security and the Shale Revolution – A Case Study on Natural Gas .............................................. 63 Rafa Ulatowski 6 Intergovernmentalism and “Multi-Level-Game“ – An Analysis of the Governance system of the European Climate Framework 2030……………………………….... 81 Timo Karl II. External Perspectives 7 (Inter)dependence? Political Implications of Russia-EU Energy Relations ................................................................... 95 Maciej Ra 8 Caspian Gas Supplies: An Opportunity of EU Energy Diversification? ................................................................... 109 Shushanik Minasyan 9 EU-OPEC Energy Dialogue and the Global Energy Governance ......................................................................... 127 Rafa Ulatowski Contributors…………………………………………………… 143 6 7 1 Introduction Wolfram Hilz / Rafa Ulatowski After two decades of rather moderate interest in energy issues on the part of international relations scholars, the number of publications in this area began to grow again in the early 21st century.1 The reasons for this were a number of changes in the energy market, of which four can be singled out as most important: First, the price of crude oil – the most important energy resource – began to rise, fueled by rising demand and decreasing spare capacity, achieving a record level in the summer of 2008. After a short interlude during the financial crisis of 2008-2009, the price of crude stabilized at a very high level of approximately 100 USD per barrel, up until 2014, when it collapsed.2 Second, the competition among the great powers for access to energy resources increased. Especially China3 and In- 1 See Van de Graaf, Thijs, Sovacool, Benjamin K., Ghosh, Arunabha, Kern, Florian & Klare, Michael: States, Markets, and Institutions: Integrating International Political Economy and Global Energy Politics, in: Van de Graaf, Thijs, Sovacool, Benjamin K., Ghosh, Arunabha, Kern, Florian & Klare, Michael (eds.): The Palgrave Handbook of the International Political Economy of Energy, Basingstoke, 2016, pp. 6-7. 2 See Stocker, Marc, Baffes, John, Some, Y. Modeste, Vorisek, Dana & Wheeler, Collette M.: The 2014–16 Oil Price Collapse in Retrospect. Sources and Implications, World Bank Group, Policy Research Working Paper 8419, 2018. 3 See Zweig David & Jianhai, Bi: China’s Global Hunt for Energy, in: Foreign Affairs, Vol. 84, No. 5, 2005, pp. 25-38; Myers Jaffe, Amy & Lewis, Steven W.: Beijing's Oil Diplomacy, in: Survival Global Politics and Strategy, Vol. 44, Issue 1, 2002, pp. 115-134. 8 dia4, but also other newly industrialized countries, developed their energy diplomacy and started searching for access to energy resources all over the world, undercutting the position of the established powers; the possibility of a “resource war” scenario was discussed.5 Third, the second biggest exporter of energy resources, Russia, started to develop its energy diplomacy by trying to transform resource wealth into political power.6 For European countries, the repeating gas conflicts between Russia and Ukraine became a nightmare as physical access to contracted gas became problematic. The question of the effectiveness of Russia’s “energy weapon” became only too clear.7 Finally, the impact of climate change on energy policy became a hot topic in international politics. The energy sector is the largest producer of greenhouse gases. Transforming it toward a greater use of renewables is expected, and this will have significant economic and geopolitical consequences.8 New research trends are currently under way. First, theoretical plurality has increased. Although most scholars do their research within the school of political realism, an increasing number of authors are engaged in energy research, and belong to the school of liberalism or constructivism. Another major feature of the current literature is a growing interest in international organizations. For decades, only OPEC and IEA attracted the interest of scholars, whereas today, ASEAN, NAFTA, Mercosur and, most importantly, the European Union, are seen as important actors. The exact number of 4 See Gurjar, Sankalp: India-Africa Oil Partnership in the New Millennium, India Quarterly, in: A Journal of international Affairs, Vol. 74, Issue 2, 2018, pp. 197-214. 5 Klare, Michael: Resource Wars: the New Landscape of Global Conflict, New York, 2001. 6 See Monaghan, Andrew: Russia’s Energy Diplomacy: A Political Idea Lacking a Strategy?, in: Southeast European and Black Sea Studies, Vol. 7, Issue 2, 2007, pp. 275-288; Chun, Hongchan: Russia’s Energy Diplomacy toward Europe and Northeast Asia: a comparative Study, in: Asia Europe Journal, Vol. 7, Issue 2, 2009, pp. 327-343. 7 See Smith Stegen, Karen: Deconstructing the “Energy Weapon”: Russia’s threat to Europe as Case Study, in: Energy Policy, Vol. 39, Issue 10, 2011, pp. 6505-6513; Schmidt-Felzmann, Anke: EU Member States' Energy Relations with Russia: Conflicting Approaches to Securing Natural Gas Supplies, in: Geopolitics, Vol. 16, Issue 3, 2011, pp. 574-599. 8 See Green, Jemma & Newman, Peter: Disruptive Innovation, stranded Assets and Forecasting: the Rise and Rise of renewable Energy, in: Journal of Sustainable Finance & Investment, Volume 7, Issue 2, 2017, pp. 169-187. 9 organisations dealing with energy in international relations is unknown, but estimates range from 69 to 12810. Also, the relationships between them within Global Energy Governance (GEG) receive increasing attention.11 In recent decades, the EU has gained importance in the field of energy policy. At first it concentrated on creating a single market for energy goods and services, but subsequently started to develop as an important player on the international energy market, building institutions, promoting norms and supporting the liberal market on the one hand, but later also becoming more of a “realist” actor interested in improving its own energy security. Moreover, the EU’s climate policy strongly affects its energy policy, driving a transformation from fossil fuels to renewables.12 Nevertheless, there are still some research gaps remaining to be closed: 1) Comparative studies on various aspects of the energy policies of EU member states, especially those that include the “new” member states; 2) the consequences of market developments and international agreements on the energy policies of EU member states and the EU as a whole, where the two most important issues are the shale revolution in the United States and the Paris Agreement; 3) the consequences of geopolitical changes for the energy order: Russia has officially declared “the liberal idea” to be “obsolete”13 and China is promoting the Belt and Road Initiative – the 9 See Kérébel Cécile & Keppler, Jan Horst: La gouvernance mondiale de l’énergie. IFRI: Paris. 10 See Sanderink, Lisa; Kristensen, Kristian; Widerberg, Oscar & Pattberg, Philipp: Mapping the Institutional Architecture of Global Energy Gover nance, IVM Institute for Environmental Studies Report, No. R-18/02, 2018, available at: https://ivm.vu.nl/en/Images/R1802_TechReport_Energy_tcm234 893218.pdf (15 June 2019). 11 See Van de Graaf, Thijs & Colgan, Jeff: Global Energy Governance: A Review and Research Agenda, in: Palgrave Communications, No. 2, 2016. 12 See Prontera, Andrea: The New Politics of Energy Security in the European Union and Beyond: States, Markets, Institutions, Abingdon and New York, 2017; Szulecki, Kacper (ed.): Energy Security in Europe. Divergent Perceptions and Policy Challenges, Cham 2018; Godzimirski, Jakub M. (ed.): New Political Economy of Energy in Europe. Power to Project, Power to Adapt, Cham 2019. 13 Putin, Vladimir: All this Fuss about Spies.... it is not Worth serious Interstate Relations, in: Financial Times, 27 June 2019, available at: https://www.ft. com/content/878d2344-98f0-11e9-9573-ee5cbb98ed36 (15 July 2019). 10 biggest geo-economic plan since the Marshall Plan.14 At the same time, OPEC members increasingly cooperate with producers outside the organization, limiting market competition. Thus, the liberal international order faces multiple challenges. The United States and Europe are finding it increasingly difficult to find a common position on numerous international issues15, and energy is one of them. What the consequences of this trend will be is difficult to assess today, but there is no doubt that many EU members are dissatisfied with this development and will work hard to counter it. Looking at the energy sector, it is visible that for some EU members the energy abundance of the United States is an important incentive for keeping transatlantic relations strong. The goal of this publication is to contribute to the ongoing discussion on energy in international relations, closing some of the above mentioned research gaps with papers covering different aspects of EU energy policy. The analysis focuses on the national perspectives of three EU members – Germany, France and Poland – as well as on the perspective of the EU as a whole. It also discusses a wide variety of internal EU energy issues, and the role of the EU on the global stage.16 In the first chapter of this volume, Wolfram Hilz focuses on the “Energy Union”, which the Juncker Commission launched at the very beginning of its term in 2014. He analyzes the chances for realisation of this ambitious project inside the EU. Due to high structural hurdles consisting of controversial national energy interests and decreasing willingness to search for compromises, Wolfram Hilz argues that the preconditions for a true “Energy Union” are still missing. In this respect the positive self-assessment of the Commissions progress 2019 is misleading. Hubertus Bardt and Florian Engels provide critical analyses of French and German energy regulatory structures with a special focus on the vulnerability 14 See Yu, Hong: Motivation behind China’s ‘One Belt, One Road’ Initiatives and Establishment of the Asian Infrastructure Investment Bank, in: Journal of Contemporary China, Vol. 26, Issue 105, 2017, pp. 353-368. 15 See Mearsheimer, John J.: Bound to Fail. The Rise and Fall of the Liberal International Order, in: International Security, Vol. 43, No. 4, 2019, pp. 7-50. 16 The authors employ a theoretical and methodological pluralism in order to provide a broader, deeper and more holistic picture of the place of Europe on the contemporary energy market. 11 of system transition. Evaluating the cornerstones of the German Energiewende, Hubertus Bardt draws attention to the economic dimension of energy transition from a fossil fuelled electricity system to one based on renewable energy sources. He surveys system challenges and discusses a range of aspects that make it possible to shape the design of the future regulatory framework of the electricity market. The article written by Florian Engels sets the stage by explaining what obstacles for the implementation of the French energy transition can be found and how the nuclear energy sector has been powerful in shaping French energy policy. He discusses the complex interdependence between energy security and environmental concerns by showing inherent target dilemmas in this field. The contribution of Rafa Ulatowski illustrates a further national perspective in the EU. He offers key insights on Poland’s energy security discourse with regard to the changing structure of world energy landscape resulting from the new discovery of hydrocarbon resources and the increasing exploitation of shale gas. He argues that the shale revolution opened up new opportunities for Warsaw and promises success for other European energy-dependent countries to ensure diversification and energy independence from Russian gas. Timo Karl addresses the EU s climate policy, in particular by examining the European Climate Framework 2030 from different theoretical perspectives in order to reveal the decision-making processes in this context. Using Intergovernmental and Multi- Level-Game approaches, he discusses the interconnection and interdependence between the international UNFCCC scope and the climate and energy politics of the EU. He takes a closer look at different models of interaction and discusses the challenges of negotiation processes. Finally, Maciej Ra , Shushanik Minasyan and Rafa Ulatowski complete this book by providing thorough analysis of the challenges faced by the external dimension of European energy policy. Maciej Ra deals with the relation between Russia and the EU which is largely impacted by energy policy. In his article, he addresses the Russian perception of energy security and energy cooperation with European partners. He argues that Russian energy discourse focuses on the resurrection of its great power status which negatively affect the country's reliability and generate risks for EU member states. The author concludes that the prospect of increased gas production in the United States, together with the development of the European 12 energy union, could significantly increase European ‘energy sovereignty’. Shushanik Minasyan concentrates on the role of the Caspian region as an alternative player in the European energy market. She examines the prospects and opportunities of this energy dialogue and explains that the cooperation with Iran and Turkmenistan is crucial for the European energy diversification strategy. In the final contribution, Rafa Ulatowski analyzes the EU-OPEC energy dialogue in the context of Global Energy Governance (GEG) and provides an overview of processes and the evolution of EU-OPEC relations. He argues that bilateral relations between the EU and OPEC have developed considerably, but that there is some room to make this cooperation an important element of GEG regime and to foster an inter-institutional cooperation. The volume is the result of a conference that took place in October 2018 at the University of Bonn, organized by Wolfram Hilz and Rafa Ulatowski generously supported by the DAAD program “Ostpartnerschaften” and the University of Bonn. A special thanks goes to Mark Offermann and Julia Trautner who were helpful in editing these proceedings. 13 2 The “Energy Union“: Fixed Goal or Open Process? Wolfram Hilz 1 Introduction In the 1950s, the energy resources coal and nuclear energy were closely linked to both economic reconstruction and the start of European integration along with its vision for a flourishing future of Europe. Although the struggle for a common solution in energy policies was important in the early phase of integration, the founding members did not follow up on those issues after the successful start of the first integration communities (ECSC, EEC, Euratom) at the end of the 1950s. This is all the more surprising taking into account the continuously existential dependence on secure access to energy sources for the dynamically developing economies in Western Europe. In the beginning of the 1950s, the main mobilization tool for the founding fathers Jean Monnet, Robert Schuman and Konrad Adenauer for stabilizing common interests was the competition for the contested coal reserves. In contrast, the widely differing assessment of nuclear energy by the six members of the European Coal and Steel Community (ECSC) rather divides than unifies: the French solicitation for a nuclear community did not lead to an integrational push that would have gone beyond the founding of Euratom. The almost complete vanishing of common energy politics as a part of the European Community’s unifying interests in times of heavy energy shocks during the 1970s or in times of regained courage to 14 complete the economic project of the “common market” in the mid-1980s respectively, therefore seems even more surprising.1 After brief and outward oriented initiatives at the beginning of the 21st century, starting in 2014, the European Commission – under the leadership of President Jean-Claude Juncker – put energy as an old but also new common project at the centre of its work program which received a clear-cut shape by defining the establishment of an “Energy Union” as its aim.2 Since safety, economic efficiency and future potential of energy supply are doubtlessly of significant concern to all member states, the concrete conditions for an energy union are crucial for the realization of common plans. Like in all integration steps a sufficient number of companions and weighty coalition partners are decisive to realize a project. If this holds true for the project of the energy union and its implications towards its realization will be discussed below. Through this particular example, findings will also be gained on the question in what way European ambitions can be translated into political reality – despite strong heterogeneity and diverging interests among the member states. The result will give hints about intra-community adjustments necessary to further develop a project that will doubtlessly be a community issue in the upcoming years. At the beginning of this article, an outline of the Commission’s 2014/15 proposals on the establishment of an “Energy Union” including the corresponding measures will be given. This will be followed by an overview of the reasons for implementation deficits during the last five years. The yearly reports of the Commission on the “Energy Union” serve as major indicator for the ability to adapt to those difficulties. To conclude this article, a classification will serve to assess whether the “Energy Union” as a community project has been accepted by the member states and respectively how likely an implementation will be in the years to come. 1 See Schubert, Samuel R. et al.: Energy Policy of the European Union, London, New York, 2016, pp. 94ff. 2 European Commission: 2015 Commission Work Programme: A New Start, COM (2014) 910 final, Strasbourg, 2014, pp. 6-7. 15 2 The energy union: the Juncker model When EU or national representatives proclaim a thematic union within the framework of European integration – examples include the defence union, social union or economic and monetary union – two opposing reactions are regularly observed: enthusiasm and categorical refusal. The history of European integration is full of ideas for thematic unions. Nobody could possibly accuse Jean- Claude Juncker – one of the most experienced European politicians of the last decades – of naivety in integration policy. His proclamation to build an energy union within the European Union was formally supported by the member states in the European Council3 and therefore needs to be examined seriously. The context in the mid of the second decade of the 21st century seemed to be promising to bring the idea forward of an energy union within the European Union since especially the national interests to make common progress seemed mobilized: (a) It was already after the so-called gas crisis between Russia and Ukraine in 2005 and its impact on European member states that dependency in energy imports of fossil fuels came to awareness. As a consequence, EU partners agreed to integrate an “energy article” into the Lisbon treaty (Art. 194 TFEU). At the latest, after the Russian military intervention in Ukraine – starting in spring 2014 with the annexation of Crimea and the destabilization of Eastern Ukraine – all EU members were sensitized to the issue that more common attention had to be given to future energy supply.4 (b) The nuclear disaster in Fukushima in March 2011 was another crucial event. It revealed the technological dependence in the energy sector and led to worries about issues re- 3 See Teffer, Peter: EU Leaders want Energy Union: but what do they mean?, in: EUobserver, 20 March 2015, available at: https://euobserver.com/energy/ 1128093 (1 May 2019). 4 See Boersma, Tim et al.: The Impact of the Crisis in Ukraine on the European Gas Market (Brookings), 14 October 2014, available at: https://www.brookin gs.edu/research/the-impact-of-the-crisis-in-ukraine-on-the-european-gas-mar ket/ (1 May 2019); Sushentsov, Andrey: The Outline of the Russian Strategy towards Ukraine, in: Foreign Policy AG, 1 July 2015, available at: http://www.foreignpolicy.ru/en/analyses/the-outline-of-the-russian-strategy-t owards-ukraine/ (1 May 2019). 16 lated to nuclear energy, including nuclear power plants in neighbouring countries. The completely heterogeneous, uncoordinated national reactions to the Japanese nuclear disaster made the necessity for a closer consultation in energy related questions most obvious – the German government decision for a nuclear power phase-out was the most remarkable, unilateral step, but not the only one.5 (c) The third important impulse was the common goal to change the traditional reliance on fossil energy and commonly work towards the reduction of exhaust emissions. This had already become a manifest community aim in the late 1990s within the framework of international climate negotiations (Kyoto 1997). It was consequently embedded as mandatory climate policy in the general catalogue of the European Union in 2007 (20-20-20) when the goal to gain 20 percent of the energy demand of the European Union from renewable energy sources by 2020 was proclaimed.6 The consternation inside the European Union by the mentioned examples indicated that a sufficient number of members might be willing to implement the project of energy union initiated in 2014. At the same time, it needs to be stressed that the energy union project was never primarily an integration project, but a coordination project between the member governments. Hence the term “union” is misleading in this regard. The energy union was supposed to be implemented by the EU members, and moderated but not steered by the Commission. The goal of energy union, as Jean-Claude Juncker described it himself at his inauguration speech in 2014, was the improved coordination of national energy policies by way of main aspects which are briefly outlined in the following.7 5 See Wittneben, Bettina B.F.: The Impact of the Fukushima Nuclear Accident on European Energy Policy, in: Environmental Science and Policy, Vol. 15 No. 1, 2012, pp. 1-3, available at: https://www.sciencedirect.com/science/arti cle/pii/S1462901111001444 (1 May 2019). 6 See European Commission: Limiting Global Climate Change to 2 Degrees Celsius – The Way Ahead for 2020 and Beyond, COM (2007) 2 final, Brussels, 2007. 7 See Juncker, Jean-Claude: The Juncker-Commission: The Right Team to deliver Change, Speech, No. 14/585, Brussels, 10 September 2014, available at: http://europa.eu/rapid/press-release_SPEECH-14-585_en.htm (1 May 2019). 17 The Juncker-Commission put five programmatic dimensions at the centre of the implementation of the “Energy Union” which was part of the area of responsibility of Maroš Šef ovi , the Vice-President of the European Commission for Energy Union: (a) Security, solidarity and trust – diversifying Europe’s sources of energy and ensuring energy security through solidarity and cooperation between EU countries (b) A fully integrated internal energy market – enabling the free flow of energy through the EU through adequate infrastructure and without technical or regulatory barriers (c) Energy efficiency – improved energy efficiency will reduce dependence on energy imports, lower emissions, and drive jobs and growth (d) Climate action, decarbonizing the economy – the EU is committed to a quick ratification of the Paris agreement and to retaining its leadership in the area of renewable energy (e) Research, innovation and competitiveness – supporting breakthroughs in low-carbon and clean energy technologies by prioritizing research and innovation to drive the energy transition and improve competitiveness.”8 These five dimensions were anchored as both goal and action scheme for the work program of the European Commission from 2014 to 2019 and were supported by a set of measures. 8 European Commission: Building the Energy Union, available at: https://ec.eu ropa.eu/energy/en/topics/energy-strategy-and-energy-union/building-energyunion (1 May 2019). 18 3 The five dimensions of European energy policy (a) Energy security, solidarity and trust To guarantee energy security in a geopolitical and global context, the goal of diversification of supply and origin of energy sources was central from the Commission’s point of view. Therefore, community considerations have a priority over single member activities concerning supply contracts. The idea was to assess in how far the usage of European potential could possibly lead to new conditions with existing suppliers and to acquire new importers. With the European strategy for energy security dating from 20149 the central document was already written. Its implementation was one of the fundamental anchor points to improve the current situation in energy security. In particular, dependence-relations with other players were targeted. Russia was and is often mentioned as a key actor in this context. (b) A fully integrated internal energy market Despite the announcement of the completion of the internal market by December 1992, the unrestricted action of all relevant market actors as well as access, competition and free flow in the energy sector remains insufficiently implemented to date.10 The deficits in the European internal market concerning the energy sector are partly connected to national persistence against influencing energy companies, the usage of specific energy sources, missing transnational infrastructure and the interdependence of public and industrial actors. Using slightly simplified explanation patterns, European Union members can be separated into mainly two groups, either: (1) highly interventionist and engaged in controlling the energy market or, (2) putting more emphasis on the liberalization of the energy market due to their national tradition and in line with the principles of the 9 See European Commission: European Energy Security Strategy, Communication from the Commission to the European Parliament and the Council, COM (2014) 330 final, Brussels, 2014. 10 See Fischer, Severin & Geden, Oliver: Limits of an Energy Union . Only Pragmatic Progress on EU Energy Market Regulation expected in the Coming Months, SWP-Comment, No. C 28, Berlin, 2015, available at: https:// www.swp-berlin.org/fileadmin/contents/products/comments/2015C28_fis_gd n.pdf (1 May 2019). 19 internal market. The previous attempts by the Commission to impact the national energy markets have indeed led to steps of opening since the 1990s. Partly, this had to be done by coercive measures of the Commission (1st internal market package), partly energy players in the internal market and international competitors were called to push back resistance for the sake of future viability. Currently, consumer interests in affordable energy and the linkage to the commonly decided climate policy goals are the main reference points for strategy packages by the Commission in this dimension of the energy union.11 (c) Energy efficiency Beyond the jointly set target of 20% energy savings until 2020 – as included in the 20-20-20 decision made in 2007 – the objective was formulated to further develop energy efficiency in all energy demand sectors. To reach this aim, a first energy efficiency plan was decided on in 2011, and in 2014 a political goal has been set to realize energy savings of 32,5% by 2030.12 Heating and cooling of buildings is one of the most important energy consuming sectors in which efficiency improvement potential is significant. But private households and state sector buildings were not yet sufficiently targeted with regard to energy demand and efficiency so far. This is even more surprising since “[…] heating and cooling accounts for half of the EU’s annual overall energy consumption and 68% of all its gas imports [, m]ean-while, renewables only account for 18% of energy in the sector [...]”13 11 See European Parliament Research Service: A New Deal for Energy Consumer, Briefing, PE 573.896, January 2016, available at: http://www.euro parl.europa.eu/RegData/etudes/BRIE/2016/573896/EPRS_BRI(2016)573896 _EN.pdf (1 May 2019); European Commission: Clean Energy for all Europeans – Unlocking Europe’s Growth Potential, Press Release, IP/16/4009, 30 November 2016, available at: http://europa.eu/rapid/press-release_IP-16-400 9_en.htm (1 May 2019). 12 See European Commission: Energy Efficiency Plan 2011, COM (2011) 109 final, Brussels, 2011; European Commission: Energy Efficiency and its Contribution to Energy Security and the 2030 Framework for Climate and Energy Policy, COM (2014) 520 final, Brussels, 2014. 13 European Commission: Commission launches Plans to Curb Energy Use in Heating and Cooling, 17 February 2016, available at: https://ec.europa.eu/en ergy/en/news/commission-launches-plans-curb-energy-use-heating-and-cooli ng (1 May 2019). 20 (d) Climate action, decarbonizing the economy The already existing field of action in the area of climate protection emerging from previous joint decisions by the European Union aims for the general reduction of carbon dioxide emissions in all economic sectors. Emission reduction constitutes an important linkage to renewable energy sources in combination with efficiency improvements. The usage of new technologies or promotional tools for energy saving, carbon dioxide-limiting branches, has been seen as an instrument for that. Moreover, the – not very well working – emissions trading system (ETS) should be reactivated or respectively newly adjusted.14 Following the 20-20-20 objectives of the energy and climate package dating from 2007, the intention was to take a leading role in negotiations on the Kyoto follow-up treaty. This would only be plausible, if the European Union gave itself more ambitious and mandatory climate protection goals which, following the Commission’s suggestions, should be embedded in a framework for climate and energy politics by 2030. The Commission’s 2014 suggestion hereof to the member states intended to reduce the emissions by 40%, the increase of renewable energy sources to 27% of the overall consumption as well as an improvement of energy efficiency by 27%.15 The year of reference was still set at 1990 meaning that despite internal differences in objectives, the orientation was clear for everyone (1990 as point of reference was more advantageous for the old member states while new members from the Eastern bloc would have preferred 1989 as reference when the old coal-based systems still had their full energy efficiency). In the field of climate protection, the parallel strategy of improvement of already ambitious goals has been perceived as the main line of action which should then be accompanied by international negotiations and the settlement of the Paris Agreement from 14 Leipprand, Anna & Flachsland, Christian: The Case for a Price Floor in the EU ETS, in: Euractiv, 18 December 2017, available at: https://www.euractiv. com/section/emissions-trading-scheme/opinion/the-case-for-a-price-floor-in-t he-eu-ets/ (1 May 2019). 15 See European Commission: A Policy Framework for Climate and Energy in the Period from 2020 to 2030, COM (2014) 015 final, Brussels, 2014. 21 2015.16 The European strategy for low emission mobility complemented these basic goals of the fourth dimension in 2016.17 (e) Further efforts in research, innovation and competitiveness Apart from the already mentioned detailed aspects, the Commission suggested to improve the scientific potential of the European Union for a common energy policy by supporting European joint research and intensive search for innovation with its experts and research institutions. This was already sketched out through the research programs and the Commission planned additional specific supporting instruments. One example for this is the so-called SET-plan from 2017 (Strategic Energy Technology), which seeks to promote strategic energy technology as one of the central common interests.18 4 National structural antagonisms and European implementation difficulties When implementing the ambitious objectives in five dimensions, which the Juncker-Commission had set, several aspects are key: (1) the willingness for participation of the members, (2) the development of coalitions of engaged members as well as (3) the leading and controlling competence of the European Commission. Additionally, the coincidence of other inevitable priority tasks for the European Union as a whole had to be achieved. This shows a difficulty for cooperation and integration projects in the European Union which continuously affects the implementation of important projects: The first year of the newly established Commission was overshadowed by the resurgence of controversy about the solution of the so-called euro crisis. Practically all activities within the European Union until July 2015 – including summits of the heads of state of 16 See United Nations: Paris Agreement, 12 December 2015, available at: https: //unfccc.int/sites/default/files/english_paris_agreement.pdf (1 May 2019). 17 See European Commission: A European Strategy for Low-Emission Mobility, COM (2016) 501 final, Brussels, 2016. 18 See European Commission, DG ENER: The Strategic Energy Technology (SET) Plan, 12 December 2017, available at: https://publications.europa. eu/en/publication-detail/-/publication/771918e8-d3ee-11e7-a5b9-01aa75ed71 a1/language-en/format-PDF/source-51344538 (1 May 2019). 22 government – aimed at resolving the newly escalating dispute with Greece on its conditions to remain in the euro zone. This succeeded in the end at an exceptional, dramatic summit in the beginning of July 2015 that possibly avoided an even bigger impulse of crisis of the dissolution of the euro zone.19 Almost without a transitional period, the settlement of the dramatic culmination of the monetary issues transformed into the escalation of the challenges by migration from the Middle Eastern area through the Balkan route. Originating in the civil war country Syria, the situation of refugees in the neighbouring countries (especially Jordan, Lebanon and Turkey) deteriorated increasingly. Consequently, a steadily growing number tried to find shelter in the European Union via Greece. Connected with this was the escalation of the internal controversy about the reception and distribution of asylum seekers within the European Union. This led to the characterization of these internal disputes as the “refugee crisis” of 2015/16.20 Facing these challenges, the Commission was barely able to focus on topics set in its own working program during the first two years in office beyond the euro zone and asylum protection crisis. Especially due to divergences and sometimes contradictory positions of member states chances to make progress in energy policies faded. Necessary common positions and a closely coordinated approach for questions on the future of the energy union could not be realized in a climate of fundamental national disputes, rejection of solidarity and arguments on values within EU institutions. Although this sketchy identification of causes can certainly not be made solely responsible for the unassertive work on the energy union, the outline of the unfavourable starting conditions nevertheless shows why a significant delay of the overall project was observed. Additionally, member state antagonisms in the area of energy politics due to heterogeneous political constellations (national energy mix) barely allowed for a cohesive approach in respect of the five dimensions. Since the specific national energy mix is admittedly 19 See European Council: Euro-Summit, 7 July 2015, available at: https://www. consilium.europa.eu/en/meetings/euro-summit/2015/07/07/ (1 May 2019). 20 See Hilz, Wolfram: Refugees and Asylum Seekers as a Challenge for Europe, in: Hilz, Wolfram & Saracino, Daniele (eds.): Nordic Perspectives on the European Asylum System: The Cases of Sweden and Finland, Baden-Baden, 2017, pp. 11-31. 23 part of the sovereign authority of decision making the Commission’s claim to influence this through common measures is already problematic. This can lead to symbolic turf battles and blockades in times of scepticism regarding European cooperation and integration. Moreover, high dependencies of some member states on energy imports of specific energy sources or from specific importing countries lead to disruptive preferences in energy politics. Larger interest groups – as seen in the economic and monetary union – practically do not exist in the field of energy politics. The most evident controversies take place between on the one hand EU member states relying heavily on nuclear energy in their political strategy and energy mix and on the other hand those members opposing the use of nuclear energy. This opposition intensified after the nuclear catastrophe of Fukushima in 2011. Main protagonists for nuclear energy use are France with more than 40%, Sweden with 33% and Slovakia as well as Bulgaria with almost 25% share of nuclear energy in their primary energy source.21 In contrast to them are countries that use a significant share of renewable energy sources for their energy mix or even primarily rely on renewable energy in their strategy for the future: Sweden and Latvia with 37% each and Austria, Denmark and Finland with around 30% of renewable energy in their energy mix.22 Another quite central divide in energy policies in the EU relates to the dependencies on imports of fossil fuels. Here, Malta, Luxembourg, Cyprus as well as Germany form a group with high dependence on fossil fuels and at the same time high import dependence.23 Another group of EU states has a special position due to its own fossil resources: While the Netherlands or the United Kingdom (still) have large oil and gas resources, Poland and Bulgaria are in a similar position. But since they mainly depend on their own coal as energy resource, they currently find themselves in a defensive posi- 21 See British Petroleum: Statistical Review of World Energy, London, 2019, p. 11. 22 See Eurostat: Share of Energy Products in Total Energy (2016), available at: https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2a.ht ml (1 July 2019). 23 For details see European Commission, DG ENER: EU Energy in Figures. Statistical Pocketbook 2018, 25 September 2018, pp. 66ff. 24 tion in regards to the EU´s ambitious climate goals (Poland has almost 50% and Bulgaria almost 40% coal in its energy mix).24 Facing these complicated energy policy prerequisites, the Commission’s prospects to realize the energy union against the background of unfavourable EU-internal and international conditions seemed low. The ambitious goal of accelerating an energy union in the years from 2014 to 2019 almost equalled a “mission impossible”. Not only the initial difficulties due to heterogeneous energy mixes took a central role in the Commission’s program’s prospects for implementation, but also the overall economic situation in the EU member states in the wake of the world financial crisis. While some countries like Germany recovered significantly by the mid of the decade, others suffered far longer from the repercussions of this massive economic decline. Also, the consequences of the euro crisis since 2010 with rapidly rising debt ratios in EU countries limited the willingness among EU members immensely to address necessary reforms in their own energy economies. The goal to liberalize energy markets through a progressing separation of suppliers and grid operators in order to achieve lower energy prices for private and industrial consumers – which had already been anchored in the 3rd energy internal market package in 2009 – faced unfavourable preconditions.25 National preferences towards economic recovery were prioritized in almost every case. Additionally, the requirements for the financing and the political implementation of changes in the energy economy imply high initial investment costs and financial burdens for the consumers due to a difficult economic framework. This turned out to be counterproductive for the transition to renewable energies (the German example had a deterrent effect insofar). The usability of the leverage effect of political climate commitments and international agreements to reach national concessions to noticeably increase energy efficiency did not last. In the aftermath of the Paris Agreement in December 2015, the United States of America and China demonstrated that they would accept economic 24 See ibid. 25 See European Commission: Third Energy Package, available at: https://ec. europa.eu/energy/en/topics/markets-and-consumers/market-legislation/third-e nergy-package (1 May 2019). 25 repercussions as well, if necessary.26 However, with the inauguration of United States President Donald Trump in 2017 and the demonstrative withdrawal from the climate protection agreements, EU partners had to ask themselves again in how far European cost-intensive efforts for climate protection were justified in contrast to the focus on national interests as displayed by the U.S. administration. The same question came up in Europe’s relation towards China as a technological and economic competitor. Besides its commitments in the Paris Agreement, China actually continued to appear as central emitter of climate-damaging gases particularly due to its intensive use of coal for its industries.27 5 Record of implementation steps: the annual reports on the energy union Considering this background and looking at the four reports of the Commission on the realization of the energy union available so far, it is striking that the Commission is definitely able to adopt opposing frameworks from an energy policy point of view. Moreover, the evaluations in the reports often seem hopeful, however, especially the third and fourth report of 2019 develop a tendency to misjudge reality.28 After years of inevitable obstruction of the project “Energy Union” by work on the euro and the refugee crisis, the Commission’s reports moved hopes into the centre that pressure by the citizens to set more ambitious climate policy goals could impel the governments to take measures in the Commission’s interest. The Commission 26 See Stern, Todd: The Paris Agreement and its Future, Brookings Paper, No. 5, October 2018, available at: https://www.brookings.edu/research/the-parisagreement-and-its-future/ (1 May 2019). 27 Share of Worldwide Coal Consumption 2018: EU 8,1%, USA 8,4%, China 50,5%. Share of Worldwide Carbon Dioxide Emission: EU 12,5%, USA 15,2%, China 27,8%. See British Petroleum: Statistical Review of World Energy, London, 2019. Per Capita Carbon Dioxide Emission in Metric Tons per Year 2014: EU 6,4, USA 16,5, China 7,5. See The World Bank: Data, available at: https://data.worldbank.org/indicator/en.atm.co2e.pc (1 July 2019). 28 See European Commission: Third Report on the State of the Energy Union, COM (2017) 688 final, Brussels, 2017; European Commission: Fourth Report on the State of the Energy Union, COM (2019) 175 final, Brussels, 2019. 26 indicates the complexity of economic repercussions by measures towards efficient and renewable energy policies in its reports. However, it suppresses the insight that in times of complex economic and fundamental social upheavals, the societal willingness to merely support the EU’s energy policy ambitions is very limited in many EU member states. The call against the governments to contribute to the commonly made commitments to energy and climate policy goals (diversification, increasing efficiency, competitiveness) in the annual reports by the Commission seem to be rather business like appeal without belief in realization. The sparse feedback by the member governments to work on other more urgent problems is hidden in the reports.29 The necessary internal political constellation for ambitious energy policy programs – willingness to compromise and concessions to common projects – has impaired in numerous member states since 2014 as populist tendencies increasingly gained influence which are more likely to put emphasis on national preferences (as seen in Poland, Hungary, the Czech Republic or Italy).30 Thus, common projects like the ambitious realization of the energy union were displaced from the political agenda of many member states. Concerning this matter, the year 2017 is surely one of the most informative for the assessment of the feasibility of energy policy ambitions when the European Union’s capability to act was jeopardised in the aftermath of the Brexit vote of June 2016 and the impending dominance of the nationally oriented Front National in France. Once again, the aim for an energy union, which was confronted with complex framework conditions anyway, vanished almost completely from the priority lists of most member states. Eventually, the Commission could only capture ambitions in its 29 See European Commission: Annual Reports by the European Commission and national Parliaments, available at: https://ec.europa.eu/info/law/lawmaking-process/adopting-eu-law/relations-national-parliaments/annual-report s-relations-national-parliaments_en (1 July 2019). 30 See Denkova, Adela et al.: V4 Energy Security: The Land of Nuclear and Coal, in: Euractiv, 16 March 2017, available at: https://www.euractiv.com/ section/electricity/news/v4-energy-security-the-land-of-nuclear-and-coal/ (1 July 2019); Fischer, Lisa et al.: Italy´s Role in the European Low Carbon Transition. A Political Economy Assessment, E3G-Report, January 2018, available at: https://www.e3g.org/docs/E3G_Italys_role_in_the_European_ low_carbon_transition_January17.pdf (1 July 2019). 27 yearly reports. The constant work on new strategy papers and detailed suggestions, as mentioned with the five dimensions, are an expression of the effort to prevent the failure of the overall attempt to build an energy union. However, since necessary national supporting measures in a substantial and not only rhetorical way could barely be recorded, the Commission could hardly point to substantial progress in its annual reports. Looking at implementation steps and progress in the area of the five dimensions it can be said that some single aspects were actually enhanced, while the general project stagnated. Without mentioning all facets of the five dimensions at this point, some central aspects of each dimension will be highlighted to give an impression about what kind of progress has been made on the way to the energy union so far: (a) Looking at energy security by diversification strategies, barely any progress can be seen as potential additional suppliers in the European neighbourhood are currently facing crises themselves. Especially North Africa – with Libya at its core – is an example for failed attempts to diversify suppliers of fossil fuels. The same holds true for the continuously instable Near and Middle East (Syria, Iran, Iraq). While new gas supply infrastructure from the Caspian region has long been targeted but still not extended, there is not much scope for fast diversification of supply.31 Over the medium term, energy security of the EU is therefore continuously dependent on traditional suppliers for fossil fuels (oil and gas) like the Netherlands and the United Kingdom (Scotland) in the West, which are complemented with growth potential from Norway.32 In the East, energy imports from Russia will continuously represent a fundamental pil- 31 See Minasyan, Shushanik: Die energiepolitischen Interessen der EU im Südkaukasus, Marburg, 2016. 32 See Scholl, Ellen & Westphal, Kirsten: European Energy Security Reimagined. Mapping the Risks, Challenges and Opportunities of Changing Energy Geographies, SWP-Research Paper, No. RP 4, Berlin, 2017; European Commission: From where do we import Energy and how Dependent are we?, available at: https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c. html (1 July 2019). 28 lar for energy mixes in the field of fossil fuels.33 The project Nord Stream 2, which has been developed as a private infrastructure project between German and Russian companies, however, represents the fundamental disputes within the EU on adjusting and redirecting of infrastructure, though without having diversification in mind.34 The supposed “potential” for diversification through supply with liquid gas resources from the U.S. (LNG shipping) presents no quantitative diversification alternative for the EU as a whole to date. The potential volume of LNG is too small in relation to the needs.35 As a consequence, looking at energy security for the EU from a diversification perspective, no progress can be seen for the energy union so far – and chances for change are small. (b) The progress towards the completion of the internal energy market is still dubious. The realization only developed gradually since changes in the before-mentioned national preferences are not apparent. The resistance against the required initial opening tasks by the Commission continue to exist which is why a lack of substantial changes can be seen. Main progress can be found in the expansion level of the mutual flow of electricity – the expansion of the “power grid” between EU members.36 Here, progress is made in the 33 Russia’s share in fossil fuels ranges from 40% in gas, over 32% in oil to 30% in coal. See ibid. 34 See Talus, Kim & Hancher, Leigh: Exploring the Limits of EU’s Unbelievable Behaviour on Nord Stream 2, in Euractiv, 29 May 2019, available at: https: //www.euractiv.com/section/energy/opinion/exploring-the-limits-of-eu s-unbelievable-behaviour-on-nord-stream-2/ (1 July 2019); Westphal, Kirsten et al.: German-Russian Gas Relations: A Special Relationship in Troubled Waters, SWP-Research Paper, No. RP 13, Berlin, 2017. 35 See European Commission: Liquified Natural Gas, available at: https://ec. europa.eu/energy/en/topics/oil-gas-and-coal (1 July 2019). 36 See European Commission, DG Ener: Electricity Interconnections with Neighbouring Countries. Second Report of the Commission Expert Group on Interconnection Targets, 20 June 2019, available at: https://publications.euro pa.eu/en/publication-detail/-/publication/785f224b-93cd-11e9-9369-01aa75e d71a1/language-en?WT.mc_id=Searchresult&WT.ria_c=37085&WT.ria_f=3 608&WT.ria_ev=search (1 July 2019); Dutton, Joseph & Gaventa Jonathan: Innovation in EU Electricity Grids, E3G-Report, 24 May 2018, available at: https://www.e3g.org/docs/Innovation_in_EU_Electricity_Grids_24_05_2018 .pdf (1 July 2019); Simon, Frederic: EU Countries Mull Scrapping Plan to Link up Power Grids, in: Euractiv, 17 December 2017, available at: https:// 29 expansion of regulatory and backflow electricity as well as in the usability of different directions of flow in the electricity grids.37 Constraints occur as soon as economic competitors in the European internal market see their market position endangered by unlimited flow and backflow of electricity. The internal energy market continues to be extremely limited structurally and infrastructurally due to constrained competition at most national markets. By fencing off economic disadvantages through a complete liberalization of the internal energy market, governments and national energy suppliers still work together successfully. Fundamental change, however, is not in sight.38 (c) In the field of energy efficiency and energy savings, the main progress is currently made in programmatic steps. The Commission’s efforts to use the leverage of climate policy self-commitments of all members for reduction, efficiency improvement and connection of energy with climate politics until 2030 have already been partly successful on a political level. But common decisions to limit energy use systematically in the important sectors of transport and housing are still missing so far.39 Neither the ETS nor a general pricing of carbon dioxide emissions are used as common instrument for the reduction of energy consumption or its more efficient usage. Implementation steps are mostly outstanding. Whether the ambitious common decisions will be worked www.euractiv.com/section/electricity/news/eu-countries-mull-scrapping-plan -to-link-up-power-grids/ (1 July 2019). 37 See Simoes, Godoy et al.: Smart-Grid Technologies and Progress in Europe and the USA, IEEE, 2011, available at: https://ieeexplore.ieee.org/abstract/ document/60 63795 (1 July 2019); Brunekreeft, Gert & Meyer, Roland: Cross-Border Electricity Interconnectors in the EU: The Status Quo, in: Erik Gavel et al. (eds.): The European Dimension of Germany’s Energy Transition, Wiesbaden, 2019, pp. 433-451. 38 See Schubert, Samuel R. et al.: Energy Policy of the European Union, London, New York, 2016, pp. 157ff. 39 See European Parliament: Reducing Car Emissions: New CO2 Targets for Cars Explained, 27 September 2018, available at: http://www.europarl.euro pa.eu/news/en/headlines/society/20180920STO14027/reducing-car-emissions -new-co2-targets-for-cars-explained (1 July 2019); European Commission: Energy Performance of Buildings, available at: https://ec.europa.eu/energy /en/topics/energy-efficiency/energy-performance-of-buildings (1 July 2019). 30 on or not by following governments in EU member states until 2030 remains completely open.40 (d) The significant factor of influence in the area of climate protection has already been mentioned. Political letters of intent with confessions to the reduction of emissions that lie more than a decade ahead became an increasingly important topic in the political debate. The lasting commitment to ambitious European goals, however, is unclear given that they cover such great periods of time. Besides the objective of reducing carbon dioxide emissions until 2030, the final effort of the outgoing Juncker-Commission with Miguel Arias Cañete, the Commissioner for Climate Action and Energy in charge, referred to the aim of climate-neutrality for 2050. But this ambitious aim to agree on limiting harmful emissions to the level of producing climate-neutral energy was not supported by all EU members.41 The chances of realization, according to previous experiences, will increasingly depend on the question, if member states see a domestic advantage for themselves. European common goals cannot replace national preferences as long as they have serious economic consequences for member states. (e) The dimension of research and innovation is a dimension that was given only subordinate importance in the short period under review from 2014-2019. Looking at the fourth report by the Commission published in April 2019 against the background of this cursory characterization of the implementation steps on the way to a European energy union, a striking contrast can immediately be identified: Just before the European elections in May 2019, the outgoing Commission con- 40 See European Parliamentary Research Service: Post 2020 Reform of the EU Emissions Trading System, Briefing, PE 614.601, November 2017, available at: www.europarl.europa.eu/RegData/etudes/BRIE/2017/614601/ EPRS_BRI (2017) 614601_EN.pdf (1 July 2019); Morgan, Sam: National Energy and Climate Plans will not Meet Targets, EU warns, in: Euractiv, 18 June 2019, available at: https://www.euractiv.com/section/climate-environment/news/na tional-climate-plans-will-not-meet-targets-warns-eu/ (1 July 2019). 41 See Morgan, Sam: EU takes Stock After Climate Deal Disappointment, in: Euractiv, 28 June 2019, available at: https://www.euractiv.com/section/clima te-strategy-2050/news/eu-takes-stock-after-climate-deal-disappointment/ (1 July 2019). 31 cludes about its efforts that “the Commission has fully delivered on its vision of an Energy Union strategy guaranteeing accessible, affordable, secure, competitive and sustainable energy for all Europeans.”42 In this quintessence of the introduction, the political will of Jean-Claude Juncker’s European Commission and his Commissioner Maroš Šef ovi becomes evident: They eventually want the progresses made on the way to an energy union to be anchored as their common legacy, even if a closer look on the details argue against such a positive view. What also strikes in the self-evaluation of the European Commission on its way to the energy union are two things: (1) The Commission primarily picks out such intentional declarations in its evaluation that can be used as proof for steps into the ambitioned energy policy future. Here, especially the climate policy with its objectives for 2030 are stressed. Obstacles are mentioned, but their weight was not further taken into account. (2) The fundamentally heterogeneous interests of the EU members are barely considered a basic obstacle for the completion of the common energy union. On the one hand, this indicates that current insurmountable barriers are perceived, but not digested. On the other hand, the demonstrative ignorance of basic obstacles lead to the accusation that the Commission presents its work inappropriately positive without acknowledging fundamental obstacles. 6 Assessment and conclusion In energy policy cooperation, temporarily even integrational steps in the area of controlling and planning have been relevant for the European integration process, especially in the beginnings with the ECSC. Despite the established practice of setting-up common political goals, energy policy still relies in the sphere of member state competence. For decades, energy politics almost vanished from the cooperation and integration spectrum within the EU. In so far, ex- 42 European Commission: The Energy Union: From Vision to Reality, 9 April 2019, available at: https://ec.europa.eu/commission/news/energy-union-vis ion-reality-2019-apr-09-0_en (1 July 2019); Arak, Piotr: An Energy Union 2.0?, in: Euractiv, 9 April 2019, available at: https://www.euractiv.com/secti on/energy/opinion/an-energy-union-2-0/ (1 July 2019). 32 ternal impulses – including threatening of the energy security from outside the Union – have repeatedly been taken as reasons to talk about political reactions. To date this, however, has not led to greater communitarization of the energy policy. Against this background, the Juncker Commission’s aim from 2014 to realize an “Energy Union” seems to be a very ambitious project. Facing difficulties in this field through heterogeneous interests and almost unchangeable national antagonisms, the Juncker Commission must accept the criticism that it wanted to realize a project that predicted already its own failure. The mentioned details show how difficulties for the European integration and cooperation process through disproportionate rhetoric and contextual ambitions can endanger an important project for European integration. There is no doubt about the necessity for repeatedly closer coordination of national energy policy and intensified efforts especially in conjunction with climate politics. Although, the need for the creation of a European energy union within the EU seems to be dubious as long as the member states have no self-interest in it and the self-commitment to such a framework is missing. As pointed out clearly in the last (fourth) report by the Commission on the realization of the energy union, the distance of the Commission from the realities and necessities of the member states raises doubts, whether the Commission meets the requirements to promote the integration process at all. Despite its claim of having been successful in its effort to promote the energy union, the Juncker Commission will have to live with the fact that it has reached substantially too less in important disciplines like energy security, diversification and progress in the internal energy market. Presumed progress in areas like climate protection partly only consist of letters of intent by the member states – implementation steps are completely a national responsibility for the years to come. Without any doubt, the Juncker Commission with its ambitions on the way to an energy union focused on a project which will be of importance in the future, even if a precise evaluation of its effects will only be possible with some temporal distance – in so far, the next Commission will also partly be measured on the progress. It is in the interest of the citizens of the European Union, that the incoming Commission will design a follow-up program based on the real- 33 istic, heterogeneous structures of interest in the member states that contains concrete steps towards closer European energy policy with clear advantages for its citizens and states. In times of increasing criticism on European projects, these two aspects – identifiable clear advantages for the citizens as well as acceptable consequences for the member states – will have to be perceived as scale for all upcoming efforts. The aim needs to be a better coordination of national energy efforts within the European Union, including intensified efforts for closer cooperation in energy foreign policy – this important focus according to Art. 194 TFEU has not been sufficiently addressed in the project of the energy union so far. If the next Commission is able to combine external and internal energy policy aspects as systematically as its predecessor did successfully with urging climate goals, prospects for an intensified cooperation in European energy policy are promising that they really deserve the name “Energy Union”. 35 3 The German Energy Transition – An Economic Perspective1 Hubertus Bardt 1 History of electricity market regulation and competition The energy transition is a fundamental regulatory intervention in the energy supply, and in particular in power generation. On first sight, the change of the energy mix to renewable sources is a primary technological challenge. However, this involves a development of the regulatory system, which may lead to a renewed and farreaching transformation of the economic order on the electricity market. The decisions on the Energiewende (energy transition) intervene in a regulatory structure that has changed significantly in recent decades. This applies in particular to the role of competition in the electricity industry. The electricity market looks back on a long and varied tradition of different regulatory concepts. In most cases, monopolistic structures and strict regulation dominated, and last but not least, competition could have a stronger impact on an open German electricity market. Different phases can be distinguished:2 1 This paper is partially based on Bardt, Hubertus: Von der Techniktransformation zur Ordnungstransformation – die deutsche Energiewende, in: Rahel, Schomaker (ed.): Schriften zu Ordnungsfragen der Wirtschaft, Die europäische Energiewende, Vol. 104, Berlin 2017, pp. 15-35; Bardt, Hubertus: Die Energiewende – eine Zwischenbilanz der Legislaturperiode 2014-2017, IW-Kurzbericht, No. 41, Köln 2018. 2 See Bardt, Hubertus: Regulierungen im Strommarkt – Umweltschutz und Wettbewerb, IW-Positionen, No. 17, Köln, 2005; Gröner, Helmut: Die Ordnung der deutschen Elektrizitätswirtschaft, Baden-Baden, 1975. 36 (a) Foundation in competition The first years of building power generation facilities and the use of electricity in electrical appliances was marked by private initiative. Sales of electrical systems could only succeed if an appropriate power supply was available. The first local structures of a power system were created on private initiative. (b) Expansion in monopoly It was not until the end of the 19th century that the first municipal power generation companies were founded. With the development of large-scale facilities and long-range transmission possibilities, a centrally structured power supply was created, which was subject to strong state influence. It was mostly dominated by large integrated utilities and their subsidiaries, which offered a variety of system functions, i. e. the generation, transport and distribution of the electricity from a single source. Also, characteristic were state ownership structures, regional territorial monopolies and state price regulation, which followed the principle of cost-plus regulation. For example, the costs of generating electricity, including a reasonable return, could be passed on to consumers. Competition for customers could not take place and associated efficiency improvements could not be realized due to the lack of incentives. (c) Liberalisation and opening up to competition After several unsuccessful attempts to liberalize the European electricity markets, the market opened up at the end of the 1990s. In Germany, this was implemented with the amendment to the Energy Act of 1998 and further liberalization steps. Characteristic of the competitive market organization were the privatization of the main companies, the dissolution of the territorial monopolies and thus the possibility of competition for the end consumer as well as the establishment of a power exchange to organize the competitive market at the generation level. The prerequisite for this was the creation of non-discriminatory access to the grid in 37 order to enable competition at other stages of the value chain (generation, trade, distribution).3 (d) Energy transition The Energiewende redefined various fundamentals of the electricity industry. These include, in particular, the political requirements for the phasing out of nuclear energy and the goal of largely meeting the demand for electricity through renewable energies. In addition to the competition related legislation, the Renewable Energy Sources Act (EEG) is the central element, with the help of which the conversion, in particular of the power supply, should succeed. This removes growing shares of the electricity supply from competition. The price mechanism cannot work properly when taxes sum up to 50 percent of the retail price and the wholesale price is influenced by growing subsidies. As a result, competition is being pushed back as an organizing principle on the electricity market. 2 What is the energy transition? After some intense discussions in 2009, the German government has decided on a new national energy concept in 2010.4 The cornerstone of this concept was to increase the share of renewable energies in the electricity production to 80% as of 2050. This also means to reduce other energy sources to not more than 20% of electricity consumption. While the market share of the different fossil fuels has not been discussed, the future of nuclear energy was the most critically disputed part of the strategy. The liberalconservative government did not revoke the decision a former coalition of green party and social democrats has made in 2000 to phaseout of nuclear. However, the 2010 concept included a prolongation of about 12 years for nuclear power plants. Nuclear energy was supposed to bridge the period of time until renewables could provide the larger part of all electricity consumed without producing additional carbon emissions. 3 See Ströbele, Wolfgang et al.: Energiewirtschaft. Einführung in Theorie und Politik, München, 2012. 4 See Bundesministerium für Wirtschaft und Energie: Energiekonzept für eine umweltschonende, zuverlässige und bezahlbare Energieversorgung, Berlin, 2010. 38 The energy concept 2010 has defined a set of objectives beyond the expansion of renewables and the phase-out of nuclear. Energy efficiency was supposed to be increased, electricity consumption should have been reduced. Other objectives did not have a specific measure, but were nevertheless important. All three dimensions of the energy trilemma – or energy triangle, as it is called more optimistically in German – should be considered. Energy supply should be economical, reliable and environment – or climate – friendly. The latter is the main objective of the energy transition itself. Security of supply must also be preserved. German consumers in private households are used to a very high standard of security, power failure is a very rare event. But what is more important is security of supply for commercial consumers of electricity. Even a short time power failure of seconds or less and voltage fluctuations (brownout) are risks for industrial production. Energy intensive industries like aluminium production depend on a very stable supply, high precision industries face significant dropouts of production if electricity is not reliable. For many companies, the hard shutdown of production machinery, that takes place in a blackout situation, is another important problem. When production cannot be stopped in a controlled way, time and costs for restarting the machinery are much higher. A breakdown of power supply of a few seconds can affect industrial production for hours. To ensure security of supply, a combination of measures is necessary: the existing high voltage grid must be extended to transport electricity from the north of Germany (with huge wind power capacities) to the south (with huge demand from industrial consumers), back-up capacities and storage systems must be developed and installed to keep the balance short-term and long-term (the winter time with hardly any power from wind and sun is critical), demand must become more flexible and capacities for power import should be available. The economic dimension is even more difficult as the energy transition has to meet the requirements of an economy with a large share of value added in the manufacturing sector, which is more energy intensive and which has to compete on world markets with companies from countries without an energy transition. If Germany wants to be an example for a climate friendly transition from a fossil fuelled electricity system to one based on renewable energy sources, it must demonstrate that this is possible without harming the industrial base of economic prosperity. The economic dimension of the en- 39 ergy trilemma has two aspects: private and industrial consumers. For private households, additional costs on the energy bill are important, and the distribution of burden among different households can matter. For industrial consumers, it is important to limit additional costs and to keep electricity prices not too much above prices in competing countries. The energy concept of 2010 did not define a clear objective regarding state burden on electricity of competitiveness, but it was clear that the economic costs are an important criterion of energy policies. Therefore, it is at least an informal objective of the energy transition to keep costs at a reasonable level. The term “energy transition” or “Energiewende” became popular after the political reactions to the nuclear disaster in Fukushima, Japan (although the term is much older: First books with the title “Energiewende” have been published in 1980).5 The accident in the nuclear power plant after an earthquake and tsunami was a shock for the German energy policy and reopened the debate about the future of nuclear energy.6 Although German nuclear power plants are far away from coastlines and therefore there is no threat of a tsunami and an accident like it happened in Japan, trust in safety of these power plants was destroyed in large parts of the population. If a high technology country like Japan cannot control the risks, who could? The Federal Government in Germany reacted to the public pressure to withdraw the decision to extend the operational time of nuclear energy – a decision that has not been popular a year before. Therefore, it was decided to shut down a significant number of nuclear power plants immediately.7 For the other sites, fixed shutdown dates have been defined, the last nuclear facilities will be closed by the end of 2022. The new phase-out timetable is similar to the first plan from 2000, although in that first phase-out decision quantities of electricity production have been allocated to each power plant. The difference 5 See Krause, Florentin; Bossel, Hartmut & Müller-Reissmann, Karl-Friedrich: Energie-Wende: Wachstum und Wohlstand ohne Erdöl und Uran – ein Alternativ-Bericht des Öko-Instituts, Freiburg, 1980; Schmitz, Kurt & Voß, Alfred: Energiewende?: Analysen, Fragen und Anmerkungen zu dem vom ÖKO-Institut vorgelegten “Alternativ-Bericht“, Jülich, 1980. 6 See Bundesregierung: Regierungserklärung von Bundeskanzlerin Dr. Angela Merkel zur Energiepolitik vor dem Deutschen Bundestag am 9. Juni 2011 in Berlin: “Der Weg zur Energie der Zukunft“, Berlin, 2011. 7 See ibid. 40 to the 2010 energy concept is more significant, as one of the key pillars – the extended use of nuclear as part of the energy mix – has been removed from the concept. However, all the rest of the energy concept has not been changed. The objectives for renewable energies remained unchanged, therefore the share of fossil fuels in the non-renewable fraction of electricity production had to be increased. As the commitments to mitigate greenhouse gas emission have not been adapted either, the switch from nuclear to coal or natural gas increased the pressure for other sectors like transport and household heating to reduce emissions faster than planned. The original energy concept has defined a long-term goal and several milestones for the transformation of electricity production from a fossil and nuclear energy mix to one based on renewable energies. In the long run, renewables should have a share of 80% or more of electricity consumption in Germany. Milestones have been defined for every decade between 2010 and 2050. These objectives have not been changed in the energy transition in 2011 and can be described as one of the fundamental commitments of the Energiewende (Figure 1). In 2014, two corridors have been introduced for the years 2025 and 2035. The centre of these corridors has been exactly on the planned growth path as defined in 2010 and 2011. The idea behind the corridors was to introduce an upper limit for renewables as it is more expensive to invest in renewables early than waiting for the years with cheaper costs for windmills and solar panels. In the year before the corridors haven been defined, there was a high increase of new solar capacities as panel prices dropped much faster than the guaranteed feed-in-tariffs, making solar investments very profitable but increasing the subsidies needed, paid for by the energy consumers. In the following years, expansion of renewables was faster than expected. In 2017, 36.1% of electricity consumption came from renewable sources. According to the political framework, this value was only due in 2021. While the expansion of renewables is about four years early, other elements of the energy transition – and especially the grid expansion – are far behind schedule. As renewable production and grid infrastructure are complementary, it would be necessary to close this gap. Instead, the political parties that build the grand coalition of the Federal Government agreed on speeding up installations of renewable energies. Their share of electricity consumption is s percentage points energy concept of 65% should only 65% in 2030 me milestone ten yea more difficult to k ity grid to adapt it Figure 18 Objectives: Expansio 3 Where are With the energy c Federal Governm 2020 and beyond shows that althou gressing faster tha on schedule. In or levels would have gap to the target 8 Tischler, Benjam Zielverschärfung 9 See Bundesmini Bericht zur Ener upposed to grow up to 65% in 203 more than in the previous plan. Acc 2010 and the Energiewende of 2011 have been reached in 2040. The new ans that the energy transition shou rs earlier than anticipated – which m eep costs moderate and to strengthen to the needs of the new energy syste n of Renewable Energies we now? oncept 2010 and the energy transition ent has set a number of goals to be .9 A review of the achievement of gh the expansion of renewable ene n planned, most of the other develop der to reach the targets by 2020, the to be three times as high as they a path has further increased in recent in & Bardt, Hubertus: Erneuerbare Energ geplant, IW-Kurzbericht, No. 20, Köln, 201 sterium für Wirtschaft und Energie: Sechs giewende. Berichtsjahr 2016, Berlin, 2018. 41 0. This is 15 ording to the , the share of definition of ld reach that akes it even the electricm. of 2011, the achieved by these target rgies is proments are not achievement re today. The years. Espeien: Erhebliche 8. ter Monitoring- 42 cially in terms of economic dimensions, there has been further deterioration in recent years. The key indicators are analysed according to the procedure described by Bardt and Chrischilles.10 For the interim balance sheet of the energy transition, the focus is on the aspects of power management that are also the focus of public debate. At the same time the power is central to a more comprehensive energy transition which goes beyond electricity. Sector coupling should bring electrical power to other energy uses, especially heating and transport, which will strengthen the central role of the power market. For this interim status of the electrical energy transition, the current actual results of selected indicators will be compared with the values, which should have been achieved in order to achieve the goals set in 2020 in a linear progress since 2010. If the target path is exactly reached, the indicator is rated 100. If progress has been faster or slower since 2010, higher or lower values will be awarded. The goals for cost effectiveness and competitiveness are not development goals, but should not fall below existing levels. If, for example, the EEG surcharge exceeds the target level, this will be regarded as a missed target. A 100 percent overrun corresponds to a target achievement of zero. 10 See Bardt, Hubertus & Chrischilles, Esther: Energiewende-Radar – Fortschritte beim Umbau der Stromversorgung in Deutschland von 2000 bis 2012, Köln, 2012; Bardt, Hubertus & Chrischilles, Esther: Fünf Jahre nach Fukushima – Eine Zwischenbilanz der Energiewende, IW-Report, No. 6, Köln, 2016. Figure 211 Energiewende on tra Objectives reached 2010-202 The result is a mix target level aimed only been reached was a little better (a) The expan 20% abov exceeding (b) The alread faster than ment.12 Th 42 to 41% (c) Little prog German g 2010-2014 of climate emission 2010 to 20 11 Bardt, Hubertus periode 2014-20 12 See Bundesnetz dem ersten Quar ck? in percentage points, compared to linea 0 ed picture of the energy transition (F at, compared to what was necessary at 33%. At the beginning of the last at 40%. The individual dimensions ar sion of renewable energies in 2014 e the level targeted for the year. In t the planned development has risen to y delayed network expansion has n would have been necessary in a lin e target achievement level has fallen . ress has been made in reducing emis reenhouse gas. Four years ago, half o savings was well realized. Since t change has declined, reaching only reduction that would have been ne 17 to reach the 2020 target at the sam : Die Energiewende – eine Zwischenbilanz 17, IW-Kurzbericht, No. 41, Köln, 2018. agentur: EnLAG – Monitoring – Stand de tal 2018, Bonn, 2018. 43 r development igure 2). The for 2017, has legislature it e diverse: was already he meantime, 34%. ot progressed ear developslightly from sions of total f the planned hen, the pace 28% of the cessary from e speed. der Legislaturs Ausbaus nach 44 (d) The goal of reduced power consumption was also missed even more than before. While it was still 63 points in 2014, one-third less than the linear adjustment path, today it is three quarters below its original target of 24 points. (e) The indicator chosen to measure cost effectiveness, for which there was an explicit objective description, the amount of the EEG-surcharge13, has further deteriorated. According to the government, the surcharge, which is collected in order to subsidize renewable electricity production, should not exceed the level of 3.5 cents – in 2017 it was 6.9 cents. The target achievement level has fallen from 23 to just five points. (f) In terms of competitiveness, the aim is that the price disadvantage of German industry should not rise compared to the European average compared to 2010. This goal has moved even further away. In 2010, the additional costs for industrial companies in various size categories averaged 12 percent, in 2014 it was 25 percent and in 2017 already 30 percent. The degree of target achievement has continued to fall in the negative range due to the more than 100% missing target from -15 to -53 points and is only 31 points, compared to 56 points in 2014. The competitive disadvantages have thus risen again. Overall, there is an overachievement of the goals for the expansion of renewable energies. Here too the rate of expansion is further above what was planned with the energy turnaround. By contrast, reducing emissions, expanding the network and reducing fuel consumption are not even possible half as fast as needed to meet the 2020 targets. It looks even worse regarding objectives of efficiency and competitiveness. The last legislative period has created important competitive elements in the promotion of renewable energies with the call for renewable energy. However, measurable progress was not achieved in the main objectives. On the contrary, the gap to one's own goals on the path to the energy transition has continued to increase. 13 See Bundesministerium für Wirtschaft und Energie: Der Weg zur Energie der Zukunft – sicher, bezahlbar und umweltfreundlich – Beschluss der Bundesregierung, Berlin 2011. 45 4 Next challenges The change of an existing regulatory framework is not any done in one step. Interventions can always lead to unwanted side effects and can lead to disorders that lead to new interventions. The introduction of the EEG is a good example of this. If there is a need for change for the electricity market, the resulting reform must follow clear principles that make it possible to calculate further changes. For the design of the future regulatory framework of the electricity market, the following regulatory requirements and principles appear urgent: (a) Long-term orientation The concept for a market design must be long-term. A clear regulatory policy should replace the ongoing intervention in the markets and thus the primacy of process policy. Investments in energy systems have a duration of several decades. The development of future market principles should have a perspective of 20 years and more. This requires a clear orientation for market participants with long-term investments – whether as producers of fossil or renewable electricity produced on the supply side or as industrial consumers on the demand side. Such orientation must also be reliable over legislative periods and governmental constellations. On the basis of long-term ideas of order, the reform steps in the transformation process of the energy transition must also be derived. (b) Competition The future electricity market must be competitively organized in its essential elements; this applies to all suppliers and technologies. There must be long-term predictable cash flows for the provision of renewable as well as fossil power generation capacities that can be generated in perspective without subsidies (except for the price signal of emissions trading). (c) Price signals Renewable energy plants need to be involved in the revenue risk and the market risk more, for instance by linking the payment streams to scarcity signals in the electricity market or long-term at the secured capacity contribution. What is required is a market and value-based remuneration of renewable energies, which stimulates the optimization of the overall system. 46 (d) Demand flexibility To stabilize the balance between electricity generation and electricity consumption, not only flexibility in electricity production and, if necessary, storage but also demand is needed. The flexibilization of demand or demand side management must be able to be integrated into future market models. (e) Sector coupling Power generation is only one – nevertheless important – part of the energy system. Electrical power can be used in different appliances and sectors and can be used to link the different sectors. This sector coupling based on renewable energies would help to reduce emissions on sectors like transport and heating, but it would also help to manage the flexible supply of renewables as transport and heating (and partly cooling) have a significant potential as energy storage capacities. (f) Technology neutrality The market environment must not provide for permanent differentiation for specific technologies. For a transitional period, special rules or subsidies, in particular renewable energies, will be necessary. But even within these differentiations should be limited to what is necessary. In addition, these subsidies must be degressive and the special rules must be provided with a clear exit strategy. (g) Carbon emissions market The European market for greenhouse gas emission allowances remains the key mechanism for integrating the cost of carbon dioxide emissions into electricity production. Politically defined emission targets are achieved, and costs are priced into the decision-making calculus of the investors. (h) Europeanisation Without a European internal electricity market, important efficiency advantages and competitive effects cannot be realized.14 Future market models must not oppose an internal electricity market but must be compatible within Europe. Electricity trading across European borders not only creates a more efficient generation mix, it also increases the security of supply and is therefore a declared objective of the European Union. In addi- 14 See Zachmann, Georg: Electricity without Borders: A Plan to make the Internal Market Work, Brussels, 2013. 47 tion to the local network expansion, sufficient cross-border network capacities and their efficient management are necessary. The German energy transition has been planned as a national project, but it very much relies on being integrated into the European grid and the European market. The integration allows to compensate for fluctuation in the domestic power supply – however this is not an unlimited potential. The European perspective is also necessary in order to use the most efficient places to produce wind and solar power, which very much depends on the natural environment and local factors. Finally, the European market is essential for economic reasons: An integrated European electricity market increases competition between power suppliers and it reduces cost differences for the consumers. 49 4 Why There is No Energy Transition in France Florian Engels 1 Introduction In august 2015 the French parliament passed the law for an energy transition (la loi relative à la transition énergétique pour la croissance verte). The law included various ambitious goals for the future of the energy system of France. The main aspects incorporate a reduced share of nuclear power in France’s electricity mix (from 75% to 50% by 2025), an expansion of renewable energy to 23% until 2020 and to 32% until 2030, an energy consumption cut by 50% until 2050 and a reduction of greenhouse gas emissions by 40% until 2030 and 75% until 2050.1 However, more than three years later the implementation of some of those political goals does not seem to be certain. Reaching the reduction goal for nuclear energy was postponed from 2025 to 2035. This delay was announced by the then French minister for energy and environment Nicolas Hulot who, in turn, stepped down from office in August 2018 because he was unsatisfied with the environmental commitment of the French government.2 Furthermore the development of renewable energies is progressing very slowly. 1 See Assemblée Nationale: loi n° 2015-992 du 17 août 2015 relative à la transition énergétique pour la croissance verte. Titre I, Article 1er, in: JORF n° 0189 du 18 août 2015 page 14263 texte n° 1. 2 See La démission de Nicolas Hulot: Je ne veux plus mentir, in: LeMonde.fr, 28 August 2018, available at: https://www.lemonde.fr/politique/article/2018 /08/28/nicolas-hulot-annonce-qu-il-quitte-le-gouvernement_5346903_823448 .html (18 February 2019). 50 From 2012 to 2017 the share of renewable energies rose from 8.8% to 10.6%, significantly failing to meet its target of 23% until 2020. What are the reasons for those delays in some of the main goals of the French energy transition? Many facts suggest that the solution might lie in the field of France’s nuclear energy sector. Nuclear power is the key energy source in the French energy system. 19 power plants with 58 reactors account for 79% of France’s primary energy production, which in turn satisfies 40.2% of the whole French energy demand and 72% of its electricity.3 Additionally, nuclear energy and the French state are widely entwined. The companies for uranium exploitation and production Orano (formerly Areva) and the nuclear power plant operator and biggest electricity supplier Électricité de France (EDF) are majority-owned by the State. The research interest of this article is thus to find out, what hindrances for the implementation of the French energy transition can be found and if they can be linked to the nuclear energy sector. For the sake of stringency and precision the article will mostly treat the topics of the French energy transition that are linked to electricity. This enables a precise look at the connections between nuclear and renewable energy and French energy politics. Other parts of the transition énergétique such as the building or traffic sector will just be treated briefly. To answer the research question, the article is divided into the following parts: in part two a short overview shall be given about the current state of research as well as the status quo concerning nuclear power and renewable energies in France. Part three then tries to identify obstacles by examining the economic, political and systemic implications of the transition énergétique. Part four will then evaluate the severity of those obstacles by examining if there are factors in favour of the implementation that might counterbalance the hindrances identified in part three. Lastly, all findings shall be consolidated in a conclusion in which the research question examining the origin of possible obstacles for the transition énergétique and their linkage to the nuclear power sector will be answered. 3 See Ministère de la transition écologique et solidaire. Commissariat général au dévelopement durable: Chiffres clés de l’énergie, edition 2018, Paris, 2018, pp. 14f. 51 2 Research and status quo of the energy transition in France The genesis of the French energy transition was accompanied by scientific work inside and outside of France. A close inspection was given on the reasons for the launch of the transition énergétique. Namely the rising need for a plan to cope with the aging nuclear reactor park in France – which was mostly built in the 1970s and 1980s – as well as the Fukushima incident. Furthermore, the starting primaries for the presidential election in 2012 opened a window of opportunity for energy and climate topics to enter the political debate.4 Some researchers also acknowledged the symbolic implication of the energy transition law as well as the setting of ambitious goals for a future energy system.5 However, the majority of the scientific reports also included forms of initial criticism, especially targeting the reduction of nuclear energy and the expansion of renewables. It was noted that neither clear outlines on the number and dates of reactor shutdowns, nor concrete measures on how to expand the renewables sources were available.6 Additionally, studies questioned whether and how a parallelism of reducing the share of nuclear power and increasing the share of renewables could work in terms of maintaining the security of supply and price levels.7 More than three years later these critical questions still remain open. This becomes evident if one takes a look at the implementation laws, the so-called PPE (programmation pluriannuelle de l’énergie), which were enacted by the French government in order to set specific steps for the realisation of the transition énergétqiue. At first 4 See Rüdinger, Andreas: Die Energiewende in Frankreich. Aufbruch zu einem neuen Energiemodell?, in: FES-internationale Politikanalyse, Berlin, 2014; Diechtl, Franca & Fischer, Severin: Unter neuen Vorzeichen. Transform ationsprozesse und Kooperationsmodelle in den deutsch-französischen Energiebeziehungen, in: DGAP-Analyse, No. 5, Berlin, 2015, p. 5. 5 See Rüdinger, 2014, p. 4; Fischer, Severin: Frankreichs energiepolitische Reformagenda, SWP-Aktuell, No. 61, Berlin, 2014. 6 See e.g. Denolle, Anne-Sophie: Commentaire de la loi relative à la transition énergétique pour la croissance verte, in: Revue juridique de l’environnement, Vol. 41, No. 1, 2016, pp. 99-104, p. 103. 7 See Rüdinger, 2014, p. 7; Buchan, David: The French Disconnection – Reducing the Nuclear Share in France’s Energy Mix, OIES-paper, No. 32, Oxford, 2014, p. 12. 52 glance, both versions of the PPE8 describe concrete target figures for the future of renewable energies that seem to satisfy the critical accounts. The goal in the power sector, for instance, is to raise the installed generation capacities by 50% until 2023 and by 100% until 2028 in reference to 2017.9 But if one looks deeper into the numbers, those goals might not be enough to reach the renewable goals of 23% until 2023 and 30% until 2030. Firstly, it is uncertain if the described capacity goals can be fulfilled. An official report of the French power grid operators from September 2018 shows that the quotas for installed capacities of renewables for that year set in the first PPE were not reached. From June to September that year 281 MW were added to the installed wind energy capacity totalling at 14.288 MW. This is still a few hundred MWs away from the PPE goal set at 15.000 MW.10 Solar energy also lags behind with only 8.374 MW capacity despite its original goal set for 10.200 MW in 2018.11 With this current speed of implementation it seems unlikely that the target figures for 2023 and 2030 can be reached. But even if the capacities could be delivered it is not certain if they would suffice for reaching the stable 23 or 30% marks of renewable final energy consumption in 2023 or 2030, which currently lies at 10,6%, less than half of the desired goals.12 Concerning the reduction of nuclear power the current PPE just delivers incomplete answers. On the one side, the French government decided that 14 reactors have to be shut down in order to reach the 50% goal in 2035. The first two reactors will concern the Fessenheim plant and shall be closed in spring 2020.13 Apart from that, however, the regulations remain vague. The exact number of reactors to be shut down by 2030 remains unclear (numbers range from 8 The initial version covered the period from 2016-2019, the second version is a revision of the first which covers now the period from 2019-2028. 9 See Ministère de la transition écologique et solidaire: Stratégie Française pour l’énergie et le climat. Dossier de presse, November 2018, p. 21. 10 See Réseau de transport d'électricité et al.: Panorama de l’électricité renouvelable au 30 juin 2018 / au 30 september 2018, p. 13 / p. 11; Gouvernement de la république Fran aise: Décret n° 2016-1442 du 27 octobre 2016 relatif à la programmation pluriannuelle de l’énergie, in: JORF n°0252 du 28 octobre 2016 texte n° 3. 11 See Réseau de transport d'électricité et al., 2018, p. 22 / p. 16. 12 See Ministère de la transition écologique et solidaire: Chiffres, 2018, p. 18. 13 See Ministère de la transition écologique et solidaire: Stratégie, 2018, p. 4. 53 4 to 6). Furthermore there is no indication on which specific reactors will be targeted. 3 Why there is no energy transition: obstacles and hindrances Part two of this article has shown that from the start of the energy transition there has been criticism on the implementational structure of the project, as well as the lack of implementation of multiple goals in the power sector itself. This section tries to identify where those obstacles are situated. It does so by analysing the key relations between the power sector and three different areas. Firstly the economic area. Mayor changes in the energy system of a country also imply mayor changes in its energy related economical structure. Economical disadvantages caused by transitional projects might work against its implementation. Secondly, the political reasons shall be examined. As energy policy is one of the key issues for a country many influential factors can be found in the connection between energy and politics. This area is especially interesting, because it covers the actors that paved the way for such a project in the first place but, on the other hand, might have an interest in delaying or hindering its successful implementation. Furthermore, the close relationship between the government and the state owned energy companies in France is worth analysing. Thirdly and lastly, systemic factors shall be drawn into consideration for evaluating, if the current energy system itself hinders a successful implementation of the transition énergétique. 3.1 Economic factors One of the most important figures when it comes to energy issues is the energy price. In France household consumers pay 0,1754 €/kWh which is significantly lower than the European Union average of 0,2049 €/kWh.14 This low price is attributable to the high amount of 14 See Eurostat: Energy Price Statistics, available at: https://ec.europa.eu/euro stat/statistics-explained/index.php/Electricity_price_statistics (27 February 20 19). 54 nuclear energy in France. Nuclear power plants generate a high and stable base load of energy. Additionally, electricity prices in France were subsidised by the state for a long time. This situation and the fact that EDF owns all of the nuclear power plants cemented the energy company’s dominant position in the power sector despite the liberalization policy of the EU.15 However, renewable energies are different in character. Solar panels or wind turbines generate much lower quantities of energy per generating unit and are exposed to the volatile factors of sunlight and wind. Thus, a reduction of nuclear power and an expansion of renewables might lead to a price increase in France as the stable and relatively cheap nuclear power would be partly replaced by more expensive renewable energy or more expensive energy imports. Another economic factor that might fuel the reluctance to implement the energy transition is the industrial leadership of the French nuclear sector. State companies like Orano and EDF are leading players in the nuclear energy field operating not only inside of France but worldwide. Roughly 2.500 French companies exist in the nuclear sector employing 220.000 people making it the third biggest industrial branch after the automotive and aeronautical sector.16 Reducing the nuclear share in the power mix could therefore lead to job cuts in those enterprises. Additionally, it might be harder for French companies to keep the innovative leadership in a sector with diminishing domestic importance. 3.2 Political factors Energy has always played a major role in French politics. After experiencing serious energy shortages during and between the two world wars, the government decided to create national energy ‘champions’ that should ensure the independence and supply security for France’s energy system.17 From then on, energy supply was seen as a public task. This stance was reinforced after the oil crisis 15 See Buchan, The French Disconnection – Reducing the Nuclear Share in France’s Energy Mix, OIES-paper, SP 32, Oxford, 2014, p. 13. 16 See Maligorne, Clémentine: Les quatre chiffres à connaître sur l’énergie nucléaire en France, in: LeFigaro.fr, 18 May 2017. 17 See Engels, Florian: Die französische Energiewende im Rahmen der EU- Energiepolitik, Marburg, 2016, p. 45. 55 in 1973, which led to the quick development of the civil nuclear energy program. The civil and military use of the atomic technology is therefore closely linked to France’s understanding of a militarily and economically independent nation.18 The effects of this state driven construction of the French power system can still be seen today. The subsidies for electricity prices mentioned above directly derive from the understanding of the state as a guarantor for affordable and secure energy to its people. Therefore, any measures that might lead to a major increase in French energy prices are very unpopular among the French government due to the possible negative effects on the public opinion. Besides, the connection of the government and the state-owned energy suppliers is still strong. The current Prime Minister, Edouard Philippe, for example, was head of public affairs of Areva from 2007 to 2010. The fact that the initial goal of the transition énergétique to reduce the share of nuclear energy to 50% until 2025 was postponed to 2035 under the presidency of Emmanuel Macron is another sign for the reluctance of the state to tackle the dominant nuclear power structure. The French President even holds open the door for future reactor builds in France, which will be decided in 2022.19 That position is also backed by the French Minister of economy, Bruno le Maire, who sees nuclear power as a “trump for France”.20 In addition to all those factors, it has to be said that the nuclear and renewable energy discussion is not on top of the political agenda in France. The country is currently preoccupied with a variety of reforms started by president Macron (e.g. pension scheme and labour marked) that have a much more immediate impact on the French 18 See Diechtl/Fischer, 2015, p. 4. 19 See Nucléaire: La décision de construire d’autres EPR prise “autour de 2022“, selon Emmanuel Macron, in: l’opinion.fr, 8 February 2019, available at: https://www.lopinion.fr/edition/economie/nucleaire-decision-construire-dautres-epr-prise-autour-2022-selon-177363 (28 March 2019). 20 le Maire, Bruno cited in: Bezat, Jean-Michel: Nucléaire: Un rapport préconise la construction de sux nouveaux EPR, in: LeMonde.fr, 30 August 2018, available at: https://www.lemonde.fr/planete/article/2018/08/30/nuc-le aire-un-rapport-preconise-la-construction-de-six-epr_5348004_3244.html (28 March 2019). 56 society than the long term and sometimes abstract goals of an energy transition. 3.3 Systemic factors Last but not least, underlying systemic factors should be taken into account when looking for obstacles on the way to a successful implementation of the energy transition goals. The dominant position of nuclear energy also plays the key role in this regard. Due to the enormous share of atomic energy in the power mix, the whole systemic structure is centred around this energy source. As already briefly stated in the economic chapter, it is hard to replace electricity generated by nuclear reactors with renewable energy. The reason for that is not only the price issue but also a question of supply security. The high base load generated by nuclear power plants fits very well in the centralized energy structure of France. Replacing this base load with more volatile renewable energy would not only be an enormous and costly effort but also render the country more vulnerable to electricity spikes on the generation and demand side. Particularly during cold winter months France is in need of a high and steady supply of electricity due to the high dispersion of electrified heating systems in French households. Furthermore, due to its volatility, a higher share of renewables could increase the risk of power shortages in those periods, which in turn would have to be evened out by improved energy storage capabilities or importation.21 The question of electricity importation and exportation leads to the next systemic fact. France is a net energy electricity exporter with 40 TWh in 2017.22 France’s role as an energy exporter is especially important for the Iberian Peninsula being the only over land connection for energy supplies. A weakening of France’s exportation capabilities could therefore also endanger the energy supply security of its neighbouring countries like Spain – and with that Portugal – but also Italy or Switzerland.23 21 See Engels, 2016, p. 97. 22 See Ministère de la transition écologique et solidaire: Chiffres, 2018, p. 57. 23 See Engels, 2016, p. 97f. 57 France’s electricity export surplus is also – next to the other mentioned factors – part of the reason why the extension of renewables is progressing so slowly. There is simply no need to create more power generating capacities. Electricity not needed in the country itself has to be sent to the neighbouring countries via the interconnectors. Although a steady power exchange between European states is needed to circumvent shortages and unforeseen demand spikes, too much exported power leads to excess capacities in the gird system, which in turn creates own problems like the necessity of loop flows or overloading dangers of the power grid.24 Lastly, there is the CO2-argument. Nuclear energy in France is considered a ‘clean’ energy source, because it does not emit carbon dioxide or greenhouse gases.25 Thus – following the French logic – this decreases the incentive to invest in renewable energies because there is no gain on the climate balance. 4 Is energy transition in France really impossible? The analysis in part three has identified several factors in different areas that can be seen as obstacles on the way to a successful implementation of the French energy transition in the power sector. Those findings might lead to the conclusion that a significant change in the French energy structure could be considered an almost impossible task. This section investigates the severity and long-term stability of the findings and asks the question if there are possible indicators for a change of the described blockading stance towards the implementation of the transition énergétique. 4.1 Future price developments As already indicated, low electricity prices play a crucial role in France for various economic and political reasons. Thus, there is little voluntarily incentive to change the energy system in a way that would significantly increase the price levels. However, this does not necessarily produce an unsolvable deadlock situation. The will to 24 See Rüdinger, 2014, p. 7. 25 Different to Germany the nuclear waste disposal discussion plays just a minor role in the French public debate. 58 reduce cheap nuclear energy in favour of an extension of more expensive renewable energy might not come voluntarily but through systemic necessity. Due to the fact that the majority of French nuclear reactors were built during the same relatively short period of time, the maintenance and investment costs for the upkeep of plants and enhanced security mechanisms are also to rise at the same time. In 2014, the French audit office calculated that the operating costs for the nuclear power fleet rise each year by 1.4%.26 Furthermore, the construction cost and duration of the new nuclear power plant projects, like the EPR-reactor in Flammanville (North France), continues to go up as well. In 2007, when the construction started, it was initially estimated at 3 billion Euros with a completion date in 2012. Through the years costs have risen up to 10.9 billion Euros with a new completion timeframe of late 2019 or early 2020.27 A continuous increase in prices in the nuclear sector might open a window of opportunity for the French government to diversify its energy sources in the power sector. An extension of renewables could in that case be the remedy for the cost explosion of nuclear plants.28 However, it is unlikely that this scenario would be possible without a substantial increase in energy prices for the French people which is still a very unpopular and conflicted political topic. Furthermore, lower production costs of renewable energies do not automatically negate the other challenges that come with those energy sources like the aforementioned volatility or the need for a development of new storage and grid capacities. 4.2 Political changes The favourable stance towards atomic energy displayed under the Macron presidency and his government is not shared by every political actor in France as the resignation of the environmental activist Nicolas Hulot from his ministerial office has shown. After the 26 See Cour des comptes: Le coût de production de l’électricité nucléaire actualisation 2014, Paris, 2014, p. 163ff. 27 See Wakim, Nabil: Nucléaire: l’EPR de Flamanville retardé d’un an, pour un coût augmenté de 400 millions d’euros, in: LeMonde.fr, 28 July 2018, available at: https://www.lemonde.fr/energies/article/2018/07/25/l-epr-de-flamanv ille-retarde-d-un-an-le-cout-augmente-de-400-millions-d-euros_5335 611_16 53054.html (2 March 2019). 28 See Buchan, 2014, p. 17. 59 revision of the PPE many politicians stated their criticism on the slowdown of the nuclear reduction.29 Former energy minister and responsible of the energy transition law Ségolène Royal reproached the government for not having faith in the development of renewable energies. Additionally, she suspected that Emmanuel Macron extended the deadline of the reactor shutdowns to 2030 in order to push that decision out of the period of his presidential term.30 This shows that there is no political consensus over the future of nuclear energy in France. Depending on which political forces hold the power in France, the atomic question is valued differently. It is therefore not clear what will happen in the electricity sector after the presidency of Macron. Similarly to the political sphere, the French society has no clear stance towards the future of the atomic energy as well. Recent polls suggest that there is a slight majority (53%) against nuclear power.31 However, to this date there is no real societal opposition against nuclear energy in France that engages fundamental debates about the inherent dangers of atomic energy as they were carried out in Germany during the past decades. Debates over the nuclear topic still remain limited in scope and seldomly leave the political or expert area.32 4.3 Energy transition electricity transition To fully answer the question about the origin and severity of hindering factors for the implementation of the transition énergétique in 29 See e.g. Emmanuel Macron annonce la fermeture de 14 réacteurs nucléaires d’ici 2035, in: LeParisien.fr, 27 November 2018, available at: http://www.le parisien.fr/economie/14-reacteurs-nucleaires-seront-arretes-d-ici-2035-annon ce-emmanuel-macron-27-11-2018-7954812.php (1 March 2019). 30 See Ségolène Royal, cited in: Le Hir, Pierre & Wakim, Nabil: Ségolène Royal: Le lobby nucléaire a obtenu gain de cause, in: LeMonde.fr, 28 November 2018, available at: https://www.lemonde.fr/politique/article/2018/11/28/segol ene-royal-le-lobby-nucleaire-a-obtenu-gain-de-cause_5389633_823448.html (1 March 2019). 31 See 53% des Français opposés à l’énergie nucléaire, in: LeFigaro.fr, 25 October 2018, available at: http://www.lefigaro.fr/flash-actu/2018/10/25/97001-20 181025FILWWW00027-53-des-francais-opposes-a-l-energie-nucleaire.php (1 March 2019). 32 See Engels, 2016, p. 57f. 60 France one has to take a brief look at the other components of the transition project apart from the power sector. The energy transition law also defines goals for the transport and building sector. This is especially important in relation to the greenhouse gas reduction targets of 40% until 2030 and 75% until 2050. Due to the massive share of nuclear power in France’s energy mix, the possibility for reducing CO2 emissions in that sector remains rather limited. The per capita emissions of France are with seven tons already below the European average of 8.4 tons.33 Thus, in terms of greenhouse gas reduction France is more likely to achieve greater reduction successes in the building and traffic sector through for example energy efficient refurbishment measures or alternative fuels. When evaluating the feasibility of the transition énergétique there is hence a scenario where not much might change in the energy structure of the country itself but progress could still be generated in terms of CO2 reduction. 5 Conclusion The energy transition project in France started with an ambitious set of goals to tackle the future energy and climate related challenges of the country. Particularly the reduction of the nuclear power share was seen as a novelty in French energy policy. After more than three years of temporal distance one can observe that progression towards those energy goals is indeed going slowly. As analysed in this article many reasons for that staggering progress can be related to the dominant position of nuclear power in France’s energy mix. France’s history of atomic energy goes back almost 50 years and has become a leading industrial branch and top employer for the country. Furthermore France’s low electricity prices depend on a stable power output from nuclear power plants. Those prices in turn are seen as a national achievement by both politicians and citizens, which is further reinforced by the state-owned structure of the leading energy companies. 33 See Umweltbundesamt: Treibhausgas-Emissionen in der Europäischen Union, 18 September 2018, available at: https://www.umweltbundesamt.de /daten/klima/treibhausgas-emissionen-in-der-europaeischen-union#textpart-1 (2 March 2019). 61 The strong position of this energy source in economic, political and systemic aspects makes diversification efforts hard to carry out. This is because other CO2-neutral energies, like renewables simply cannot replace nuclear power generation due to a higher price structure or greater volatility without any added value for the greenhouse gas emission goals. The systemic dominance of nuclear power is even harder to touch because it not only affects the French energy system but also the supply structure of the neighbouring countries on account of France’s electricity exportation surplus. All those facts lead to the conclusion that an energy transition in France is indeed hard to achieve when it comes to touching the power mix. This situation has not necessarily to be considered as an insoluble stalemate. Changes in the political leadership of the country could lead to a re-evaluation of the role of nuclear energy in France, especially when the production cost of nuclear power and the maintenance investments of the reactor park continue to rise. In the short run, however, there is little movement to be expected, as there are more pressing topics on the daily agenda of French politics. To sum it up, there is to say that in France there is currently no energy transition in the sense of a change or diversification of energy sources. Nuclear power will still dominate the energy marked in the years to come due to the lack of immediate economic and systemic alternatives and political will. This does not mean that in the end there will be nothing to be done for implementing the goals of the transition énergétique as there are other sectors, like building and traffic, which can contribute to climate and energy efficiency targets without the need to change the current supply structure. Further research will have to monitor, if progress in these areas can be sufficient to solve France’s energy challenges. 63 5 Poland’s Energy Security and the Shale Revolution – A Case Study on Natural Gas Rafa Ulatowski 1 Introduction Poland, like many other European countries, has faced two main challenges to its energy security in the first decade of the 21st century. The first was rising natural gas and oil prices, which was a consequence of rising global demand and a slow increase in supply.1 The second was the ongoing gas conflicts between Russia and Ukraine, which led to disruptions in gas deliveries from Russia.2 The security of the gas supply became the most important dimension of Poland’s energy security. In 2014, the Polish Prime Minister Donald Tusk claimed that “gas security is a fundamental prerequisite of sovereignty”3. The literature on the energy security of Poland has grown substantially in the last two decades, with the discussion covering such important aspects as: Poland’s dependence on the supply of gas from Russia, the role of coal and the environmental dimension of Po- 1 See Canuto, Otaviano: The Commodity Super Cycle: Is This Time Different?, World Bank – Economic Premise, The World Bank, Issue 150, 2014. 2 See Kandiyoti, Rafael: Powering Europe: Russia, Ukraine, and the Energy Squeeze, New York, 2015. 3 Tusk, Donald cited in: Goldthau, Andreas & LaBelle, Michael: The Power of Policy Regimes: Explaining Shale Gas Policy Divergence in Bulgaria and Poland, in: Review of Policy Research, Vol. 33, No. 6, 2016, pp. 603-622, p. 609. 64 land’s energy policy, and the European context of that policy.4 Since the beginning of the shale revolution in the United States, the shale gas reserves in Poland have attracted growing interest. The prospects of developing shale gas in Poland, including the legal, tax, technical and political aspects of the issue, have been extensively discussed.5 The development of local shale resources should enable Poland to reduce its dependence on Russian gas, thereby improving its geopolitical situation and strengthening its economy. But the hopes of turning Poland into a shale gas producer have not materialized. As the opinion of Prime Minister Tusk indicates, Polish government, whatever party it is formed by, sees energy as a strategic good that is vital for state security. This reflects a global trend in the 21st century where political considerations play an important role in economic decisions in the energy sector. The main objective is to secure the uninterrupted availability of energy resources, resources that are viewed as a potential subject of interstate conflict or an instrument in such a conflict.6 4 See Nowakowski, Zdzis aw: Polityka bezpiecze stwa energetycznego Polski. Wp yw europeizacji i globalizacji, Warszawa, 2016; Gawlikowska-Fyk, Aleksandra et al.: Germany and Poland in the Energy Union. Moving from Controversies to Shared Interests? in: European Energy Journal, Vol. 2, No. 2, 2017, pp. 49-59. 5 See Baginski, Wojciech: Shale Gas in Poland – The Legal Framework for Granting Concessions for Prospecting and Exploration of Hydrocarbons, in: Energy Law Journal, Vol. 32, No. 1, 2011, pp. 145-155; Johnson, Corey & Boersma, Tim: Energy (In)security in Poland. The Case of Shale Gas, in: Energy Policy, Vol. 53, Issue C, 2013, pp. 389-399; Uliasz-Misiak, Barbara, Przybycin, Andrzej & Winida, Bogumila: Shale and Tight Gas in Poland – Legal and Environmental Issues, in: Energy Policy, Vol. 65, 2014, pp. 68-77; Lis, Aleksandra & Stankiewicz, Piotr: Framing Shale Gas for Policy-Making in Poland, in: Journal of Environmental Policy & Planning, Vol. 19, No. 1, 2017, pp. 53-71; Goldthau, Andreas: The Politics of Shale Gas in Eastern Europe Energy Security, Contested Technologies and the Social Licence to Frack, Cambridge, 2018, pp. 67-90; Burnett, J. Wesley, Jackson, Randall W. & Blobaum, Robert: The State of Play in Poland’s Unconventional Shale and Oil Development, in: Development Policy Review, Vol. 33, No. 4, 2015, pp. 395-414; Atkins, Justin P.: Hydraulic Fracturing in Poland: A Regulatory Analysis, in: Washington University Global Studies Law Review, Vol. 12, No. 2, 2013, pp. 339-355. 6 See Goldthau, Andreas: From the State to the Market and Back: Policy Implications of Changing Energy Paradigms, in: Global Policy, Vol. 3, No. 2, 2012, pp. 198-210; Dannreuther Roland: Geopolitics and International Rela- 65 This article is based on an analysis of documents, statistical data, and press statements by public entities and companies. It is supplemented by an analysis of the literature. There is a triple gap in the current literature on shale gas. Firstly, most research continues to focus on a limited group of countries, namely, the United States, other great powers such as China and Russia, and leading oil and gas exporters, with little attention paid to the shale gas role for midsized countries. Secondly, previous analyses of shale gas in Poland have concentrated on extraction. But these plans have failed. Although shale gas is not being produced in Poland, the shale revolution is still having an impact on the country’s energy security through international trade. Shale gas is currently flowing into Poland. But it is shale gas “made in the USA”. And thirdly, most analyses of shale gas in Europe were published during the period of the biggest hype in the early 2010s. Today it is well understood that, if shale gas is to be produced in Europe, it will not be any time soon. This article argues that, although Poland is not producing shale gas, the shale gas revolution is still relevant for it. Growing exports of American shale gas give Poland an opportunity to strengthen its energy security and to integrate with the emerging global gas market. A reduction in its dependence on Russia will not automatically eliminate Russia from Poland’s list of suppliers, but will provide an opportunity to achieve more balanced relations in the energy sector. The article consists of four parts. In the first part, I discuss the consequences of the shale revolution for the energy market. In the second part, I analyse the goals of Poland’s energy policy and the challenges the country faces in respect of energy security. In the third part, I raise questions about Poland’s experience with shale gas exploration. In the fourth part, I discuss the cooperation between Poland and the United States on energy security. 2 The shale revolution and the gas market For decades, the outstanding characteristic of the gas market was its fragmentation. In fact, there were four main gas markets with distinctive characteristics: the US market, the British market, the contions of Resources, in: Dannreuther, Roland & Ostrowski, Wojciech (eds.): Global Resources. Conflict and Cooperation, London, 2013, pp. 79-97. 66 tinental European market, and the Asian market. The European gas market was based on four principles: (1) a long-term supply obligation balanced by a long-term off-take obligation ensured by the minimum-pay concept; (2) gas pricing based on the concept of netback value – under which the price of gas is calculated on the basis of the value of competing energies, above all oil products; (3) price conditions could be reviewed at regular intervals (typically three years); and (4) in the case of a disagreement on a price adjustment it is possible to invoke arbitration. The rationale for linking gas prices to oil prices came to be questioned in the 21st century,7 but due to opposition from most suppliers to Europe, notably the largest of these - Russia - the transformation toward a system based on hub prices (gas-to-gas competition) has been gradual. The decoupling of gas prices from oil prices emerged in 2009-2010, and was a consequence of a surplus of gas on the market. Companies from Western Europe pushed suppliers to adjust contractual prices to the lower prices present on the spot market.8 Today, the entrance of US shale gas into Europe is weakening the already criticized rationale of oillinked gas prices (oil-indexation) and is supporting a change to gasto-gas competition driven by supply and demand for natural gas itself.9 7 See Stern, Jonathan: Is There A Rationale for the Continuing Link to Oil Product Prices in Continental European Long-Term Gas Contracts?, Oxford Institute for Energy Studies, No. NG 19, 2007, available at: https://www.ox fordenergy.org/wpcms/wp-content/uploads/2010/11/NG19-IsThereARational eFortheContinuingLinkToOilProductPricesinContinentalEuropeanLongTerm GasContracts-JonathanStern-2007.pdf (1 February 2019). 8 See Stern, Jonathan & Rogers, Howard: The Transition to Hub-Based Gas Pricing in Continental Europe, Oxford Institute for Energy Studies, No. NG 49, 2011, available at: https://www.oxfordenergy.org/wpcms/wp-content/ uploads/2011/03/NG49.pdf (1 February 2019); Komlev, Sergei: Pricing the “Invisible” Commodity, Gazprom Export, 11 January 2013, available at: file:///C:/Users/Admin/AppData/Local/Temp/2013-1-11-gazprom-paper-gaspricing.pdf (1 February 2019); Stern Jonathan & Rogers, Howard: The Transition to Hub-Based Pricing in Continental Europe: A Response to Sergei Komlev of Gazprom Export, Oxford Energy Comment, 2013, available at: https://www.oxfordenergy.org/wpcms/wp-content/uploads/2013/02/Hub-bas ed-Pricing-in-Europe-A-Response-to-Sergei-Komlev-of-Gazprom-Export.pdf (1 February 2019). 9 See Pearson, Ivan et al.: Unconventional Gas: Potential Energy Market Impacts in the European Union, JRC Scientific and Policy Reports, 2012, available at: file:///C:/Users/Admin/AppData/Local/Temp/reqnojrc70481unconve 67 The surplus of gas on the European market was a consequence of two developments. The first was a short-term factor: the economic crisis limited demand for gas. The second development was a structural factor. Shale gas in the United States became competitive thanks to improvements in two technologies: horizontal drilling and hydraulic fracturing (or “fracking”). The production of shale gas, and later also of shale oil, started to take off. The United States, which in the early 21st century has been seen as a country which gas and oil production was in permanent decline, became an Eldorado for gas and oil explorers and a new energy superpower. The gas reserves of the United States not only proved to be enough to satisfy US demand, but also enabled American companies to become exporters. Thus, for the US gas market, the beginning of the 21st century meant an evolution from a shortage to an abundance of gas.10 Production in the United States went from 521.9 billion cubic metres in 2007 up to 734.5 billion cubic metres in 2017.11 The US shale revolution meant that traditional suppliers which invested in production capacity for exporting gas to the United States in the early 21st century suddenly had to look for new markets. During the early years of the shale revolution in the United States, there was a strong hope that the shale industries of other countries might develop along similar lines. Expectations were especially high in Europe, which depends on foreign gas suppliers. One of the first studies conducted on shale gas saw the commodity as a “game changer” for the European gas market, although it was also indicated that, due to two main challenges (land access and cost levels), no significant production should be expected before 2020.12 ntional%20gas%20potential%20energy%20market%20impacts%20in20the% 20european%20union.pdf (1 February 2019). 10 See Joskow, Paul L.: Natural Gas: From Shortages to Abundance in the United States, in: American Economic Review, Vol. 103, No. 3, 2013, pp. 338- 343. 11 See British Petroleum: Statistical Review of World Energy, London, 2018, p. 28. 12 See Gény, Glorence: Can Unconventional Gas be a Game Changer in European Gas Markets?, Oxford Institute for Energy Studies, No. NG 46, Oxford, 2010, available at: https://www.oxfordenergy.org/wpcms/wp-content/uploa ds/2011/01/NG46CanUnconventionalGasbeaGameChangerinEuropeanGasM arkets-FlorenceGeny-2010.pdf (1 February 2019). 68 The United States, understanding the profound consequences of the shale revolution for the global balance of power, has promoted shale gas exploration around the world. President Barack Obama suggested that, rather than relying on the American supply, the European Union should develop local reserves.13 In 2010, the Global Shale Gas Initiative (GSGI), later renamed the Unconventional Gas Technical Engagement Program (UGTEP), was initiated. Its goal is to promote shale gas technology and support countries interested in the US’s experience in shale technology. The Energy Governance and Capacity Initiative is another program that brings US technical expertise in the energy sector to other countries. It was discussed whether the United States could serve as a model for the development of the shale industry in Europe.14 Doubts arose because of the differences between the petroleum industry in the United States and that in Europe. As one of the most significant reports indicated: “In Europe the geology is less favorable, there are no tax breaks and the service industry for onshore drilling is far behind that in the United States. Finally, there is concern that disruptions caused by shale gas developments will not find public acceptance, especially in a context where the gas is the property of the state and thus the benefits accrue to governments and not local landowners.”15 Leonardo Maugeri, one of the biggest experts on the shale industry, argued that shale gas and shale oil production is simply an U.S. phenomenon.16 13 See European Parliament: Shale Gas and EU Energy Security, December 2014, available at: http://www.europarl.europa.eu/RegData/etudes/BRIE/20 14/542167/EPRS_BRI(2014)542167_REV1_EN.pdf (1 February 2019). 14 See Sakmar, Susan L.: The Global Shale Gas Initiative: Will the United States Be the Role Model for the Development of Shale Gas Around the World?, in: Houston Journal of International Law, Vol. 33, No. 2, 2011, pp. 369-417. 15 Stevens, Paul: The ‘Shale Gas Revolution’: Hype and Reality, A Chatham House Report, 2010, p. vi, available at: https://www.chathamhouse.org/sites/ default/files/field/field_document/r_0910stevens.pdf (1 February 2019). 16 See Maugeri, Leonardo: The Shale Oil Boom: A U.S. Phenomenon, Belfer Center for Science and International Affairs, Harvard Kennedy School, June 2013, available at: https://www.belfercenter.org/sites/default/files/legacy/fil es/draft-2.pdf (1 February 2019). 69 Because no shale revolution occurred in other countries, attention turned towards the development of shale gas exports, which was advocated contrary to the wishes of the consumer lobby in the United States. It was argued that the United States should not restrict exports, but should work on building a “transparent global gas market” that would be “beneficial to Washington and its allies”17. The International Energy Agency (IEA) makes prognoses of the growing role of natural gas in the global energy mix, and has forecasted a “Golden Age of Gas”. The United States is not the only country developing LNG export capacity. Australia is expanding its LNG export capacity, and so is Qatar.18 The IEA’s World Energy Outlook 2017 gives a sense of these changes. Its authors indicate clearly that “A new gas order is emerging, with US LNG helping to accelerate a shift towards a more flexible, liquid, global market. […] Gas supply also becomes more diverse: the amount of liquefaction sites worldwide doubles by 2040, with the main additions coming from the United States and Australia, followed by Russia, Qatar, Mozambique and Canada. Price formation is based increasingly on competition between various sources of gas, rather than indexation to oil.”19 And finally they summarize: “US LNG acts as a catalyst for many of the anticipated changes in the wider gas market.”20 3 The energy policy of Poland Poland’s energy mix has experienced a deep change in the last quarter-century. As the role of coal has declined, the role of all other energy sources (oil, natural gas and renewables) has increased.21 In the late 1990s, the government of Poland started to work on diversifying the country’s gas supply. Several attempts were made to 17 Deutch, John: The Good News About Gas: The Natural Gas Revolution and Its Consequences, in: Foreign Affairs, Vol. 90, No. 1, 2011, p. 90. 18 See Thierry, Bros: Oxford Quarterly Gas Review, No. 4, 2018, p. 4. 19 IEA: World Energy Outlook 2017. Executive Summary, 2017, p. 6. 20 Ibid. 21 See IEA: Energy Policies of IEA Countries. Poland 2016 Review, 2017. 70 secure gas from Norway and Azerbaijan, but with only very limited success, and even today natural gas is still only a relatively modest part of Poland’s energy mix. Poland’s dependence on Russia as its sole foreign supplier of gas (part of the legacy of the Cold War), has been broadly interpreted as one of the main threats to Poland’s security. Russia is also considered an expensive supplier, with Poland having paid higher prices for Russian gas than Western European countries.22 The reason for this is Poland’s current energy mix, where hard coal and lignite play a central role, while the EU energy policy questions the future role of coal as a fuel in the EU. To achieve a reduction in greenhouse gas emissions, renewables and natural gas will have to play a bigger role in the near future in the energy mix of Poland. The security and economic aspects of Poland’s dependence have been seen in European initiatives by Polish diplomacy, such as the ‘Musketeers’ Pact’ proposal in 2006 or the Energy Union in 2014.23 The shale revolution began in the United States at the end of the first decade of the 21st century and in 2009 the government of Poland approved a new strategic document on the country’s future energy policy: “Energy Policy of Poland to 2030” (Polityka energeticzna Polski do 2030 roku).24 In this document, no mention is made of shale gas exploration or shale gas. The interest shown in the subject by government and public opinion has changed in the 2010s, as evident in the Energy Security and Environmental Strategy prepared by the Ministry of the Environment in 2014. In the strategy, shale gas is presented as offering Poland meaningful economic and geopolitical opportunities.25 The Polish authorities and the Polish public 22 See Mikulska, Anna: Try Harder, Gazprom. Why Poland could choose LNG, Baker Institute, 2018, available at: https://www.forbes.com/sit-es/thebaker sinstitute/2018/12/21/try-harder-gazprom-why-poland-could-choose-lng/#2ad 8c0c11537 (1 February 2019). 23 See Szulecki, Kacper et al.: Giving Shape to the Energy Union: Evolution, National Expectations and Implications for EU Energy and Climate Governance, in: Climate Policy, Vol. 16, Issue 5, 2016, pp. 548-567. 24 See Ministerstwo Gospodarki: Polityka energetyczna Polski do 2030 roku, Warszaw 2009, available at: https://www.gov.pl/documents/33372/436746/ DE_Polityka_energetyczna_ost_2030.pdf/78b689ec-62ec-af88-b0d7-decf95a bdb70 (1 February 2019). 25 See Ministerstwo Gospodarki & Ministerstwo rodowiska: Strategia Bezpiecze stwo Energetyczne i rodowisko perspektywa do 2020 r, Warszaw 2014, 71 saw an opportunity in shale gas to “liberate” Poland from its dependence on Russian gas. One of the most important steps on the way to improving the security of the supply of gas to Poland was the decision to build an LNG terminal allowing maritime imports of liquified natural gas. This terminal should allow access to non-European gas suppliers using technology other than pipelines. In 2007, the company Polskie LNG S.A. was founded, with the goal of building and managing the LNG terminal in the city of Swinouj cie in northwestern Poland. Work on the technical design was completed in 2009. On 19 August 2008, the government passed a resolution classifying the investment in the LNG terminal as a strategic one. The construction plan foresaw two phases. In the first phase, the terminal would achieve a capacity of 5 billion cubic meters of natural gas per annum. The second phase would allow its enlargement up to 7.5 billion cubic meters of natural gas per annum. In 2010, an agreement was signed with a consortium of engineering companies and construction began in 2011. The first delivery of LNG took place in December 2015. As the Polish foreign minister at that time, Radoslaw Sikorski, indicated, “the LNG terminal may not be profitable but at least it will fly a Polish flag.” The strategic aspect of this project was crucial.26 On 19 December 2018, the government of Poland and Polskie LNG S.A. announced a tender for a contractor for the expansion of the capacity of the LNG terminal in winouj cie up to 7.5 billion cubic meters of natural gas per annum. The first partner of PGNiG, the Polish national gas company, was Qatargas, the biggest supplier of LNG in the world, with which PGNiG has signed two agreements, in 2008 and 2017. The first contract came under criticism for the price of gas it established. Subsequent to the first contract, PGNiG’s strategy was to enlarge the volume of gas imported and simultaneously reduce the price. PGNiG wanted to renegotiate the first contract, which was signed when gas prices were at a record high. That strategy failed, as the first contract was not changed, but only an additional one signed. available at: http://kigeit.org.pl/FTP/PRCIP/Literatura/008_3_Stra te gia_Bez pieczenstwo_Energetyczne_i_Srodowisko_2020.pdf (1 May 2019). 26 See Weaning Poland of Russian Gas, in: The Economist, 4 April 2014, available at: https://www.economist.com/eastern-approaches/2014/04/04/weaning -poland-off-russian-gas (1 February 2019). 72 Although the price remains a trade secret, PGNiG indicated in a statement accompanying the signing of the second contract that it will have a positive impact on the financial results of the company, which suggests that the price is now probably much more attractive than in the first contract.27 4 Shale gas development in Poland Poland’s experience with shale gas can be divided into two subperiods. The first started in 2007, when the first licences for shale gas exploration were issued. Big hopes for transforming Poland into a shale gas producer were awakened by a report by the US Energy Information Agency in 2011 that estimated the shale gas reserves in Poland at 5.3 billion cubic meters.28 Poland went into a state of “shale-gas euphoria”29, but this was cooled down by the Polish Geological Institute, which estimated the size of Poland’s shale gas reserves in Poland at only 346-768 million cubic meters.30 In spite of this, oil and gas majors like ExxonMobile, ConocoPhillips Eni, Total, Chevron, mid-sized companies like Talisman, and Polish oil and gas companies (PKN Orlen, Lotos, PGNiG) all invested in shale gas exploration in Poland. But after a few years of disappointing drilling results, they started to pull out of the country. The highest number of valid concessions for prospecting and exploration (111) was in force in July 2012.31 The Ministry of the Environment, which is 27 See Maci ek, Piotr: Drugi kontrakt katarski zamiast aneksu do pierwszej umowy, in: Energetyka 24, 2017, available at: https://www.energetyka 24. com/drugi-kontrakt-katarski-zamiast-aneksu-do-pierwszej-umowy-komentarz (1 February 2019). 28 See U.S. Energy Information Administration: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, Washington D.C., 2011, available at: https://www.eia.gov/analysis/studies/worldshalegas/ archive/2011/pdf/fullreport_2011.pdf (1 February 2019). 29 Wyciszkiewicz, Ernest: Path to Prosperity or Road to Ruin? Shale Gas Under Political Scrutiny, Report of the Polish Institute of International Affairs, 2011, p. 46, available at: https://www.pism.pl/files/?id_plik=8613 (1 March 2019). 30 See Rutkowski, Miros aw: Gaz pojawia si i znika, czyli krótka historia szacowania zasobów w glowodorów niekonwencjonalnych w Polsce, in: Przegl d Geologiczny, Vol. 61, No. 6, 2013, pp. 331-334. 31 See Ministry of the Environment: Shale Gas in Poland Prospering and Exploration 2007-2015, 29 February 2016, available at: http://lupki.mos.gov. 73 responsible for shale gas exploration in Poland, suggested in 2014 that gas would start to flow by 2020.32 At the beginning of the second decade of the 21st century, Poland was a country looking very optimistically toward the development of its own shale gas exploration. Press reports were overwhelmingly positive and concentrated on the geopolitical benefits: the most popular refrain was “shale gas is geopolitically game-changing”. And the economic dimension was also highlighted, to the tune of: “shale gas is economically viable” and “shale gas is commercially viable”33. These views were mainly put forward by politicians, economists and experts. Much less was said about shale gas as a risk, and mainly only by the communities where exploration was to take place and by civil society organizations. After several big companies withdrew from Poland in 2013, the Polish government changed the legal framework, presenting an even more business-friendly face and emphasizing the economic dimension of shale gas development over security issues.34 As Andreas Goldthau and Michael LaBelle have summarized, “it is the interplay of a convincing policy narrative, a comprehensive institutional process, and the inclusion of pivotal stakeholders that established a strong policy regime around Polish shale”35. Despite all this, within a few years those hopes for transforming Poland into a big shale producer had been dashed.36 According to data of the Ministry of the Environment, on 30 November 2017 there were 20 current concessions for prospecting and/or exploring for hydrocarbon resources, including shale gas, but the owners of those pl/pliki/broszura/shale-gas-in-poland-prospecting-and-exploration-2007-2016 .pdf (1 February 2019). 32 See Foy, Henry: Poland’s Shale Gas Dreams put on hold, in: Financial Times, 16 November 2014, available at: 33 Jaspal, Rusi, Nerlich Brigitte & Lema cyzk, Szczepan: Fracking in the Polish Press: Geopolitics and National Identity, in: Energy Policy, Vol. 74, 2014, pp. 253-261. 34 See Lis, Aleksandra & Stankiewicz, Piotr: Framing Shale Gas for Policy- Making in Poland, in: Journal of Environmental Policy and Planning, Vol. 19, No. 1, 2017, pp. 58-60. 35 Goldthau, Andreas & LaBelle, Michael: The Power of Policy Regimes: Explaining Shale Gas Policy Divergence in Bulgaria and Poland, in: Review of Policy Research, Vol. 33, No. 6, 2016, p. 603-622, pp. 618. 36 See Trusewicz, Iwona: Gaz upkowy, czyli stracone z udzenia, in: Rzeczpospolita, 17 October 2018, available at: https://www.rp.pl/100-lat-polskiej-g ospodarki-ropa-naftowa-i-gaz/180419853-Gaz-lupkowy-czyli-stracone-zludz enia.html (1 February 2019). 74 concessions were actually looking for conventional gas or oil, or were not actively carrying out any work.37 The collapse of the expectations of transforming Poland into a significant shale gas producer took place along with a broader failure of shale gas development in other EU countries. The current literature shows that the reasons for this were not only structural in nature (geology, geography, economic, technology), but were equally due to the role played by agencies (policy makers, industry, social groups).38 In most countries in Europe, weak pro-shale networks can be seen as a reason for shale industry’s failure. There are no shale supporters in EU institutions; those institutions actively support renewable energy sources and measures for tackling climate change.39 But in Poland, the failure of the shale gas industry has occurred despite strong governmental support – probably the strongest in Europe. Structural reasons were key. 5 United States–Poland gas contracts With the failure of the development of the shale industry in Poland, the interest of the Polish authorities turned towards imports of LNG from the United States. The entrance of the United States to the group of LNG exporters opened up new opportunities for Poland to improve its energy security. Since the beginning of the shale revolution, the United States, a strategic partner of Poland, has also been seen as a promising partner in the energy sector. Both countries have a common interest. The United States are interested in finding markets for gas exports and in reducing the dependence of its allies on Russian gas supplies. LNG exports have become an instrument of US foreign policy. Russia is seen as the main victim of the US’s 37 See PB: San Leon gasi wiat o gazowi upkowemu w Polsce, in: Biznes Alert, 1 December 2017, available at: http://biznesalert.pl/san-leon-gaz-lup kowy-polska/ (1 February 2019). 38 See Uliasz-Misiak, Barbara, Przybycin, Andrzej & Winida, Bogumila: Shale and Tight Gas in Poland – Legal and Environmental Issues, in: Energy Policy, Vol. 65, 2014, pp. 68-77, p. 69. 39 See Bomberg, Elizabeth: Fracking and Framing in Transatlantic Perspective: A Comparison of Shale Politics in the US and European Union, in: Journal of Transatlantic Studies, Vol. 15, No. 2, 2017, pp. 1-20. 75 new energy might, since the US is challenging Russia’s position on many gas markets.40 Since April 2016, the US has been a supplier of LNG gas to Europe, which should help the EU to diversify its sources of gas and increase its energy security.41 An offer of close cooperation between the United States and Poland in the energy sector was proposed during the visit of President Donald Trump to Poland in July 2017. In his public speech at Krasi ski Square in Warsaw, Trump said, “we are committed to securing your access to alternate sources of energy, so Poland and its neighbours are never again held hostage to a single supplier of energy.”42 Although the “single supplier” was not called by name, it is clear that it was Russia Trump had in mind. Some experts were sceptical about the results of the visit, indicating that no contract had been signed, although that could still change in the months to come. In 2018 the close cooperation between the United States and Poland in the energy sector was developed. On 18 September 2018 the President of Poland and the President of the United States announced the “Poland-U.S.-Strategic Dialogue on Energy”. On 8 November 2018 the “Joint Declaration between the Ministry of Energy of the Republic of Poland and the United States Department of Energy concerning enhanced cooperation on energy security” was signed and on 9 November 2018 the “Memorandum of Understanding between the Republic of Poland and the United States of America on a Poland-U.S. strategic dialogue on energy” was signed.43 40 See Blackwill, Robert D. & O’Sullivan, Meghan L.: America’s Energy Edge: The Geopolitical Consequences of the Shale Revolution, in: Foreign Affairs, Vol. 93, No. 2, 2014, pp. 102-114. 41 See European Commission: Joint U.S.-EU Statement following President Juncker’s visit to the White House, Press Release, 25 July 2018, available at: http://europa.eu/rapid/press-release_STATEMENT-18-4687en.htm (1 March 2019). 42 White House: Remarks by President Trump to the People of Poland, 6 July 2017, available at: https://www.whitehouse.gov/briefings-statements/remarks -president-trump-people-poland/ (1 February 2019). 43 See Memorandum of Understanding between the Republic of Poland and the United States of America on a Poland-U.S. Strategic Dialogue on Energy, 9 November 2018, https://www.premier.gov.pl/files/files/memorandum_of_un derstanding_en_0.pdf (1 February 2019). 76 Energy relations between Poland and the United States have developed very rapidly. The first delivery of US LNG to Poland took place in June 2017, under a short-term contract.44 Subsequently, PGNiG moved towards long-term contracts. In October 2018, two twenty-years contracts were signed, one with Venture Global Calcasieu Pass LLC (delivery from 2022) and another with Venture Global Plaquemines LNG LLC (delivery from 2023). The contracts foresee a delivery of 1.35 billion cubic meters of gas per year each, meaning a total of 2.7 billion cubic meters gas per year (2 million tonnes of LNG). Each contract includes the formula free-on-board, which means that the gas will become the property of PGNiG in the port of loading. PGNiG will be free to decide about the place of delivery; the gas does not have to be delivered to Poland. During a press conference, the PGNiG authorities announced that the price of LNG in the contracts is based on the American Henry Hub index together with the costs of condensation. These were the first longterm contracts signed by a company from Central Europe for gas delivery from the United States.45 They were welcomed by the Polish authorities. Prime Minister Mateusz Morawiecki said that the two contracts will strengthen the “sovereignty” and “competitiveness” of Poland’s energy sector.46 In November 2018, PGNiG concluded another contract with a gas producer from the United States – Cheniere Marketing International LLP. The contract foresees a supply of 0.52 million tonnes of LNG (approx. 0.7 billion cubic meters) in the period 2019-2022. As from 2023, the supply volume will be much larger. In the period 2023- 2042, Cheniere Marketing International LLP will supply 29 million tonnes of LNG (ca. 39 billion cubic meters). This means that the average supply in this period will be 1.45 million tonnes of LNG 44 See Pierwsza dostawa LNG z USA dotar a do Polski, in: Biznes Alert, 7 October 2017, available at: http://biznesalert.pl/pierwsza-dostawa-lng-usadotarla-polski/ (1 February 2019). 45 See PGNiG: PGNiG i Venture Global LNG og osi y podpisanie kontraktów na zakup 2 milionów ton rocznie skroplonego gazu ziemnego (LNG), Press Release, 17 October 2018, available at: http://pgnig.pl/aktualnosci/-/news-list /id/pgnig-rosnie-zainteresowanie-usluga-bileto-1/newsGroupId/10184?chang eYear=2018¤tPage=2 (1 February 2019). 46 See Shotter, James: Polish State-Run Energy Company signs 20-year Deal for US Natural Gas, in: Financial Times, 17 October 2018, available at: https: //www.ft.com/content/5272ba76-d1df-11e8-a9f2-7574db66bcd5 (1 February 2019). 77 (1.95 billion cubic meters). The contract includes the formula “delivered ex-ship” (DES), which means that the American company is obliged to supply the gas to the LNG terminal in winoujscie. The CEO of PGNiG indicated that the price of the contract is “competitive”. The presence of the President of Poland, Andrzej Duda, and the US Secretary of Energy, Rick Perry, at a press conference underlines the importance of the contract for both sides.47 In December 2018, another contract for the long-term supply of LNG was concluded between a gas company from the United States and PGNiG. This time, PGNiG’s partner is Port Arthur LNG, a sister company of Sempra Energy. According to the contract beginning in 2023, PGNiG will buy 2 million tonnes of LNG per year (2.7 billion cubic meters). This is a 20-years contract with the FOB formula. The offtake of gas will take place at the Port Arthur LNG terminal in Texas. PGNiG will be free to determine the final destination of the gas. As the CEO of PGNiG summarized: “From 2023, PGNiG will have at least 7.45 million tonnes of liquefied gas, which accounts for over 10 billion m³ of natural gas after regasification. Such quantities of LNG will strengthen the company’s position on the market for this fuel, and will contribute to an increase in the security of the gas supply to Poland.”48 The successful construction of the LNG terminal in winouj cie has increased interest in purchases of LNG. Apart from the expansion of the terminal in winoujscie discussed above, GAS-System is analysing a project for a Floating Storage and Regasification Units 47 See PGNiG: 24-letni kontrakt z Cheniere podpisany – dostawy amery ka skiego LNG do Polski rusz w 2019 roku, Press Release, 8 November 2018, available at: http://pgnig.pl/aktualnosci/-/news-list/id/pgnig-24-letni-kontrakt -z-cheniere-podpisany-dostawy-amerykanskiego-lng-do-polski-rusza-w-2019 -roku/newsGroupId/10184 (1 May 2019). 48 PGNiG: PGNiG: kolejny wieloletni kontrakt na LNG z USA podpisany, Press Release, 19 December 2018, available at: http://pgnig.pl/aktualnosci/- /news-list/id/pgnig-kolejny-wieloletni-kontrakt-na-lng-z-usa-podpisany/news Group Id/10184?changeYear=2018¤tPage=1 (1 February 2019) [Org. Od 2023 roku PGNiG b dzie dysponowa co najmniej 7,45 mln ton gazu skroplonego, co stanowi ponad 10 mld m³ gazu ziemnego po regazyfikacji. Takie ilo ci LNG ugruntuj pozycj spó ki na rynku tego paliwa i przyczyni si do wzrostu bezpiecze stwa dostaw gazu do Polski.] 78 (FRSU)49 terminal, to be localized in the Gulf of Gda sk. Another project being discussed is the Baltic Pipe, a pipeline to connect Poland with gas fields in Norway. The Baltic pipe is currently a priority that could enable Poland to stop relying on Russian gas after the expiration of the Jamal contract in 2022. As PGNiG’s CEO has stated, Russian gas is “extremely expensive”, and gas from Norway should have a much more competitive price.50 It is worth noting two statements made during the conference entitled “Bezpiecze stwo energetyczne – filary i perspektywa rozwoju”. Secretary of State Piotr Naimski, argued: “By 2022 at the latest, with the launch of the Baltic Pipe, Poland will be able to import – from outside Russia – 17 billion cubic meters gas per year, which is how much it consumes today.” On the price aspect of the gas supply diversification, PGNiG Vice President for Trade, Maciej Wo niak, argued “The delivery terms from the supplier from the East do not correspond to market conditions. Russian gas price is non-market oriented, it is sold to us too expensively. Until there is a full alternative, it will be like that.”51 Political and economic interests have to coexist, though Foreign Minister Jacek Czputowicz sought to underline the economic aspect when he said, “we will buy where it is the cheapest”52. 6 Conclusions This study shows that, even though the shale revolution is a US phenomenon, other countries can also benefit from it. Poland is one 49 See Songhurst, Brian: The Outlook for Floating Storage and Regasification Units (FSRUs), Oxford Institute for Energy Studies, No. NG 123, 2017, available at: https://www.oxfordenergy.org/wpcms/wp-content/uploads/2017 /07/The-Outlook-for-Floating-Storage-and-Regasification-Units-FSRUs-NG- 123.pdf (1 February 2019). 50 See Jakóbik, Wojciech: PGNiG chce zast pi kontrakt jamalski dostawami z Baltic Pipe, in: PGNiG, 10 September 2018, available at: http://biznesalert. pl/pgnig-kontrakt-jamalski-baltic-pipe/ (1 February 2019). 51 Krzyczkowski, Wojciech: Naimski: Najpó niej w 2022 r. spoza Rosji – 17 mld m sze c. Gazu rocznie, in: PAP, 26 September 2018, available at: https: //www.pap.pl/aktualnosci/news%2C1374189%2Cnaimski-najpozniej-w-2022 -r-spoza-rosji-17-mld-m-szesc-gazu-rocznie.html (1 February 2019). 52 Ministerstwo Spraw Zagranicznych: Redaktor Witold Jurasz manipuluje wypowiedzi szefa MSZ nt. Nord Stream 2, 7 October 2018, available at https:// www.msz.gov.pl/pl/aktualnosci/wiadomosci/redaktorwitoldjurasz_manipuluj e_wypowiedzia_szefa_msz_nt_nord_stream_2 (1 February 2019). 79 such country. After investing in an LNG terminal, it gained access to an emerging global market. The shale revolution in the United States opened up new opportunities for Poland. In the first longterm contract signed with Qatar, gas is expensive. But the entry of American companies onto the global market has opened new opportunities. The current American administration was determined to support US companies in their winning access to the global market. It was also determined to weaken Russia’s position on the European gas market and give US allies a chance to diversify their sources of supply. These economic and geo-economic interests of the United States corresponded well with the national interest of Poland, which was determined to find a supplier of gas offering a stable supply at competitive price. In this, the interests of Poland and the United States are convergent, with the result that, in 2018, a number of contracts between PGNiG and American gas producers were signed. Although American gas cannot fully replace Russian gas in Poland’s energy mix, it will become an important element of it, diversifying Poland’s sources of supply and strengthening its energy security. 81 6 "Intergovernmentalism" and "Multi-Level- Game" – An Analysis of the Governance system of the European Climate Framework 2030 Timo Karl 1 Introduction Theories in political science regarding the decision-making processes in the European Union (EU) are mainly divided between those which focus on the role of governments or other supranational actors (Neofunctionalism) and those which focus on the interconnection of all relevant actors and their respective actions that transgress to all different levels (Multi-Level-Governance). The political process used towards sculpting the European Climate Framework 2030 shows that we need a new, contemporary perspective on governance that combines these two traditional theory perspectives. From an intergovernmental perspective, the central question in the formulation process of the climate framework 2030 is: How was it possible for the ecological progressive state actors to announce the climate framework 2030 (with quite ambitious targets) at this point at the summit of the European Council in October 2014? One possible option to find answers to this question is to enlarge the mentioned theories by reference to parts of the “Two-Level-Game” as formulated by Robert D. Putnam. In the concrete case the Level- Game was happening between the United Nations Framework on Climate Change (UNFCCC) level and the European level. As the German government was acting as a mediator in many climate and 82 energy related questions, it makes sense to focus the actor analysis in this paper on the German Government. Therefore, the analysis deals with the climate framework 2030 out of the foreign politics perspective of the German Government as a question of strategic management in the context of international incentives and constraints (by reference to the Level-Game), while leaving out the questions of entanglement in domestic politics.1 2 Multi-Level-Governance in European energy and climate politics For the purpose of this paper, the term Multi-Level-Governance needs to be precisely defined in this distinct context, as the governance term in political science is commonly used as a kind of “catchall”-term. In this paper specifically, the term governance is based on the definition by Arthur Benz. He explains the Multi-Level- Governance approach with the interconnections between the national, the European, and the international level, a differentiation from which he then deduced the need for state governments to find new (non-hierarchical) decision models. This also applies for the European climate and energy policy. The interactions between the governments on the European and national levels follow formal rules.2 While a common integrated European energy policy does not currently exist, the Treaty of Lisbon created a special competence for the EU in this field. Therefore, out of a perspective of Multi-Level-Governance, European climate and energy policy is a very interesting policy field. On the basis of article 194 of the Treaty on the Functioning of the European Union (TFEU), the EU is allowed to intervene in all cases related to the fields of climate politics, environment protection, competitiveness, and supply security. Still, the respective member states retain the authority to design their own national energy systems. In the institutional system of the EU, this leads to conflicts of jurisdiction between the institutions that represent the communitization within the 1 See Brummer, Klaus & Oppermann, Kai: Außenpolitikanalyse, München, 2019, p. 113. 2 See Benz, Arthur: Multilevel-Governance: Governance in Mehrebenensystemen, in: Benz, Arthur & Dose, Nicolai (eds.): Governance – Regieren in komplexen Regelsystemen, Wiesbaden, 2010, p. 112. 83 EU and those which represent the self-determination of the member states.3 The interconnection and interdependence between the international UNFCCC process and the climate and energy politics of the EU on the other side is following rules, which are mostly informal and follow the classical logic of intergovernmental negotiations. The design of the European climate framework 2030 can only be explained through an analysis of interconnected intergovernmental negotiations. The central institution responsible for the adoption of the climate framework 2030 was the European Council. To avoid nondissolvable blockades between the institutions, the European Council was tasked with defining overarching strategic targets of the EU, such as those concerning the climate framework, for example. However, the European Council has to decide strategic targets unanimously. Theoretical approaches, as the “science of muddling through” from Charles E. Lindblom,4 indicate that such institutional settings lead to a political governance in which wide-ranging decisions are unthinkable. Considering how imperative it was for the EU to formulate a climate framework that meets the 2 degrees Celsius global temperature target requirement, especially considering their crucial leadership role in the upcoming climate negotiations and their unwillingness to compromise it, small incremental political steps would have barely been adequate. On the other hand, many eastern European countries were faced with economic and political crises and due to these they were consequently not able to agree to further substantial decisions in climate politics, which would have challenged the domestic economies. The threat posed by a lack of ambitions regarding the voting procedure in the European Council is underlined in an article by Nils Meyer-Ohlendorf, who describes the least ambitious member state as being the most influential in defining the climate ambitions of the EU in general. “The least ambitious Member State would re- 3 See Michel, Franz: Die Umsetzung europäischer Energiepolitik – Eine Multiple-Stream-Analyse am Fallbeispiel der Energieeffizienzrichtlinie, Stuttgart, 2015, p. 14. 4 See Lindblom, Charles E.: The Science of “Muddling Through”, in: Public Administration Review, Vol. 19, No. 2, 1959, pp. 79-88. 84 tain a de facto veto and the EU’s ability to act would be reduced considerably.”5 Against this background, the question arises how the acting of governments in the intergovernmental negotiations was helping to prevent a blockade between the member states in the European Council during the negotiations for the climate framework 2030. 3 The negotiation process to the European 2030 climate and energy framework In the weeks and months before the summit, the Ukraine crisis had been dominating the political agenda of the EU as well as those of previous summits of the European Council. This is best illustrated by the new Energy Security Strategy, which the Commission adopted in reaction to this crisis.6 This strategy discussed short-term and long-term options to reduce Europe’s dependency on Russian gas imports, however, this issue was not explicitly named and discussed in the strategy. Instead, the strategy listed several concepts especially for the highly Russia-dependent eastern European countries to diversify the own gas imports. This strategic focus is important when considering questions of energy security as they’re framed in eastern European countries as being hardly compatible with (from the western European perspective) other progressive steps in climate politics.7 The explanation can be found in the respective energy structure of these countries, and in the fact that a greater independence from Russian imports is put on a level with a raise of the usage of own national fossil fuels. Therefore, one might regard the non-paper from the president of the European Council, Hermann van Rompuy, which was published in September 2014, as a first success from the ecologically progressive 5 Meyer-Ohlendorf, Nils: Can the European Council impose Consensus on EU Climate Policies?, Ecological Institute Discussion Paper, Berlin, 2015, p. 5. 6 See European Commission: European Energy Security Strategy, Communication from the Commission to the European Parliament and the Council, COM (2014) 330 final, Brussels, 2014, p. 4. 7 See Umbach, Frank: Deutschland, Polen und die gemeinsame Energiepolitik: Chancen der Kooperation in punkto Versorgungssicherheit, in: Jäger, Thomas & Dylla, Daria W. (eds.): Deutschland und Polen – Die europäische und internationale Politik, Wiesbaden, 2008, p. 273. 85 states in these negotiations, mainly because the non-paper still contained the target trias (emission reduction, development of renewable energy and energy savings). The proposed targets were a 40% emission reduction compared to 1990, a share of 27% of renewable energy in the European voltage system, and energy savings of 30%. This non-paper was the basis for the governments at the summit of October 2014. The decision to give the competencies to the staff of the president of the council (Sherpa process) can be regarded as another example of how governments can successfully shape European politics. Severin Fischer stated that this decision was supported by the German government for good reasons, as the Rompuy team was expected to be quite close to the own position.8 The alternative would have been negotiations by the appropriate ministers in the Council of Ministers, where it would have been much more difficult to find a compromise for ambitious climate targets. The key targets of the climate framework 2030 in the end were very close to the Non-Paper from Hermann van Rompuy. They encompassed: (a) At least 40% cuts in greenhouse gas emissions (from 1990 levels) (b) At least 27% share for renewable energy (c) At least 27% improvement in energy efficiency9 In the next chapter a closer look shall be taken at the content of the climate framework. The content underlines that the climate framework 2030 was, on the one hand, established through successful negotiation management from the ecologically progressive state actors, and on the other hand, also structurally linked to the system of the UNFCCC process. 8 See Fischer, Severin: Die Energiewende und Europa. Wiesbaden, 2017, p. 349. 9 Later this targets were raised in the case of Renewable Energy to 32% and the target for the improvement of energy efficiency was raised to 32,5%: See European Parliament: Neue ehrgeizige Ziele für Energieeffizienz und erneuerbare Energien, IPR-18315, 13 November 2018, available at: http://www. europarl.europa.eu/news/de/press-room/20181106IPR18315/neue-ehrgeizigeziele-fur-energieeffizienz-und-erneuerbare-energien (24 January 2019). 86 4 The linkage to the UNFCCC process through the content of the climate framework It is advisable to take a closer look to the three key targets in the climate framework 2030. While the climate framework 2020 was designed with at least two essentially equally mandatory targets, the new formulated framework was not. The climate framework 2020 was characterized by the 20/20/20 targets. These included the nonnegotiable targets of 20% cuts in greenhouse gas emissions and a share of 20% renewable energy on the European level with underlying national targets. The target in energy efficiency has to be excluded, as it was a non-binding indicative target of 20% improvement in energy efficiency. However, the climate framework 2030 only names one central binding target, specifically the emission reduction target. In an essay by David Buchan et al. it is explained that this target will be binding “because it can be enforced – on industry through the Europe-wide Emission Trading System that requires emissions to be matched with carbon allowances, and on non-ETS sectors such as transport, services and agriculture through national emission quotas.”10 Yet, the target of at least 27% of renewable energy is only mandatory on the European level and includes no supplementary national targets. Consequently, the target of 27% can be reached only through the development of renewable energy in those countries that already have ambitious domestic targets for their share of renewable energy and includes no incentives for an energy transition in the other countries. The policy design of the renewable energy target can be best explained by observing the German government’s negotiation strategy. For the German government, it was compulsory to have a renewable energy target per se determined in the framework; the level of ambition was only subsidiary. As the German government was under pressure to harmonize the national feed-in compensation for the renewable energies with European law, a European target for the development of renewable energy was needed as a legal basis. In fact, it was confirmed that the German renewable energy law was in line with the European law in July 2014, but on the basis of the 10 Buchan, David et al.: Energy and Climate Targets for 2030: Europe takes its Foot of the Pedal, Oxford Energy Comment, Oxford, 2014, p. 3. 87 environmental targets of the EU, which included the development of renewable energy.11 It was certain that an ongoing justification of the national renewable feed-in-tariff would only be possible if the EU set an ongoing renewable energy target. The participation of the German government in the European Council, while being simultaneously in negotiations with the Commission about the feed-in compensation, can therefore be understood as a Two-Level-Game. There were several reasons why the German government did not insist on a more ambitious renewable energy target. Countries like France and Britain preferred a technologically neutral target. As Germany needed the support of these countries for the formulation of an ambitious emission reduction target to counter the opposition of the Visegrád states, the German government needed to act unobtrusively. In consequence, a letter in support of a renewable energy target was send to the Commission in December 2013, however, without concrete numbers, so that the French government would also agree to sign the letter.12 Nonetheless, only eight countries signed this letter, which further showcases the difficult conditions for establishing a common renewable energy target. What’s more, many member states were at risk of missing their renewable energy target for 2020.13 This was not encouraging for these governments to formulate a new, even higher target for the development of renewable energy. In general, Severin Fischer and Oliver Geden also mention that many member states were undergoing new learning processes about how complex handling European directives in the field of renewable energy can be.14 This also 11 See European Commission: State aid: Commission approves German Renewable Energy Law EEG 2014, 23 July 2014, available at: http://europa.eu/ rapid/press-release_IP-14-867_en.htm (16 February 2019). 12 See Federal Ministry for the Environment, Nature Conservation and Nuclear Safety: Call for a Renewable Energy Target in EU’s 2030, 23 December 2013, available at: http://m.bmu.de/fileadmin/D atenBMU/DownloadPDF/Kli maschutz/europa_klimaschutzziel_bf.pdf (16 February 2019). 13 See Geden, Oliver & Fischer, Severin: Moving Targets – Die Verhandlungen über die Energie- und Klimapolitik-Ziele der EU nach 2020, SWP-Studie, No. S1, Berlin, 2014, p. 20. 14 See ibid, p. 14. 88 applies to implementation processes, which even result from indicative efficiency targets.15 The aforementioned concentration on the process of emission reduction also characterized the UNFCCC process, at least until the adoption of the Paris Agreement,16 and it is still the central question for many negotiation groups in this process. The chief negotiator of the German delegation, Karsten Sach, concluded in this context: “For the European Union in the climate negotiations everything is deduced from the question of emission reduction.”17 A closer look at the Kyoto Protocol or the Copenhagen Accords confirms the importance of the emission reduction target in the earlier UNFCCC process. It was only after the failure of Copenhagen that the states in the UNFCCC climate regime slowly started to strengthen the path of adaptation. At the Conference of the Parties (COP) in Cancun in 2010, for the first time, a regulatory framework was negotiated to improve technological adaptation measures to counteract the consequences of pre-existing climate change.18 All targets in the European climate framework 2030 also contained the addition “at least”, which is another link to the UNFCCC process. The EU already tried this “supply strategy” at COP15 in Copenhagen on the basis of the climate framework 2020. In a joint decision by the European Parliament and the Council in 2009 it was written, that “[…] the European Council of March 2007 endorsed a Community objective of a 30% reduction of greenhouse gas emis- 15 As also the efficiency target for the framework 2030 was formulated in an indicative and non-binding manner, it can also not be regarded as equivalent to the binding target of emission reduction. The efficiency target is understood as indicative, as the improvement by 27% is calculated in comparison to the predicted energy consumption of the EU in 2030 without further action. 16 This concentration is especially reflected through market-based mechanisms to reduce emissions in the Kyoto-Protocol. Apart from few financial promises to support the developing countries in their fight against the consequences of climate change, no adaptation targets are established in the Kyoto- Protocol. 17 Sach, Karsten: Personal Interview, January 2018. 18 See Morgenstern, Lutz: Der REDD-Mechanismus und die Verantwortlichkeit von Entwicklungsländern im internationalen Klimaschutz, Baden-Baden, 2012, p. 57. 89 sions by 2020 compared to 1990 as its contribution to a global and comprehensive agreement for the period after 2012, provided that other developed countries commit themselves to comparable emission reductions and economically more advanced developing countries commit themselves to contributing adequately according to their responsibilities and capabilities […] the Community makes a firm independent commitment to achieve at least a 20% reduction of greenhouse gas emissions by 2020 compared to 1990.”19 With this strategy the EU tried to convince other industrial states to formulate adequate targets. In a more flexible way, as the climate framework 2030 was only a declaration of intent from the European Council during the Paris negotiations, the targets for 2030 can be read in the same way. The linkage to the climate negotiations was not written explicitly in the targets, but for instance the BMU (German Federal Ministry for the Environment) in regards to the climate framework pointed out that the EU was the first actor who handed in targets for the Paris negotiations and thereby underlined its own role as a frontrunner in this field. Furthermore, the BMU emphasized that this target also pressures other big pollutant states to hand in ambitious targets themselves.20 It was also clarified in the press release that the potential rise of the target through an international market mechanism should be negotiated in the context of a global climate agreement.21 19 European Parliament and Council: Decision No 406/2009/EC of the European Parliament and of the Council of 23 April 2009 on the Effort of Member States to reduce their Greenhouse Gas Emissions to meet the Community’s Greenhouse Gas Emission Reduction Commitments up to 2020, in: OJ (L) 140/136, 5 June 2009. 20 See Federal Ministry for the Environment, Nature Conservation and Nuclear Safety: Bewertung der 2030-Beschlüsse des Europäischen Rates aus Sicht des BMUB, 16 December 2014, available at: https://www.bmu.de/themen/kli ma-energie/klimaschutz/eu-klimapolitik/bewertung-der-er-2030-beschluesse/ (11 February 2019). 21 See ibid. 90 5 The linkage to the UNFCCC process through the time schedule of the climate framework The European climate framework 2030 was announced very early by the European Council. The upcoming climate negotiations at COP21 in Paris (December 2015) were used as the main explanation. The EU needed a clear position for the diplomatic prenegotiations, which were already taking place at UNFCCC level during the entire year of 2015.22 This connection to the UNFCCC timeline is written in the introduction of the concluding document of the European Council from the 24th of October 2014: “On the basis of the principles identified in the March 2014 European Council conclusions, the European Council agreed today on the 2030 climate and energy policy framework for the EU. Accordingly, the EU will submit its contribution, at the latest by the first quarter of 2015, in line with the timeline agreed by the UNFCCC in Warsaw for the conclusion of a global climate agreement. The European Council calls on all countries to come forward with ambitious targets and policies well in advance of the Conference of the Parties 21 in Paris.”23 The COP21 in Paris was a window of opportunity to put climate politics back on the European agenda. The announcement of the climate framework 2030 from all European state representatives was not guaranteed as the EU was still dealing with the consequences of the transatlantic economic crisis and of course with the Ukraine crisis and its implications for the European (energy) security, which was of particular interest especially for several eastern European member states (specifically questions of gas imports through pipelines that pass through Ukraine and the general dependency of gas and oil imports from Russia). For these reasons, the EU had many difficulties in finding consensus in any decision in 22 See Representative of the German Government: Personal Interview, May 2016. 23 European Council: 2030 Climate and Energy Policy Framework, Conclusions 23/24 October 2014, EUCO-169, Brussels, 2014, available at: http://data.con silium.europa.eu/doc/document/ST-169-2014-INIT/en/pdf, p. 1 (24 February 2019). 91 the field of energy policy at previous summits of the European Council in 2014 and 2013.24 6 The linkage to the UNFCCC process through the governance system of the climate framework The climate framework 2030 means a shift from top-down governance to a mainly bottom-up approach. The targets of the climate framework 2030 are underlined through a new governance system which shall ensure “that suitable implementation measures are adopted by the Member States and coordinated at EU level, while ‘fully respecting’ the Member States’ ’freedom to determine their energy mix’”25. To achieve both targets, the commission proposed a three-steps approach. First of all, the commission developed guidance plans for the member states and determined which criteria the national plans will have to fulfil. After this, the member states can formulate their own national plans and are expected to participate in bilateral exchanges to make cross-border-effects possible. Last but not least, the Commission determines if the plans are consistent with the European climate framework 2030.26 The dominant role of the national states in the implementation of the climate framework 2030 is in general standing contrarily to a top-down-structure. This can also be proven by a closer analysis of the targets. Solely the emission reduction target and the possibility to enforce this target through the Europe-wide emission trading system can be regarded as a largely top-down mechanism. Nevertheless, a closer look at the emission trading system reveals exceptions from the top-down distribution of the certificates. The vetoplayer Poland for example, only agreed to the system because of the concession that from 2021 on, 12% of the certificates will be distributed to countries which have an economic national output below the European average. Additionally, the middle- and eastern Euro- 24 See Geden, Oliver & Fischer, Severin: EU-Gipfel: Konsensformeln verdecken Richtungsstreit in der Energie- und Klimapolitik, SWP-Kurz gesagt, March 2014. 25 Bonn, Moritz et al.: EU Climate and Energy Policy 2030 – Comments on an Evolving Framework, CepInput, No. 2, Freiburg, 2015, p. 12. 26 See ibid. 92 pean states will receive 40% of the certificates in the voltage system still zero-priced.27 Regarding the renewable energy target, the shift to the bottom-up governance is becoming even clearer. For the renewable energy target no national target, no sector-specific targets will be set. Instead, Member States are asked to prepare their self-defined renewable energy targets and their plans on how to implement these measures.28 The target in the end will only be binding at the European level. Also the UNFCCC process was shifting from a top-down to a bottom-up system since the failure of the COP in Copenhagen 2009. The COP15 in Copenhagen in political history is known as the COP where the state representatives attempted to approve a binding climate treaty or protocol that included all states. Due to the different interpretation of climate debt and climate justice between the developing and industrialized countries, this undertaking failed.29 After this failure, the process was dominated even more then before by the state representatives which seemed to be a logical consequence from the raising importance of climate questions in the internal affairs of all states.30 Bilateral agreements like the one between the USA and China in November 2014 are getting more important. Especially their symbolic meaning for the fragmented negotiation groups in the UNFCCC process is growing. The founding of new multilateral forums like the MEF (Major Economies Forum), which is a discussion forum of the 16 most important global economies is a further proof.31 Admittedly, the MEF was not founded as an alternative model to the UNFCCC-process. 27 See Fischer, Severin: Der neue EU-Rahmen für die Energie- und Klimapolitik bis 2030, SWP-Aktuell, No. 73, Berlin, 2014, p. 5. 28 European Council: 2030 Climate and Energy Policy Framework, Conclusions 23/24 October 2014, EUCO-169, Brussels, 2014, available at: http://data.con silium.europa.eu/doc/document/ST-169-2014-INIT/en/pdf, p. 6 (12 February 2019). 29 See for example Bentz-Hölzl, Janine: Der Weltklimavertrag – Verantwortung der internationalen Gemeinschaft im Kampf gegen den Klimawandel, Wiesbaden, 2014. 30 See Broughton, Emma et al.: Die EU in einer fragmentierten Klimapolitik, Baden-Baden, 2011, p. 51. 31 See ibid. 93 Nevertheless, it was the difficulty of unanimity in the UNFCCC process that made an additional, more decentral discussion forum necessary. These processes culminated in the Paris Agreement, which is a structural renunciation from a top-down oriented climate treaty. Instead, the structure of the Paris Agreement is similar to the European framework 2030 based on nationally determined contributions which are submitted to the climate secretary and reviewed and revised every five years in a global stocktake.32 7 Conclusion The Energy Policy in Europe and the UN climate regime show a rising interdependence. The European climate framework 2030 shows linkages to the UNFCCC process in its content, the time schedule, and also in the governance system. This interdependence between the UNFCCC process and the European climate politics was arranged through intergovernmental level-gaming from those member states, which wanted to keep the frontrunner role in the climate negotiations. The decisive negotiations at COP21 in Paris meant a window-of-opportunity for the announcement of the European climate framework 2030. As the article pointed out, the new governance systems on UNFCCC level and on the European level are strengthening the role of national governments and of intergovernmental negotiations. The European Council will therefore gain an even more powerful role in the upcoming decisions in energy and climate policy. Especially since the European Council established in the climate framework 2030 that all policy decisions concerning the climate targets of the EU are, in principle, regarded as strategic decisions and therefore can only be decided by the European council in unanimity. “The European Council will keep all the elements of the framework under review and will continue to give strategic orientations as appropriate, notably with respect to consensus on ETS, non-ETS, inter- 32 See UNFCCC: Adoption of the Paris Agreement (12 December 2015), Article 12. 94 com-nections and energy efficiency.”33 Also, the emergence of the emission reduction target as the central target in the climate framework 2030 took on a greater meaning for the role of the national governments, as it strengthens the authority of the national governments to decide about the national energy mix without further limitations. The strong role of intergovernmental governance in European energy and climate politics will result in new challenges for the decision-making processes in the EU. If the EU wants to fulfil its own Low-Carbon-Roadmap by 2050 and wants to keep an essential role in the international climate negotiations, the voting system for climate politics in the European Council that requires unanimity, and where one government can be the ultimate veto-player, has to be questioned in favour of qualified majority voting systems. In the case of a bilateral exchange between governments, the climate framework 2030 can play a positive role through the new governance system. The two tendential opponents in climate politics, Germany and Poland, should use this governance system to find a new consensus in climate politics, perhaps in case troubles arise, also on the basis of concessions in other political fields. Insufficiently coordinated projects like North Stream II which undermine the trust between the European partner states are not helpful. 33 European Council: 2030 Climate and Energy Policy Framework, Conclusions 23/24 October 2014, EUCO-169, Brussels, 2014, available at: http://data.con silium.europa.eu/doc/document/ST-169-2014-INIT/en/pdf, p. 1 (24 February 2019). 95 7 (Inter)dependence? Political Implications of Russia-EU Energy Relations Maciej Ra 1 Introduction Energy relations between the Russian Federation and the European Union (EU) play a very important role not only in the context of economy. They largely shape political relations of those partners as well. The Russia-EU energy cooperation has significant impact on mutual interactions amid the EU member states and, in a broader sense, within the Western community. The Russian Federation’s energy policy is perceived as the main tool for the enrichment of the state and its elites, as well as a relatively effective political instrument of Russia’s foreign policy. The author strives to analyze political dimension of the Russia-EU energy dialogue, emphasizing the above hypotheses. He also tries to explain why the Russian Federation is able to use primary energy sources, exported by the country, to achieve political objectives in its relations with the EU and individual EU member states, despite a huge gap in social-economic potential in favor of the European Union. The main research questions are: (a) How does the Kremlin use its energy potential to reduce diversification of potentials between Russia and the European Union? 96 (b) In which kind of sense Russia-EU energy dialogue has ‘infected’ political relations between those partners? (c) What are political implications of the Russian Federation’s energy strategy towards the EU? The article is mostly based on analyses of official documents, especially those that are part of the Russian Federation’s energy policy doctrine,1 chosen monographs and studies concerning Russia’s energy policy and its relations with the European Union in the field of energy,2 as well as the sources in which a general outline of Russia- EU political relations was examined.3 These kinds of sources are 1 See Government of Russian Federation: Energy Strategy of Russia until 2030, Moscow, 2009, [Energetitcheskaya strategiya Rossii na period do 2030 goda], available at: http://www.scrf.gov.ru/security/economic/document122/ (25 January 2019). 2 The author referred to the views (unless otherwise indicated in the footnotes) presented above all in the following sources: Aron, Leon: The Political Economy of Russian Oil and Gas, in: Russian Outlook, American Enterprise Institute, Washington D.C., 2013; Dellecker, Adrian & Gomart, Thomas (eds.): Russian Energy Security and Foreign Policy, 1st ed., Abingdon/New York, 2011; Korteweg, Rem: Energy as a Tool of Foreign Policy of Authoritarian States, in particular Russia, Policy Department for External Relations of the European Parliament, Brussels, 2018; Godzimirski, Jakub et al.: Energy Security in the Baltic Sea Region: Regional Coordination and Management of Interdependencies, Vilnius, 2015; Grigas, Agnia: The New Geopolitics of Natural Gas, Cambridge, 2017; Kapitonov, Ivan: Peculiarities of Applying the Theory of International Business by Russian Oil and Gas Companies, in: Space and Culture (India), Eurasia Focussed Themed Issue, Vol. 6, No. 4, 2018, pp. 5-14; Proni ska, Kamila: Bezpiecze stwo energetyczne w stosunkach UE-Rosja, Warszawa, 2012; Turksen, Umut: EU Energy Relations with Russia. Solidarity and the Rule of Law, Abingdon/New York, 2018. 3 See Biele , Stanis aw et al. (eds.): Otnosheniya Rossii i Yevropeyskogo Soyuza, Sankt Petersburg, 2012; Casier, Tom: From Logic of Competition to Conflict: Understanding the Dynamics of EU-Russia Relations, in: Contemporary Politics, Vol. 22, No. 3, 2016, pp. 376-394; Casier, Tom & DeBardeleben, Joan (eds.): EU-Russia Relations in Crisis: Understanding Diverging Perceptions, Milton Park, Abingdon/New York, 2018; David, Maxine & Romanova, Tatiana (eds.): Modernisation in EU-Russian Relations: Past, Present and Future, Abingdon/New York, 2016; Khudoley, Konstantin: Russia and the European Union: The Present Rift and Chances for Future Reconciliation, in: Stosunki Miedzynarodowe/International Relations, St. Petersburg, No. 2, 2016, pp. 195-213; Liik, Kadri: Winning the Normative War with Russia: An EU-Russia Power Audit, ECFR-Policy Brief, 21 May 2018; Maass, Anna-Sophie: EU-Russia Relations, 1999-2015: From Courtship to Confrontation, Abingdon/New York, 2017; Ra , Maciej: Ewolucja polityki 97 supplemented by other various publications, such as different reports and commentaries or sources of statistical data, related to the main topic of the paper. 2 Asymmetry of potentials between the European Union and the Russian Federation There is a significant difference of potentials between the European Union and Russia. Most generally speaking, the EU can be described as one of the most developed parts of the world – together with the Anglo-Saxon part of North America (the USA and Canada), Japan, South Korea, or Australia. The EU, as a whole, is not only the second largest economy in the world – just after the US,4 but also a ‘dreamland’ in the context of living standards for average citizens. According to the International Monetary Fund’s and the World Bank’s statistics, the Russian Federation is estimated to be a much smaller economy in comparison to the EU – only a little bit bigger than the Spanish one, but smaller than the Italian.5 Russia can be also described as significantly poorer in terms of living standards. The gap between the EU and Russia is aggravated by a relatively (in comparison to the EU) low level of innovations, not to mention problems with corruption, transparency of business, oligarchisation of the economy, the quality of management or lower corporate culture.6 EU member states even spend more money, zagranicznej Rosji wobec Stanów Zjednoczonych i Europy Zachodniej w latach 1991-2001, Warszawa, 2005. 4 The value of GDP was more than 17,3 billion USD in 2017 according to the IMF data (International Monetary Fund, World Economic Outlook Database, April 2018: Nominal GDP list of countries. Data for the year 2017, available at: https://www.imf.org/external/pubs/ft/weo/2018/01/weodata/index.aspx (1 March 2019). 5 Italy and Spain are reported as – respectively – the fourth and the fifth economies ‘inside’ the EU, taking into consideration also the UK. See International Monetary Fund: World Economic Outlook Database, April 2018: Nominal GDP List of Countries. Data for the year 2017, available at: https:// www.imf.org/external/pubs/ft/weo/2018/01/weodata/index.aspx (10 March 2019); The World Bank: World Development Indicators Database – GDP at Market Prices (current US$), https://databank.worldbank.org/data/reports. aspx?source=2&country=&series=NY.GDP.MKTP.CD&period= (10 March 2019). 6 On the current, real state of Russia’s economy and its future prospects at the macro level see Bondar, Vadim & Yevgeniy Kogan: “Zakontchit’sya kak v 98 counting their total expenses together, on the military than Russia. Therefore, the Kremlin prefers to develop bilateral relations with individual member states of the EU than with institutions representing the entire community. The Russian Federation has often been described as a two-dimensional power, taking into consideration its strategic nuclear potential, that allows Russia to counterbalance US strategic capabilities, and natural resources. Crude oil and natural gas, in particular, are the most important assets (or even the only, despite the arms export) helping Russia to play a relatively significant role in the world’s economy. Russia‘s share in global oil exports is about 12-13%, but in natural gas similar indicators even exceed 20%.7 Production of fuels and other natural resources is also a main source of accumulation of capital in Russia. It means that the energy sector plays a crucial role in attracting foreign direct investments (FDI) to the Russian market and export of capital from Russia abroad. Therefore, from the Kremlin’s point of view, energy policy is an effective tool not only for achieving economic, but also political objectives at the international arena. Moreover, energy policy can be treated either as a ‘carrot’ – to cause positive reactions of foreign actors and attract ‘friends’, or ‘stick’ – to ‘punish’ (with higher prices, i.e.) those, whose policy is perceived negatively in Moscow. Despite more than a quarter of a century of implementing a capitalist, free-market economy, Russia’s economy is still dominated by giant corporations connected with the energy sector (mining, processing, transmission and distribution of fossil fuels and derivative products, production and transmission of electricity, the nuclear energy sector) or production of other raw materials. Shipping of crude oil and fuels, as well as natural gas, is the most important position in the Russian export, generating the largest revenues to Russia’s budget. The Russian Federation’s development and – in a broader sense – the state’s capabilities are to a large extent dependent on 90-ye: desiatki milionov ludey ostanutsya bez kuska khleba” (interview with prof. Yevgeniy Kogan), in: Biznes Online, 11 January 2019, available at: https://www.business-gazeta.ru/article/409088 (25 January 2019). 7 See Russia Remains the World‘s Largest Exporter of Energy Resources, in: Russian Energy Week, 20 June 2018, available at: https://rusenergyweek. com/en/news/rossija-ostanetsja-krupnejshim-mirovym-eksporterom-energore sursov/ (10 March 2019). 99 prices of energy resources on the world’s market. And the most important customer remains the EU. In other words, a little bit ironically, EU member-states can be featured as the hugest, although indirect, contributors to the Kremlin’s budget. Moreover, declining primary energy production in the EU, using bituminous coal, lignite, oil, natural gas, and recently nuclear energy, results in a situation in which the EU’s demand is increasingly dependent on primary energy import. The largest net importers of primary energy are basically the EU member states with the largest population, with the exception of Poland (where there still are indigenous coal reserves). In recent years, the origin of energy imported by the EU-28 has partly changed, although Russia has maintained its position as the main supplier of crude oil and natural gas (despite some decrease in share in recent years8) and came first among suppliers of solid fuels. The share of Russian energy in the imports of EU members amounted in 2017 to: oil 30.8%, gas 34.1%, coal 29.5%.9 It is worth recalling the obvious fact that the Russian Federation is a single, although federative state, while the European Union remains an intergovernmental organization consistent of 2710 sovereign entities. Despite the single market’s regulations in the EU, the decisionmaking process is much more complicated than in case of one state. Moreover, the EU’s common energy policy has not been launched yet. The community’s energy policy is still based on sovereign energy policies in fact. Contradicting interests of EU member states and their energy sectors and companies play a significant role in shaping the European energy market, hindering its further integration, as well as the implementation of common goals and policies towards third parties. Taking into consideration above-mentioned factors, and despite a huge gap in potentials between Russia and the EU, it should be highlighted that the energy sector allows the Russian Federation to 8 The main competitors of Russia’s Gazprom on the European natural gas market are: Norway, Algeria and suppliers of liquefied natural gas – LNG (among them, a growing role of the suppliers from the US is noticeable). 9 See Wyganowski, Jan: Import surowców energetycznych. Ro nie uzale nienie UE, in: Energia-Gigawat, No. 10, 2017. 10 ‘Minus’ the UK after Brexit. 100 play a role as a significant partner of the EU, even in ‘times of trouble’ since the Ukrainian conflict has started in 2014 and the West imposed its sanctions on Russia. Russia’s ‘fuel and energy complex’, as it is called there, builds its economic potential to a great extent, as well as it equips the Kremlin with quite effective instruments of foreign policy. Especially, if the instruments are implemented in bilateral relations with individual member states of the Union. It also allows the Russian Federation to undermine the political unity of the European Union and, in a wider spectrum, cohesion of the West. That is one of the main aims of the Kremlin, striving to balance the West’s influence in the international system (in the post-Soviet area, in particular) and constructing a polycentric order at the global scale, and a ‘bipolar’ (managed by the West and Russia) order in the regional (European) dimension. At the same time, the Russian Federation and its energy companies need Western partners, investments and technologies to modernize the country and the energy sector, as well as to expand the production and export of fuels. 3 Political dimension of Russia-EU energy dialogue It’s impossible to fully discuss the topic of the Russia-EU energy dialogue – as a part of broader economic cooperation – and its political implications in frames of the paper. However, some aspects of the problem are worth to underline undoubtedly. The Russian Federation is the EU’s fourth largest trading partner and the Union is Russia’s biggest trading partner.11 On the one hand, the largest value in EU exports to Russia are machinery, transport equipment, chemicals, medicines and other manufactured products. The EU is also the biggest investor in Russia. Three quarters of FDI stocks in Russia come from EU members. On the other hand, Russia mostly sells primary energy carriers to the EU: crude and refined oil and natural gas.12 According to the data published by Eurostat in 11 The EU-Russia trade has continuously decreased since 2012, dropping by 44% between 2012 and 2016 from € 339 billion in 2012 to € 191 billion in 2016. See European Commission: Countries and Regions. Russia, available at: http://ec.europa.eu/trade/policy/countries-and-regions/countries/russia (16 Ap ril 2019). 12 See ibid. 101 October 2018, the share of imports from Russia is less than 8% of the total value of EU imports.13 The energy dialogue between the Russian Federation and the European Union is a significant part of the economic cooperation between those partners. The dialogue includes trading energy raw materials and processed fuels, as well as electricity and nuclear energy. In case of imports from Russia to the EU, the sale of Russian energy resources definitely dominates. It also creates a deficit in EU trade in goods with Russia, in opposite to trade in services or foreign direct investments. In economic terms, two groups of EU member states are the most important for the Russian Federation in the context of the energy dialogue: Post-socialists countries (so called ‘new Europe’): former members of the Soviet block got used to be dependent on supplies from the East during the Cold War and they are still dependent on Russia’s energy resources to some, sometimes large, extent;14 Western European ‘tycoons’ (‘old Europe’ economic leaders of the EU): they are ‘valuable’ not only as consumers of Russian oil and gas (although their demand is growing in that area), but also, or sometimes mostly, as the most influential decisive powers among the EU members with the most serious impact on decision-making processes at the EU institutional level. Therefore, the latter group of states is perceived as the most significant partners in the field of the energy dialogue in Russia. From the Kremlin´s point of view, Germany is an undisputed leader in that case: either as important consumer, or economic and political leader of the EU, as well as the leader of the EU’s ‘Eastern dimension’. 13 See Eurostat: Statistics. International Trade in Goods, available at: https:// ec.europa.eu/eurostat/statisticsexplained/index.php?title=International_trade_ in_goods (25 January 2019). 14 It is especially notice worthy in the context of dependency on natural gas supplies. Some of the EU member states belong to the most dependent on natural gas delivered from Russia: Austria, Bulgaria, Czech Republic, Estonia, Finland, Greece, Hungary, Lithuania, Latvia, Slovakia, and Slovenia. See: Jak bardzo Europa jest uzale niona od gazu z Rosji?, in: Forsal.pl, 29 October 2015, available at: https://forsal.pl/galerie/901869,duze-zdjecie,1, jak-bardzo-europa-jest-uzalezniona-od-gazu-z-rosji-mapa.html (25 January 2019). 102 Moreover, the opinion of Berlin has a huge impact on shaping and interpretation of the EU’s competition policy, in the context of the third energy package, in particular.15 However, apart from its economic dimension, the Russia-EU energy dialogue has exceptionally significant influence on the political relations between the parties. It results not only from a quite obvious ‘strategic’ importance of the energy sector. This is also due to the way in which the Kremlin conducts its energy policy, using hydrocarbons as means of political pressure or of building its own political attractiveness. The current situation on the EU energy market creates favorable conditions for Russia’s expansion, especially in the natural gas sector. A significant part of EU countries, including Germany as the largest economy, requires increased supply of gas at appropriate prices to maintain a certain level of development and/or to reduce carbon dioxide emissions to the atmosphere. Germany, for instance, cannot switch to renewable energy without Russian gas.16 According to Gazprom, in the long term, the EU will need new portions of gas from certain suppliers and the Nord Stream pipeline is a ‘lifeline for the European energy supply’17. In the meantime, as it resulted from the Stanford Bernstein analysis developed in 2015, the EU’s freeing from a dependence on Russian primary energy carriers would cost about 200 billion USD and would require the construction of new delivery routes.18 Moreover, Germany’s decision to close all nuclear and coal-fired power plants, as well as to oppose the extraction of shale raw materials, reduces Europe’s chances of becoming independent from Russian energy resources. 15 It has been clearly visible in case of political disputes over implementation of competition policy’s rules to the project Nord Stream 2, when Germany has tried to block or reduce such attempts. 16 Russian natural gas has to be used as a “painless” and relatively cheap “transition” instrument to a low-carbon economy based on a renewable energy in 80% in 2050. 17 Nord Stream AG: Secure Energy for Europe. The Nord Stream Pipeline Project 2005-2012, Moscow, 2014, p. 77, available at: https://www.nord-stream. com/media/documents/pdf/en/2014/04/secure-energy-for-europe-full-version _245_20140417.pdf (10 March 2019). 18 See Wyganowski, Jan: Import surowców energetycznych. Ro nie uzale nienie UE, in: Energia-Gigawat, No. 10, 2017. 103 From a political perspective, another two groups can be distinguished among the EU member states, according to their perception of possible chances and risks related to the energy dialogue with Russia: Countries that would like to increase their sovereignty, including the independence from Russia in the energy sector: they put stress either on diversification of sources of supplies, or developing interconnectors with other EU members, being ready to pay higher price for the process; that group strongly opts for launching a common energy policy of the Union; Poland is the bright example of such a country, striving to import LNG from the US and Qatar, building new gas pipeline from Norway, blocking new possible routes of deliveries from Russia to the EU, creating the ‘energy union’ in the EU, or supporting other EU and non-EU (Ukraine, firstly) countries in the context; States that express their readiness to develop energy relations with Russia ‘as usual’, not being dependent on supplies from Eastern Europe so much, or not feeling endangered by the Russian Federation in terms of their energy security. It should be also noted that analyzing the energy dialogue has been seriously ‘infected’ by sharp conflict between the West and Russia that appeared in 2014 as a result of the annexation of Crimea and further Russian international activity aimed at rivalry with the Western community.19 The EU has imposed sanctions on the Russian Federation, including transfers of some technologies to Russia (it interrupts exploration of new energy sources, as well as modernization of the energy sector as a whole). Political tensions have undermined trust between both parts to a large extent, that had not been the best anyway. Rivalry in the information space between the West and Russia has become an everyday reality and Western political elites have accused the Kremlin of interfering democratic pro- 19 According to Andrea Prontera, “[…] the tensions between Russia and the EU, aggravated by the annexation of the Crimea, are undermining their historical partnership on energy […]” Prontera, Andrea: The New Politics of Energy Security in the European Union and Beyond: States, Markets, Institutions, Abingdon/New York, 2017, p. 1. 104 cesses in their countries, including support that has been given to populist and far-right groupings.20 Moreover, the US has influenced the European natural gas market, offering its LNG that is going to be delivered through gas terminals located in Poland and Croatia to Central and Eastern Europe. The US would like Germany to also buy its LNG, as well as to reduce energy cooperation with the Russian Federation – this means to abandon Nord Stream 2. US interference has started being treated as a serious threat for Russia’s interests in the European energy market, but it has also provoked discrepancies among some of EU member states (i.e. between Poland and Germany). Therefore, we have been dealing with the state of the EU-Russia relations often referred to as ‘hybrid friendship’ since 2014. On the one hand, the EU has even declared intensification of its military capabilities (aimed to protect it against Russia in the shade of US foreign policy under Donald Trump’s administration). On the other hand, some EU members are tightly linked to Russia in terms of the energy dialogue, and it seems they are going to ‘do business as usual’, taking into consideration their own economic interests mostly. In a quite obvious way it undermines the political cohesion of the EU. The problem is visible in relations between its member states, as well as on the forum of EU institutions and in relations between those institutions (especially the European Commission and the European Parliament) and national governments.21 Debates on Nord Stream 2 in March 2019, the members of the European Parliament 20 As it is predicted by many Western experts, including intelligence agencies of the EU members, the Kremlin will try to enhance its influence on political processes in Europe due to sharpening crisis in Russia-West relations, as well as upcoming elections to the European Parliament in May 2019. See Kube, Courtney: Russia will meddle in European Elections, keep Prepping for War with NATO, in: NBC International, 12 March 2019, available at: https:// www.nbcnews.com/news/world/report-russia-will-meddle-european-election s-keep-prepping-war-nato-n981971 (25 March 2019). 21 It is related to energy sector and the project of Nord Stream 2, in particular, that is reported as ‘the EU’s hot potato’. See Morra, Francesca: Nord Stream 2: The Legal Context, in: ISPI-Commentary, 1 March 2016, available at: https://www.ispionline.it/it/pubblicazione/nord-stream-2-legal-context-17574 (25 January 2019). 105 even came to the conclusion that Russia can no longer be considered as a ‘strategic partner’ in ‘current conditions’22. 4 Russia’s energy strategy and its political implications The Russian Federation treats energy policy either in economic, or political terms. It must export oil and natural gas to provide development opportunities for the country, as well as to be able to maintain its international status and implement power politics. Budget expenditures, from social expenses to military spending, are highly dependent on the revenues generated by the energy sector. Oil and gas companies are the biggest tax-payers and core elements of Russia’s economy. As business potentates, they also offer a huge number of well-paid jobs, as well as decide about the progress of certain regions. At the same time, Russia is dependent on fuel prices on the world’s market with limited own capabilities to control them. Russia needs to modernize and develop its energy infrastructure. It is necessary to maintain country’s export capabilities. The problem is related to all dimensions of the issue: exploration, production, processing and transmission networks.23 Otherwise, Russia’s export of primary energy resources will significantly diminish in a relatively short term. It is clearly visible in the case of modernization of already existing transmission networks (usually exploited, i.e. pipelines delivering gas to Poland), or constructing new sale routes to Germany, Turkey (and further to South and Central Europe) and the PRC, for instance. Russian capabilities in the field of LNG should also be enhanced to allow its own energy sector to be more flexible on the market and balance competitors’ offers effectively. Therefore, the energy complex in Russia demands serious, expensive, increasing innovation investments in technological development, in particular. 22 Russian News Agency-ItarTass: European Parliament calls to Stop Nord Stream 2, 12 March 2019, available at: http://tass.com/economy/1048310 (25 March 2019). 23 See Government of Russian Federation: Energy Strategy of Russia until 2030”, Moscow, 2009, available at: http://www.scrf.gov.ru/security/econo mic/document122/ (25 January 2019); Bogoviz, Aleksei et al.: Russia’s Energy Security Doctrine: Addressing Emerging Challenges and Opportunities, in: International Journal of Energy Economics and Policy, Vol. 8, No. 5, 2018, pp. 1-6. 106 Despite sanctions, new solutions developed by Russia, i.e. seeking new partners (development of cooperation with BRICS countries, agreement with OPEC), implementing the import substitution policy, using new institutions and financial instruments, and cooperating with international organizations (UNECE, GECF, OPEC), as well as with China, have allowed not only to avoid the breakdown in production and export, but to increase it.24 Russia’s authorities, according to its energy doctrine, predict that energy markets of the European Union, the Commonwealth of Independent States, and Turkey will remain the main markets for products of the Russian fuel and energy complex in the perspective of the next decade. Although, at the same time, the European share in the total exports of Russian fuel and energy resources will steadily decrease due to the diversification of export energy markets in the Eastern direction (China, Japan, Republic of Korea, and other countries of Asia-Pacific region).25 However, the Kremlin treats energy relations with foreign partners also as a political tool. The rules are quite simple: ‘friendly’ states, and their entrepreneurs of course, are able to get more benefits by implementing ‘relevant’ foreign policies. This applies to achieving greater commercial profits, better ‘terms of trade’ with Russia either in the context of reaching convenient prices for primary energy import, or getting more favorable conditions in case of export to Russia or investing there. The Kremlin uses the energy sector as some kind of instrument of political corruption towards states, but also individual politicians. In the latter case the ‘financial dimension’ of the phenomenon plays a crucial role.26 Doing business with Russian partners can be likewise interesting for numerous entrepreneurs, not only in cause of getting an access to quite a large market. It can be much more profitable, in comparison to ‘traditional’ European markets, taking into consideration the ‘foggy’ business climate in the Russian Federation. 24 See Wyganowski, Jan: Import surowców energetycznych. Ro nie uzale nienie UE, in: Energia-Gigawat 2017, No. 10. 25 See Government of Russian Federation: Energy Strategy of Russia until 2030, Moscow, 2009, available at: http://www.scrf.gov.ru/security/economic/ document122/ (25 January 2019). 26 The case of former German chancellor, Gerhard Schroeder, is undoubtedly the most well-known and commented evidence of such political practices. 107 Under such conditions the Kremlin is able to create relatively influential different pro-Russian (representing interests similar to their Russian counterparts) lobbing groups either at the level of public authorities (with impact on the EU level of governing), or business management. Russia knows how to use the energy sector as a tool of economic war, too. Although, that is more relevant in the context of threatening CIS countries, than useful in case of relations with EU members. The more it could do harm to Russia itself. Especially, in the way that Russian elites are also dependent on benefits from cooperation with their European partners. Summarizing, some political aspects of Russia’s energy policy towards the European Union, it should be highlighted: The energy sector is the most significant dimension of Russia- EU economic cooperation, shaping, to a large scale, political relations between those entities, as well as having great impact on Russia’s development potential and the ability of Russian elites to maintain political power over the country; The Russia-EU energy cooperation has also strong influence on relations within the EU as an international organization, as well as between its member states and transatlantic relations (cooperation with the USA); it seems to be one of the most serious causes for the lack of cohesion amid the Western community; diversified policies towards Russia in the field of energy stimulates lack of trust amid allies, which is visible in Polish-German cooperation; Energy policy can be discribed as a quite effective political tool in the Kremlin’s hands, evoking much less negative implications amid European public opinion than, for instance, information warfare or sponsoring populist movements in the EU member states. The European Communities and the European Union have for decades been unable to form a single market for gas, and Russia has been able to use this disunity in its favor. The Russian Federation has pitched sweetheart deals to individual EU member states and built flashy pipelines that undermine European cohesion. As it was above-mentioned, the EU’s largest neighbor is rich in gas and poor in cash. The situation could create a perfect deal for the EU if it 108 manages to import Russian gas but get rid of its political influence. The EU should complete its ambitious energy union and depoliticize the question of Russian gas, what is reported as a kind of nightmare by the Kremlin. With adequate pipeline interconnections, new LNG terminals, and better oversight of natural gas supply contracts, a close energy relationship with Russia should not be an issue. And the prospect of US gas entering the European market should make Russia more likely to play well with its European neighbors.27 Renewable energy sources are also perceived as an instrument of building European ‘energy sovereignty’, as well as another serious threat for the position of Russia on the EU’s energy market and as a quite effective tool of political influence.28 27 Dempsey, Judy: Judy Asks: Is Europe Too Dependent on Russian Energy? A Selection of Experts answer a new Question from Judy Dempsey on the Foreign and Security Policy Challenges shaping Europe’s Role in the World (commentary made by Kristina Berzina), in: Judy Dempsey’s Strategic Europe, Carnegie Europe, 12 July 2017, available at: https://carne gieeurope.eu/ strategiceurope/71507 (25 January 2019). 28 See A new Draft Energy Security Doctrine says Western Sanctions and Green Energy are Russia’s top threats, in: Meduza, 7 March 2018, available at: https://meduza.io/en/news/2018/03/07/a-new-draft-energy-security-doctri ne-says-western-sanctions-and-green-energy-are-russia-s-top-threats (25 May 2019). 109 8 Caspian Gas Supplies: An Opportunity of EU Energy Diversification? Shushanik Minasyan 1 Introduction Energy issues continue to dominate the European security policy discourse. The European Union Global Strategy in 2016 underlines the preservation of energy system resilience as a key security priority for the European member countries. The Strategy stresses heightened concerns over the European energy system’s vulnerabilities, calling on the relevant European and national actors to take measures to eliminate the threats to the community’s energy supply.1 In addition to internal risks such as the poor infrastructure connections between EU-countries,2 “isolated energy markets in Europe”3 and an absent regulatory framework, the EU is plagued with potential threats to its energy security. Instability in the global energy market, geopolitical rivalries between the traditional and emerging powers, increasing competition for global resources as well as conflicts in supplier or transit countries pose enormous challenges for European energy supply security due to its highly dependence on imported energy. In 2016, the dependency rate was equal to 54%, signifying that more than half of the EU’s energy needs were 1 See European Commission: Shared Vision, Common Action: A Stronger Europe. A Global Strategy for the European Union’s Foreign and Security Policy, Brussels, 2016, p. 9, p. 22. 2 See European Commission: European Energy Security Strategy, COM (2014) 330 final, Brussels, 2014, p. 9. 3 European Commission: Second Strategic Energy Review. An EU Energy Security and Solidarity Action Plan, COM (2008) 781 final, Brussels, 2008, p. 4. 110 met by imports.4 Critically, fossil fuels represent 61% (39.5% oil, 22.1% gas) of the EU’s primary energy consumption in the EU.5 Nearly a third of EU oil consumption (34.6%) and 23.3% of gas demands were covered by imports.6 In view of current energy trends, worldwide fossil fuels are expected to persist as the EU’s main energy security objective for the EU. The last decade saw an immense increase in the world’s demand for oil (a 1.7% growth from 2006 to 2016), particularly in developing countries including China and India.7 China’s share of global oil consumption grew by 4.4% over the same period while India increased its oil need by 5.7%.8 This dynamic could provide new sources of instability for Europe’s energy supply. Natural gas, however, represents the largest challenge for the EU. Whereas the global oil market is unified under the petrol dollar scheme and has more flexible distribution and supply infrastructures, the gas market is different in nature for which the concept of security of supply is significantly more complicated. The regional orientation of the gas market is due to the delivery system via pipelines, which creates limitations and reciprocal dependencies between trading partners.9 The EU faces serious challenges in natural gas supply because some of its member states are highly dependent on a single supplier. Gas supply implies both technical as well as economical instabilities such as investment and facility risks, producing reliability and transit risks. Natural gas security has also become a strategic component of the European foreign policy architecture and requires diplomatic efforts to maintain a balance with energy-relevant countries and to avoid any adverse threats to the energy supply arising from 4 See Eurostat: Database. Energy, available at: https://ec.europa.eu/eurostat/ca che/infographs/energy/bloc-2c.html (14 January 2019). 5 See Eurostat: Database. Energy Consumption, available at: https://ec.europa. eu/eurostat/cache/infographs/energy/bloc-3a.html (14 January 2019). 6 See Eurostat: Database. Energy Imports, available at: https://ec.europa.eu/ eurostat/cache/infographs/energy/bloc-2a.html (14 January 2019). 7 See British Petroleum: Statistical Review of World Energy, London, 2018, p. 8. 8 See ibid. 9 See Bundesanstalt für Geowissenschaften und Rohstoffe: Kurzstudie. Reserven, Ressourcen und Verfügbarkeit von Energierohstoffen, Hannover, 2009, p. 21. 111 strategic confrontations or political incidents in supplier and transit countries. Concerning enhancement of energy system operability and undermining of vulnerability immediate energy supply diversification remains the fundamental starting principles of European energy security.10 The EU identified the Caspian region as a central alternative supply source in the 1990s,11 where the bulk of gas reserves are concentrated (28.5% of global gas reserves).12 Despite major European political efforts over the last two decades to intensify the energy dialogue with Caspian states to construct an infrastructure bridge between the Caspian and Black Sea region, the EU failed to achieve relevant results. European initiatives and energy projects such as the proposed NABUCCO pipeline could not be implemented due to stakeholder disagreements and economic difficulties.13 However, the development of energy infrastructure as well as market integration between suppliers in the Caspian region and European energy consumer countries continues to be an imperative for the European energy security policy.14 The following paper presents the current European energy discussion regarding the role of the Caspian region and aims to analyze several crucial aspects of the energy dialogue between Caspian States and the EU. The main objective of this article is to demonstrate and examine the prospects and opportunities of this energy dialogue for the European energy diversification. 10 See European Commission: Second Strategic Energy Review. An EU Energy Security and Solidarity Action Plan, COM (2008) 781 final, Brussels, 2008, pp. 7-8. 11 See European Commission: White Paper. An Energy Policy for the European Union, COM (95) 682 final, Brussels, 1995, p. 21. 12 See British Petroleum: Statistical Review of World Energy, London, 2018, p. 26. 13 See Minasyan, Shushanik: Die energiepolitischen Interessen der EU im Südkaukasus, Marburg, 2016, pp. 142-183. 14 See European Commission: European Energy Security Strategy, COM (2014) 330 final, Brussels, 2014, p. 16. 112 2 The European Southern Gas Corridor and the Caspian region European energy policy is based on three parameters: sustainability, security of supply and competitiveness. The EU’s energy policy strives to strike a balance among these objectives by “combating climate change, limiting the EU’s external vulnerability to imported hydrocarbons, and promoting growth and jobs, thereby providing secure and affordable energy to consumers.”15 Yet reconciling these diverging aspirations into a cohesive realistic framework is a difficult task for the EU. The equilibrium in this energy triangle is disrupted by various factors, such as a lack of consensus among the EU’s economic and political interests, contrasting energy landscapes and differing energy-mixes in member states. The depletion of fossil fuel sources in the EU16 and high dependence on energy imports have brought security of supply to the top of the European energy agenda. The past years have revealed the EU notably is vulnerable to supply shocks in the natural gas sector. The supply insecurity arises from the location of distribution routes and its geopolitical implications. The European import infrastructure is limited to three main partners: Russia is the largest supplier of natural gas. The only other partner with a significant share in total EUimports is Norway and, at some distance, Algeria and Qatar (Figure 1). This existing market dominance of a few supplying countries restrains the EU’s capacity to act and generates many risks. Since 2006, this economic constellation has been supplemented by geopolitical complications when Russia began using its energy resources to promote its geopolitical agenda and to influence foreign policy decisions in its ‘near abroad’.17 After repeated supply interruptions in 2009 during the Ukrainian-Russian gas-crisis, which had dramatic consequences for a majority of EU countries directly and in- 15 European Commission: An Energy Policy for Europe, COM (2007) 1 final, Brussels, 2007, p. 4. 16 See Durand, Bernard: The Nearby Depletion of Fossil Fuels will force to hasten the Energy Transition, in: European Scientist, 25 June 2018, available at: https://www.europeanscientist.com/en/features/nearby-fossil-fuel-depleti on/ (27 January 2019). 17 See Pleines, Heiko: Der Erdgaskonflikt zwischen Russland und der Ukraine, in: Pleines, Heiko (ed.): Die Ukraine zwischen Ost und West. Außenpolitische und kulturelle Orientierungen, Bremen, 2008, pp. 45-48, p. 46. directly,18 Russia’ ously blighted. C cent years concer nowadays also see Figure 1: EU-Import Source: Eurostat data In order to addres sion developed s Southern Gas Cor tegic energy coop tries, “which coul future needs”.20 T security priority” foster a dialogue jective of rapidly and the construct development.”22 A ject, but Brussels 18 See European C liament and of t Gas Supply and Brussels, 2009, p 19 See ibid. 20 European Comm Security and Sol p. 4. 21 Ibid. 22 Ibid. 3. Alger 4 s reputation as a reliable energy supp onsidering political tensions with M ns about a possible outbreak of en m to be present. s of natural gas in 2017 (%) base. s the increasing concerns, the Europ everal energy policy initiatives19 in ridor (SGC). The SGC defines new f eration with Caspian and Middle E d potentially supply a significant par he EU designated this project the “h 21 and invited relevant European sta with Caspian energy suppliers, “with securing firm commitments for the ion of the pipelines necessary for al zerbaijan is still the only EU-partner intents reaching the other Caspian ommission: Proposal for a Regulation of th he Council Concerning Measures to Safegu Repealing Directive 2004/67/EC, COM (2 p. 2-3. ission: Second Strategic Energy Review. idarity Action Plan, COM (2008) 781 final, 1. Russia; 3 2. Norway; 37.7 ia; 11.9 . Qatar; 5.2 5. Others; 6.7 113 lier was serioscow in reergy conflict ean Commister alia, the rames of straastern count of the EU’s ighest energy keholders to the joint obsupply of gas l stages of its for this proenergy giant, e European Parard Security of 009) 977 final, An EU Energy Brussels, 2008, 8.5 114 Turkmenistan. The strategy of the Southern Gas Corridor also targets long-term cooperation with resource-rich Iran “when political conditions permit”.23 The envisioned length of proposed SGC infrastructures will span over 3.500 km. The Corridor comprises three pipeline projects: the existing South Caucasus Pipeline (SCP),24 which runs across Azerbaijan and Georgia; the Trans Anatolian Pipeline (TANAP)25 will allow to deliver of over 10 billion cubic meters (bcm) natural gas per year across Turkey to the Turkish-Greek border to Kipoi, where it will be connected to the last infrastructure part, the 878 km long Trans Adriatic Pipeline (TAP)26. TAP will carry natural gas from the Shah Deniz II field in Azerbaijan across Greece, Albania and the Adriatic Sea to Southern Italy to Apulia region (Figure 2).27 The TANAP project was inaugurated in Eski ehir, Turkey on 12 June 2018 after $8.5 billion of investments, will ensure a delivery of 6 bcm natural gas per year to Turkey.28 The TAP pipeline is under construction and is expected to commence operations in 2020. 23 Ibid. 24 The SCP shareholding is comprised of BP (United Kingdom, 28.8%), AzSCP (Azerbaijan, 10%), TPAO (Turkey, 19%), Petronas (Malaysia, 15.5%), Lukoil (Russia, 10%), NICO (United States, 10%), SGC Midstream (Azerbaijan, 6.7%). 25 TANAP’s shareholders are Azeri state energy company Socar (51%), Turkish Botas (30%), BP (12%) und Socar Turkey (7%). 26 TAP shareholding is comprised of BP (20%), Socar (20%), Snam (Italy, 20%), Fluxys (Belgium, 19%), Enagas (Spain, 16%) and Axpo (Switzerland, 5%). 27 See Official Page of BP Azerbaijan: Operations and Projects, available at: https://www.bp.com/en_az/caspian/operationsprojects/Shahdeniz/SouthernCo rridor.html (4 February 2019). 28 See Gotev, Georgi: Three Presidents inaugurate TANAP-Pipeline in Turkey, in: Euractiv, 12 June 2018, available at: https://www.euractiv.com/section/en ergy/news/three-presidents-inaugurate-tanap-pipeline-in-turkey/ (4 January 2019). Figure 2: Southern G Source: Interfax Glo 3 Azerbaijan Southern G Being the first res fy energy dialogu involvement in th partner in the Eur infrastructural ind resources proved the beginning of t 2007), Azerbaijan cubic meters.29 A progressed and T the European Co 29 See British Petro 26. 30 See Trans Adriat atic Pipeline (T 2013, available h-deniz-consortiu -pipeline (7 Febr as Corridor bal Energy. as a substantial contributor to Euro as Corridor? ource-rich country in post-Soviet spa es with international companies wit e mid-1990s, Azerbaijan has becom opean Southern Gas Corridor. The co ependence from Russia alongside va to be an enticing prospect for the E he Southern Corridor’s development ’s natural gas reserves were estimate s the energy dialogue with Azerba AP was selected as a European exp mmission welcomed the negotiation leum: Statistical Review of World Energy, L ic Pipeline: Shah Deniz Consortium selected AP) as European Export Pipeline, Press R at: https://www.tap-ag.com/news-and-events m-selects-the-trans-adriatic-pipeline-tap-asuary 2019). 115 pe’s ce to intensihout Russian e an essential mbination of st natural gas U market. At stage (end of d at 1 trillion ijani partners ort pipeline,30 s as a “door ondon, 2018, p. the Trans Adrielease, 28 June /2013/06/28/sha european-export 116 opener for [a] direct link to [the] Caspian Sea”.31 Then Commission President José Manuel Barroso hailed it as a “success for Europe and a milestone in strengthening the energy security of [the] Union.”32 But the question remained whether the current Southern Gas Corridor infrastructure could guarantee energy security in the EU and emancipate it from its dependence on Russia? Unfortunately, there are a number of economic, technical and political explanations for why the key goal of this project cannot be fulfilled under the current infrastructural arrangements. In light of Azerbaijan’s current natural gas production and export capacities, the feasible volume available to transport between Turkey and Europe is not of strategic importance for enhancing energy security in the EU. At the end of 2017, production capacity hovered around 17.7 bcm while 10.6 bcm was consumed domestically.33 Per the existing contractual obligations to Ankara, Baku exported 6.3 bcm gas to Turkey in the same year.34 The rest was supplied to Georgia, although its imports are exepted to grow. Georgia received 265 mcm (12% of net consumption) of its natural gas from Russia in 2015 as a transit fee for the Russian-Armenian gas pipeline. Azerbaijan was Georgia’s main source of gas supply in 2015 and covered nearly 83% of its total gas demand. On 31 December 2016, the Russian gas distribution agreement expired. Gazprom proposed an end to the gas-for-transit compromise and the monetization of transit fees.35 Considering the new developments minimizing Russia’s share of Georgian gas consumption, Azerbaijan became the sole gas supplier for the country. According to Georgia’s energy balance for 2018, the country’s net gas demand was estimated at more than 2.6 bcm. Tbilisi had reached an agreement with SOCAR 31 European Commission: EU Commission welcomes Decision on Gas Pipeline: Door-Opener for Direct Link to Caspian Sea, Press Release, IP/ 13/623, 28 June 2013, available at: http://europa.eu/rapid/press-release_IP-13623_ en.htm (7 February 2019). 32 Ibid. 33 See British Petroleum: Statistical Review of World Energy, London 2018, pp. 28-29. 34 See ibid, p. 34. 35 See Georgia agrees with Gazprom’s New Transit Terms, in: Civil Georgia, 11 January 2017, available at: https://civil.ge/archives/126069 (1 May 2019). 117 in April 2018 to supply the country’s entire demand from Azerbaijani sources.36 Another relevant aspect in Azerbaijan’s future export capability is its declining production in recent years (2015: 18.8 bcm; 2017: 17.7 bcm).37 Accordingly, the high demands of the domestic market and the country’s present demographic developments pose major challenges to a sustainable energy balance. The Azerbaijani population has grown rapidly in recent years and is expected to surpass 10 million by the end of 2020, up from 9.8 million in 2017.38 Undeniably, the demographic dynamic will also impact consumption projections and export capacities. The current data indicates that gas supplies intended for Europe could be reduced to zero by 2020. Even with the successful exploration in the Shah Deniz II gas field, which shall ensure a further 10 bcm for the European market per year,39 there is the slight possibility that Azerbaijan can become a vital factor for European energy security. The importance of planed capacity will be minor for the European energy market with overall gas consumption at about 531.7 bcm per year (2017).40 Yet the current infrastructural route will benefit from the connection of Turkmenistan’s gas reserves to the SCP in Azerbaijan. With natural gas reserves containing 688 trillion cubic meters,41 Ashgabat can offer new perspectives for the energy cooperation with EU countries and strengthen the economic feasibility of the Southern Corridor. The Commission began negotiating the project in 201142 with an expected transport capacity of around 30 36 See Socar names Volume of Gas Export to Georgia, in: AzerNews, 10 April 2018, available at: https://www.azernews.az/oil_and_gas/130060.html (1May 2019). 37 See British Petroleum: Statistical Review of World Energy, London, 2018, p. 28. 38 See Trading Economics: Statistics. Azerbaijan’s Population, available at: https://trading economics.com/azerbaijan/population (7 February 2019). 39 See Official Page of BP Azerbaijan: Operations and Projects. Shah Deniz Stage 2, available at: https://www.bp.com/en_az/caspian/operationsprojects /Shahdeniz/SDstage2.html (8 February 2019). 40 See British Petroleum: Statistical Review of World Energy, London, 2018, p. 29. 41 See ibid, p. 26. 42 See EU to negotiate Trans-Caspian Pipeline, in: Euractiv, 12 September 2011, available at: https://www.euractiv.com/section/energy/news/eu-to-neg otiate-trans-caspian-pipeline/ (9 February 2019). 118 bcm43 which would significantly increase the Corridor’s competitiveness. However, the future infrastructural link across the Caspian Sea is unclear at this time. The division and access rights to Caspian resources between the littoral states is a matter of dispute: There is no consensus whether the Caspian Sea is actually a lake, an enclosed or a semi-enclosed sea. The determination of its legal status is necessary in order to clarify the sovereignty and ownership rights over Caspian fossil fuel sources.44 In summer 2018, the five Caspian countries reached an agreement to divide up the inland body of water and its potentially vast oil and gas resources. The pact signed at a summit meeting in Kazakhstan takes both approaches in a compromise, treating the surface as international water and dividing the seabed into territorial zones.45 However, this compromise will not open the door for an underwater Caspian pipeline. Dividing the seabed’s mineral wealth would require additional agreements and raises environmental concerns. Russia and Iran maintain that any pipeline built under the Caspian Sea will cause serious problems for the already-fragile ecosystem und have blocked the motion for almost three decades.46 Finally, the energy cooperation with Azerbaijan and Turkey faces serious political challenges for the EU and contradicts its goal to strengthen energy security by diversifying supply routes, in order to provide an appropriate response to external threats such as political manipulation by suppliers. The energy interdependence of countries where state power becomes more concentrated in the hands of one 43 See European Commission: Annex to the Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Implementation of the Trans- European Energy Networks in the Period 2007-2009, COM (2010) 505 final, Brussels, 2010, p. 34. 44 See Vinogradov, Sergei & Wouters, Patricia: The Caspian Sea. Current Legal Problems, in: Zeitschrift für ausländisches öffentliches Recht und Völkerrecht, Vol. 55, No. 2, 1995, pp. 604-623. 45 See President of Russia: Convention on the Legal Status of the Caspian See, 12 August 2018, Astana, available at: http://en.kremlin.ru/supplement/5328 (15 May 2019). 46 See Tarr, David G.: The Economic Impact of Export Restraints on Russian Natural Gas and Raw Timber, in: OECD (ed.): The Economic Impact of Export Restrictions on Raw Materials, OECD Trade Policy Studies, Paris, 2010, pp. 131-154, p. 138. 119 family (Azerbaijan)47 or one person (Turkey)48 can be exploited for political leverage. Combined with the significant dominance of Azerbaijan and Turkey’s energy companies in current projects (SCP – 45%; TANAP – 88%), this energy cooperation can be advantageous for relations with the EU. But due to serious political tensions in recent years, the contrasting geopolitical identities and unresolved issues between Ankara and the EU, the central role of Turkey as a transit country should be expected to produce new risks for Europe. 4 Iran and the Southern Gas Corridor According to the BP Statistical Review for 2017, Iran possesses the world’s second largest natural gas reserves after Russia with an estimated 33.2 trillion cubic meters of proven reserves.49 The production increase to 223.9 bcm per annum (2017)50 and the fact that nearly 62% of Iranian natural gas reserves have not been developed yet make the country an economically attractive partner. Iran has been an alluring supplier for the European energy mix.51 Thanks to its geographical proximity to Qatar and Iraq, Iran has been able to increase the geographical diversification of Europe’s gas supplies. Iran also has the potential to be a cost-effective export bridge to Central Asian natural gas reserves, particularly those in Turkmenistan, through the Turkmen-Iranian pipeline Dauletabad-Sarakhs- Khangiran. Thus, there was no doubt that the inclusion of Iran in the Southern Corridor would provide efficiency and bolster the economic viability of the project. However, the realization of this concept was prob- 47 See Freedom House: Nations in Transit 2018. Country report. Azerbaijan, available at: https://freedomhouse.org/report/nations-transit/2018/azerbaijan (9 February 2019). 48 See Freedom House: Nations in Transit 2018. Country report. Turkey, available at: https://freedomhouse.org/report/freedom-world/2018/turkey (9 April 2019). 49 See British Petroleum: Statistical Review of World Energy, London, 2018, p. 26. 50 See ibid, p. 28. 51 See European Commission: Green Paper. Toward a European Strategy for the Security of Energy Supply, COM (2000) 769 final, Brussels, 2000, pp. 44-45. 120 lematic and not free of geopolitical tensions. The Iranian route was ultimately avoided due to US sanctions,52 though the EU has struggled to define a coherent policy of its own. Brussels has criticized Iran’s unacceptable position regarding nuclear proliferation issues53 while at the same time continuing an open political dialogue with Teheran. The negotiations led by Britain, France and Germany with Iran in 2002-2003 were certainly limited and did not produce any meaningful cooperation frameworks.54 The conditions for a dialogue-oriented environment on energy issues became increasingly poor after the UN Security Council imposed restrictive measures in 2006/2007.55 Russia also influenced the fate of EU-Iranian energy diplomacy during this period. In May 2007, Vladimir Putin signed an agreement with Turkmenistan and Kazakhstan to improve the extensive Central Asia-Center pipeline system shipping Central Asian gas to Russia.56 In the run-up to the ongoing Turkmen-Iranian energy dialogue in the summer of 2009 which sought to increase the annual export capacity from Turkmenistan to northeastern Iranian consumers and construct the new Dauletabad pipeline,57 Gazprom offered a deal to buy 50 bcm of natural gas from Turkmenistan for European prices of about 240-250 USD per thousand cubic meters, approximately double the average 2008 price paid to Turkmenistan.58 Rus- 52 See United States Congress: Iran. Nonproliferation Act or 2000, Public Law 106-178, 14 March 2000; White House: H.R. 1954 – ILSA Extension Act of 2001, 25 June 2001. 53 See European Parliament: Resolution on Iran, P6_TA (2005) 0011, in: OJ (C) 247 E/159, 6 October 2005. 54 See Harnisch, Sebastian & Linden, Ruth: Iran and Nuclear Proliferation – Europe’s Slow-Burning Diplomatic Crisis, in: German Foreign Policy in Dialogue, Vol. 12, No. 17, 2005, pp. 44-54. 55 See United Nations Security Council: Resolution 1737 (2006) Adopted by the Security Council at its 5612th Meeting, 23 December 2006; Unites Nations Security Council: Resolution 1747 (2007) adopted by the Security Council at its 5647th meeting, 24 March 2007. 56 See International Energy Agency: Perspectives on Caspian Oil and Gas Development. Directorate of Global Energy Dialogue, IEA-Working Paper Series, No. 1, Paris, 2008, p. 18. 57 See Minasyan, 2016, p. 151. 58 See Price for Gas Supply from Turkmenistan to Russia will be 240-250 US- Dollar per Thousand Cubic Meters [Zena postavok gaza iz Turkmanii v Rossiju sostavit $240-250 za tisjachu kubov], in: RIA Nowosti, 23 December 2009, available at: https://ria.ru/20091223/200950245.html (1 May 2019). 121 sia intended to prevent Iran from acquiring control over Central Asian natural gas resources and providing a transport alternative to Russia’s monopoly in the Central Asian energy market. It remains indisputable that Russia profits from the international isolation of Iran and its exclusion from the European energy market since it solidifies Moscow’s position as the energy superpower in the European market. The deal reached between Iran and the six world-powers (EU3, United States, Russia, China) in 2013 “to curb the Iranian nuclear program in exchange for initial sanctions relief”59 precipitated a new dynamic in energy dialogues. The diplomatic efforts in 201560 reopened introduced new opportunities for Iranian talks regarding energy and transport issues. The intensive diplomatic exchanges61 led to the setting of a framework for institutional dialogue: “The two sides have […] expressed their intention to establish an Energy Business Forum that would bring together public institutions, regulators, manufacturers, operators and financial experts to analyze the prospects and facilitate investment in the hydrocarbons sector, as well as in the renewable and energy efficiency sectors and to create a favorable environment for companies wishing to invest in the energy sector of the Islamic Republic of Iran and the EU.”62 By emphasizing the significance of Iran’s energy potential for the European energy security, the European Parliament also called for European companies “to invest in the Iranian energy sector […], in particular […] in developing LNG technology in Iran”.63 59 EU hails Nuclear Deal with Iran, credits Ashton, in: Euractiv, 25 November 2013, available at: https://www.euractiv.com/section/global-europe/news/euhails-nuclear-deal-with-iran-credits-ashton/ (10 February 2019). 60 See Joint Comprehensive Plan of Action on Iran’s Nuclear Program, Vienna 14 July 2015. 61 See EU Officials to Visit Iran in February to develop Energy Ties, in: Euractiv, 18 January 2016, available at: https://www.euractiv.com/section/energy/ news/eu-officials-to-visit-iran-in-february-to-develop-energy-ties/ (1 May 2019). 62 Joint Statement on Energy, Teheran, 17 April 2016. 63 European Parliament: Resolution of 25 October 2016 on the EU Strategy towards Iran after the Nuclear Agreement, P8_TA (2016) 0402, in: OJ (C) 215/90, 19 June 2018. 122 The resumption of activities by various European energy companies in 2017 including Shell, Total and Eni also opened new perspectives for European energy security.64 The French energy giant Total was the first European corporation to show concrete interest in energy cooperation with Iran and acknowledged its intension to sign a multibillion dollar gas deal with Teheran in 2017 to develop South Pars (SP11), the world’s largest gas field.65 The project would have had a production capacity of 2 billion cubic feet per day including condensate. The produced gas was envisioned to supply first and foremost the Iranian domestic market starting in 2021. However, this cooperation never came to fruition. US Secretary of State Mike Pompeo announcement in May 2018 that the US planned to strengthen its military and economic pressure on Iran and its decision to withdraw from the Iran nuclear deal,66 which complicated the situation for European energy companies. A renewed imposition of restrictive measures would have negative repercussions for EU companies. Furthermore, the proposed sanctions would significantly decrease Iran’s ability to attract foreign investments in the energy industry. The EU attempted to persuade President Trump to uphold the 2015 agreement, but the White House has remained resolute.67 In response, the High Representative of the EU and foreign ministers of the EU3 declared they are “determined to protect European economic operators engaged in legitimate business with Iran.”68 Despite the US’ skepticism of the EU’s capacity 64 See Iran certifies 29 International Companies to bid for Oil, Gas Projects, in: Euractiv, 3 January 2017, available at: https://www.euractiv.com/section/ener gy/news/iran-certifies-29-international-companies-to-bid-for-oil-gas-projects/ (10 February 2019). 65 See Total: Iran: Total and NIOC sign Contract for the Development of Phase 11 of the Giant South Pars Gas Field, Press Release, 3 March 2017, available at: https://www.total.com/en/media/news/press-releases/iran-total-and-nioc-si gn-contract-development-phase-11-giant-south-pars-gas-field (10 May 2019). 66 See Dorell, Oren: Strongest Sanctions in History. U.S. demands big Changes in Iran, in: USA Today, 25 May 2018, available at: https://eu.usatoday.com/st ory/news/world/2018/05/21/mike-pompeo-iran-sanctions/628152002/ (1 February 2019). 67 See DiChristopher, Tom: Washington and Europe playing ‘Game of Chicken’ over Iran Nuclear Deal Sanctions, in: CNBC, 24 May 2018, available at: https://www.cnbc.com/2018/05/24/washington-and-europe-playinggame-of-chicken-over-iran-nuclear-deal.html (10 February 2018). 68 Rios, Beatriz: EU tries to Soften Impact of US Sanctions against Iran as they re-enter into Force, in: Euractiv, 7 August 2018, available at: https://www. 123 to act and its confidence that Washington will prevent attempts to evade sanctions,69 the EU launched a new trade mechanism for avoiding the sanctions in January 2019 that allows European companies to cooperate with Iran despite the embargo.70 At this stage, it is too premature to predict the possible impact of the Instrument in Support of Trade Exchanges (INTEX) on the energy dialogue with Iran because it focuses primarily on the sectors essential for internal Iranian requirements – such as pharmaceutical, medical and agricultural issues. However, in the context of the continuing Transatlantic rivalry, which has been provided through unilateral and ultimate policy favored by the Trump administration,71 this decision can be seen as a turning point in European foreign policy as the EU signals its readiness to pursue more capable and autonomous decisions. 5 Conclusion and recommendations The European Statistical Office Eurostat published the results of the data evaluation regarding the EU’s primary energy consumption, which determined an increased demand for the third consecutive year.72 Particular attention should be given in this context to natural gas. Immediately after this announcement, Miguel Arias Cañete, the EU’s Commissioner for Climate Action and Energy, emphasized the important role of natural gas for the energy transition, targeted euractiv.com/section/global-europe/news/eu-tries-to-soften-impact-of-us–san ctions-against-iran-as-they-re-enter-into-force/ (11 February 2019). 69 See US ‘disturbed and deeply disappointed’ by EU over Iran Sanctions, in: Euractiv, 26 September 2018, available at: https://www.euractiv.com/section /global-europe/news/us-disturbed-and-deeply-disappointed-by-eu-over-iransanctions/ (11 February 2019). 70 See Europeans open New Trade Channel to Iran, Bypassing US Sanctions, in: Euractiv, 1 February 2019, available at: https://www.euractiv.com/section /global-europe/news/europeans-open-new-trade-channel-to-iran-bypassing-us -sanctions/ (11 February 2019). 71 See Schwarz, Madeleine: The End of Atlanticism: has Trump killed the Ideology that won the Cold War, in: The Guardian, 4 September 2018, available at: https://www.theguardian.com/news/2018/sep/04/atlanticism-trump-id eology-cold-war-foreign-policy (12 February 2019). 72 See Eurostat: Energy Consumption in 2017, Press Release, 26/2019, 7 February 2019, available at: https://ec.europa.eu/eurostat/documents/2995521/9549 144/8-07022019-AP-EN.pdf/4a5fe0b1-c20f-46f0-8184-e82b694ad492 (11 March 2019). 124 by Europe.73 Due to the size of the EU economy and the lack of indigenous gas resources, import supplies continue to be a strategic challenge for European foreign policy and require diplomatic efforts to maintain a balance with energy-relevant countries and diminish any external risks, which can arise from political confrontation with supplier and transit countries. Enhancing energy security and improving the supply diversification remain fundamental objectives for the EU. Over the last two decades, the EU has tried to shape an energy dialogue with Caspian resource-rich countries to diversify its energy import portfolio. The results have been disappointing: Azerbaijan is the only partner who can potentially supply gas, but the country has a slim chance to become a vital player for the European energy mix because of its limited natural gas reserves. The planned transport volume of 10 bcm will also not reduce the EU’s dependency on Russian exports. The EU would undoubtedly benefit from Iran’s involvement in the Southern Gas Corridor. Due to its enormous resource potential and geographic position, it could become a substantial supplier for the European energy market. However, the realization of an EU-Iranian energy dialogue faces serious challenges. Brussels needs to reshape its regional strategy for Caspian states and define a more independent policy on Iran. European goals and interests must be clear and protect diplomatic achievements as well as maintain the EU’s mediatory role in the West’s dialogue with Iran. Moreover, the elaboration of a favorable legal and contractual regime is a necessary condition for energy cooperation with Teheran. INTEX could generate positive trend but such an outcome would require more time. In order to ensure a true diversification of supply routes and a reduction of energy dependence on critical neighbors, it is in the interest of the EU to examine the possibilities of an Iranian-Armenian import route to transport Iranian gas to EU member states on the Black Sea via Georgia. The project was the subject of an intensive discussion within the European Neighborhood Policy. However, the 73 See Simon, Frédéric: Cañete sees Gas as ‘a Bridge’ to reach EU’s Clean Energy Goals, in: Euractiv, 11 February 2019, available at: https://www.euracti v.com/section/climate-strategy-2050/news/canete-sees-gas-as-a-bridge-to-rea ch-eus-clean-energy-goals/ (12 February 2019). 125 pipeline posed a threat to Russian hegemony because it would enable Yerevan to decrease its dependence on Russian gas imports and undermine Moscow’s political leverage, weakening Russian influence in the South Caucasus and its transport monopoly in the Caspian region. Gazprom bought the Armenian-Iranian pipeline in 2006 precisely to limit Iran’s capacity to export gas to Armenia. A reduction of more than 75% of the pipeline’s capacity at any given pressure effectively blocked Armenia from importing Iranian natural gas.74 Yet the Armenian government never demonstrated any assertiveness. Recent political developments in the country75 and Yerevan’s readiness to act as a platform for closer economic ties between Iran and Eurasian Economic Union (EEA)76 could create new avenues for energy cooperation in the region, with implications for the EU. Proceeding with the cooperation would allow Armenia to diminish Russian influence in its energy sector and open new transport perspectives for the Caspian Basin. 74 See Minasyan, 2016, pp. 247-250. 75 See Minasyan, Shushanik: The Velvet Revolution – A new Path for Armenia, in: Hilz, Wolfram & Minasyan, Shushanik (eds.): Armenian Developments. Perspectives of Democratization and the Role of the Civil Society, Baden- Baden, 2019, pp. 119-132. 76 See Armenia ready to Act as Platform for Closer EU-Iran Economic Relations, in: Financial Tribune, 22 October 2018, available at: https://financialtri bune.com/articles/economy-domestic-economy/94637/armenia-ready-to-actas-platform-for-closer-eeu-iran (12 February 2019). 127 9 EU-OPEC Energy Dialogue and the Global Energy Governance Rafa Ulatowski 1 Introduction In contrast to other areas of human activity such as trade and finance, there is no single organization that covers the whole field of energy; there is no global energy organization.1 Instead, there exists a complex of energy-related organizations, clubs and forums. The global energy market is governed by so-called “governors”, whose number is estimated as up to 128.2 Together they form a “regime complex”, defined as an “array of partially overlapping and nonhierarchical institutions governing a particular issue area.”3 1 See ElBaradei, Muhammad: A Global Agency is needed for the Energy Crisis, in: Financial Times, 23 July 2008, available at: from https://www.ft.com /content/b3630dd0-58b5-11dda093-000077b07658 (5 September 2018). 2 See Sanderink, Lisa et al.: Mapping the Institutional Architecture of Global Energy Governance, IVM Institute for Environmental Studies Report, No. R- 18/02, Amsterdam 2018, available at: https://ivm.vu.nl/en/Images/R1802 _TechReport_Energy_tcm234-893218.pdf (15 March 2019). 3 Raustiala, Kal & Victor, David G.: The Regime Complex for Plant Genetic Resources, in: International Organization, Vol. 58, No. 2, 2004, pp. 277-309. See: Kirton, John: The G8 and Global Energy Governance: Past Performance, St. Petersburg Opportunities. Paper Presented at a Conference on “The World Dimension of Russia’s Energy Security,” Sponsored by the Moscow State Institute of International Relations (MGIMO), 21 April 2006, available at: http://www.g8.utoronto.ca/scholar/kirton2006/kirtonenergy0606 23.pdf (15 March 2019). 128 Global Energy Governance (GEG) is multi-layered and fragmented.4 The discussion on GEG was given impetus by the 2005 G8 summit in Gleneagles, with three transitions in the global energy system having raised interest in how it is governed. The first was growing interest in climate change, climate protection and the decarbonization of the energy system. The second was geopolitical change, including the collapse of the west-east division and the rise of developing countries such as China and India. And the final transition was growing volatility on the oil and gas markets, with alternating periods of rising and falling prices.5 GEG is defined as “international collective efforts undertaken to manage and distribute energy resources and provide energy services”.6 Although the importance of inter-organizational relations has been emphasized numerous times, current research concentrates primarily on relations between the International Energy Agency (IEA), the Organization of Petroleum Exporting Countries (OPEC), the Energy Charter Treaty (ECT), the G7 and the G20.7 The aim of this chapter is to enlarge the scope of such research by taking a closer look at the relations between the European Union (EU) and OPEC – a subject that has not enjoyed much interest yet.8 This may be surprising because the EU is the second-biggest oil consumer in the world, while OPEC still dominates global oil production and trade. 4 See Leal-Arcas, Rafael & Filis, Andrew: The Fragmented Governance of the Global Energy Economy: A Legal Institutional Analysis, in: The Journal of World Energy Law & Business, Vol. 6, No. 4, 2014, pp. 1-58. 5 See Van de Graaf, Thijs & Colgan, Jeff: Global Energy Governance: A Review and Research Agenda, in: Palgrave Communications, Vol. 2, No. 1, 2016, pp. 2-3. 6 Florini, Ann & Sovacool, Benjamin K.: Who governs Energy? The Challenges facing Global Energy Governance, in: Energy Policy, Vol. 37, No. 12, 2009, pp. 5239-5248, p. 5239. 7 See Van de Graaf, Thijs: Organizational Interactions in Global Energy Governance, in: Koops, Joachim A. & Biermann, Rafael (eds.): Palgrave Handbook of Inter-organizational Relations in World Politics, Basingstoke, 2016, pp. 591-609. 8 The only publication on EU-OPEC relations was written by Gawdat G. Bahgat almost 10 years ago. See Bahgat, Gawdat G.: EU, OPEC Strategic Dialog Highlights Shared Interests, in: Oil&Gas Journal, 17 May 2010, available at: https://www.ogj.com/articles/print/volume-108/issue-18/generalintrests/eu-opec-strategic.html (15 March 2019). 129 The EU and OPEC are unquestionably two of the most relevant “governors” of global energy. Since 2005, bilateral relations between the EU and OPEC have developed considerably, and are now very lively, including consultations and exchanges of views on a regular basis. They have also published joint studies. OPEC and the EU have built efficient channels of communication. But they have not gone beyond these things, a fact which confirms that, firstly, states, not organizations, are the main actors on the energy market, and secondly, members of these two organizations have mostly contradictory interests, which preclude or at least restrict their ability to build and to implement a common policy agenda. One of their few common interests is the stability of the oil market. EU-OPEC relations confirm the paradox of sovereignty defined by McGowan. Due to the globalization of the energy market, states have less control over energy policy, but are still not ready for deeper cooperation.9 The article has the following structure: in the first part, I analyze the roles of the EU and OPEC in GEG. The second part concerns the development of the oil market in the 21st century. In the third part, I analyze the evolution of EU-OPEC relations. 2 EU and OPEC as actors in GEG The literature on the nature of OPEC and the EU is abundant; OPEC has been especially well researched due to its importance for the energy market and the crucial role it has played in the evolution of GEG.10 OPEC unites most of the biggest crude oil exporters, and together its members control over 70% of proven global oil reserves. Only a few large exporters, most notably Russia, Mexico and Norway, are not OPEC members. Since the organization was founded during the Baghdad conference in 1960, its activities, successes and failures 9 See McGowan, Francis: International Regimes for Energy: Finding the Right Level for Policy, in: Scarse, Ivan & MacKerron, Gordon (eds.): Energy for the Future: A New Agenda, Basingstoke, 2009, pp. 20-34, p. 21. 10 See Van de Graaf, Thijs: The Politics and Institutions of Global Energy Governance, Basingstoke, 2013, pp. 44-63. 130 have marked the evolution of the global oil market and affected the transformation of the global energy market.11 The literature on OPEC may be divided into two groups. The first group of authors sees OPEC as an economic actor; they try to model its behaviour using economic models. The second group of authors is sceptical about these efforts, and sees OPEC as more of a political organization, with political motives and interests being foremost in the minds of its members. Most OPEC-related literature concentrates on pricing power. The conventional wisdom and popular argument presented is that OPEC is a cartel.12 Shortly after the first oil crisis, Stephen D. Krasner described oil as especially susceptible to cartelization.13 Other frequently presented concepts are: OPEC as a “weak cartel”14, OPEC as a loosely co-operating oligopoly15 or a “coordinated oligopoly”16, and OPEC as a dominant firm.17 This last hypothesis, though, was negatively verified by A.F Alhajji, D. Huettner.18 The collapse of 11 See Fattouh, Bassam & Sen, Anupama: The Past, Present, and Future Role of OPEC, in: Van de Graaf, Thijs et al. (eds.): The Palgrave Handbook of the International Political Economy of Energy, Basingstoke, 2016, pp. 73-94. 12 See Ikenberry, John G., Reasons of State: Oil Politics and the Capacities of American Government, Ithaca and London 1988; Hnyilicza, Esteban, & Pindyck, Robert: Pricing Policies for a two-part Exhaustible Resource Cartel: The case of OPEC, in: European Economic Review, Vol. 8, No. 2, 1976, pp. 139-154.; Adelman, Morris A.: The Clumsy Cartel, in: The Energy Journal, Vol. 1, No. 1, 1980, pp. 43-53. 13 See Krasner, Stephen D.: Oil is the Exception, in: Foreign Policy, No. 14, 1974, pp. 68-84. 14 Hansen, Petter Vegard & Lindholt, Lars: The Market Power of OPEC 1973- 2001, Discussion Papers, No. 385, Statistics Norway, Research Department, Oslo 2004. 15 See Griffin, James M.: OPEC Behavior: A Test of Alternative Hypotheses, in: American Economic Review, Vol. 75, No. 5, 1985, pp. 954-963. 16 Baccini, Leonardo, Lenzi Veronica & Thurner, Paul W.: Global Energy Governance: Trade, Infrastructure, and the Diffusion of International Organizations, in: International Interactions. Empirical and Theoretical Research in International Relations, Vol. 39, No. 2, 2013, pp. 192-216. 17 See Mabro, Robert: OPEC and the Price of Oil, in: The Energy Journal, Vol. 13, No. 2, 1991, pp. 1-17; Salant, Stephen W.: Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market, in: Journal of Political Economy, Vol. 84, No. 5, 1976, pp. 1079-1094. 18 See Alhajji, A.F. & Huettner, David: OPEC and World Crude Oil Markets from 1973 to 1994: Cartel, Oligopoly, or Competitive?, in: The Energy Journal, Vol. 21, No. 3, 2000, pp. 31-60. 131 the oil prices in the mid-1980s challenged the understanding of OPEC as an effective wealth maximizer. Robert S. Pindyck observed that economic rationality does not apply to OPEC as strongly as was believed in earlier decades, while Robert Mabro became convinced that OPEC does not maximize prices but tries to keep them above the level that would result from a competitive market structure.19 It was also discovered at one point that OPEC members had a tendency to overproduce20 and the only way to restore cooperation was a price war.21 The quota system introduced in the early 1980s to better manage the oil supply from OPEC countries proofed to be ineffective.22 Al Nasrawi noticed as early as 1985 that “OPEC is simply OPEC, and to attempt to force it into any of the frameworks of conventional economic analysis is a futile exercise”.23 This observation was confirmed almost thirty years later by Cairns and Calfucura, who wrote that OPEC policy “has too many facets for a tractable mathematical model”24. The second group of authors sees OPEC as mainly a political player. Noreng defines OPEC as a representation of raw-material producers.25 OPEC member exports are the result of their budgetary and foreign policy priorities. Oil is an instrument of their foreign policy.26 In one of the most recent studies, Colgan argues that “The idea of OPEC as a cartel is a ‘rational myth’ that supports the organization’s true principal function, which is to generate political 19 See: Fattouh, Bassam & Mahadeva, Lavan: OPEC: What Difference Has it Made?, Oxford Institute for Energy Studies, MEP 3, 2013, p. 11. 20 See Blaydes, Lisa: Rewarding Impatience: A Bargaining and Enforcement Model of OPEC, in: International Organization, Vol. 58, No. 2, 2004, pp. 213-237. 21 See Almoguera, Pedro A. et al.: Testing for the Cartel in OPEC: Noncooperative Collusion or just Non-cooperative?, in: Oxford Review of Economic Policy, Vol. 27, No. 1, 2011, pp. 144-168. 22 See Moran, Theodore H.: Managing an Oligopoly of would-be Sovereigns: The Dynamics of Joint Control and Self-control in the International Oil Industry Past, Present, and Future, in: International Organization, Vol. 41, No. 4, 1987, pp. 575-607. 23 Al Nasrawi, Abbas: OPEC in a Changing World Economy, Baltimore, 1985, p. 89. 24 Cairns, Robert & Calfucura, Enrique: OPEC: Market Failure or Power Failure?, in: Energy Policy, Vol. 50, No. C, 2012, p. 571. 25 See Noreng, Ostein: Oil Politics in the 1980’s: Patterns of International Cooperation, New York, 1978. 26 See Claes, Dag: The Politics Of Oil-producer Cooperation, Boulder, 2001. 132 benefits for its members. One benefit it generates is international prestige.”27 Despite the ineffectiveness of OPEC in market management, it has not resigned from this goal and, in face of the shale revolution, is increasing cooperation with non-OPEC exporters. The reason for this is the dependence of OPEC members on income from oil. OPEC is also developing cooperation with its customers. After the 1970s and 1980s, relations between OPEC and consumer organizations were hostile, but during the 1990s they began to improve somewhat, and a dialogue started. One of those customers is the European Union. The literature on the role of energy in the EU may be divided into two broad groups. In the first, authors concentrate on how energy issues are managed within the EU, studying how the activities of the EU institutions, mainly the European Commission and the European Council,28 are coordinated. Andrea Prontera argues that the EU has evolved since the late 2000s from a provider state to a catalytic state. A provider state foresees a limited role for public intervention and emphasizes multilateral patterns of energy diplomacy. In the case of the EU, this was manifested on the one hand in the privatization of state-owned enterprises from the energy sector and the liberalization of markets, and on the other hand in the promotion of internal market rules externally. In the early 2000s, the EU began to demonstrate certain characteristics of a catalytic state, where governments are strategic players in a liberalized market environment. They are keen to support certain investments by market participants where they believe these further improve the energy security of the country. Along with national governments, the European Commission has become an important player in promoting energy security.29 27 Colgan, Jeff: The Emperor has no Clothes: The Limits of OPEC in the Global Oil Market, in: International Organization, Vol. 68, No. 3, 2014, pp. 599-632, p. 599. 28 See Thaler, Philipp: The European Commission and the European Council: Coordinated Agenda Setting in European Energy Policy, in: Journal of European Integration, Vol. 38, No. 5, 2016, pp. 571-585. 29 See Prontera, Andrea: The New Politics of Energy Security in the European Union and Beyond: States, Markets, Institutions, Abingdon/New York, 2017. 133 In the second group, authors focus on certain areas of energy policy, namely: the creation of an internal energy market, the interdependence between energy policy and climate change policy, and energy security.30 In the 21st century, energy security has come into the forefront of the political thinking of EU leaders, and is now one of the organization’s major foreign policy challenges.31 The major factor determining this has been the repeated conflicts over gas between Russia and Ukraine in 2008/2009, since these have affected several EU members. The outbreak of the conflict in Ukraine in 2014 only exacerbated this, as is strongly reflected in the current literature on EU energy security. One of the most influential publications on EU energy policy was written by Andreas Goldthau and Nick Sitter. In EU energy policy, they argue, it is continuity that dominates. They characterize the EU as a regulatory state that owes its market power to a large single market and whose competition policy reaches beyond its external borders. Interestingly, unlike most authors writing on EU energy policy, Goldthau and Sitter devote a whole chapter of their book to the role of the EU on the oil market. They argue that EU policy attempts to restrict market failures.32 The EU’s main activities focus on the supply of gas. LNG terminals have been built around Europe, and partnerships with LNG producers are sought. Also, the construction of new gas pipelines has been prioritized. The EU strives to promote its market value in the neighbourhood (Energy Charter Treaty). Finally, the EU invests in new technologies (renewables) and promotes them to reduce the importance of fossil fuels.33 Generally, EU energy policy has been resilient in respect of European 30 See Buchan, David: Energy Policy: Sharp Challenges and Rising Ambitions, in: Wallace, Helen et al. (eds.): Policy-Making in the European Union, Oxford, 2015, pp. 344-366. 31 See Youngs, Richard: Energy Security – Europe’s New Foreign Policy Challenge, London 2009. 32 See Goldthau, Andreas & Sitter, Nick: A Liberal Actor in a Realist World. The European Union Regulatory State and the Global Political Economy of Energy, Oxford, 2015. 33 See Leal-Arcas, Rafael, Alemany R os, Juan & Grasso, Costantino: The European Union and its Energy Security Challenges, in: Journal of World Energy Law and Business, Vol. 8, No. 4, 2015, pp. 1-46. 134 integration, especially in the context of the security of the energy supply.34 The 21st century has been seen as a revival of energy diplomacy defined as “[…] the way countries give their energy companies a competitive edge in bidding for resources by using the state’s power: consumer countries strengthen their supply situation by diplomatically flanking energy contracts, whereas producer countries use diplomacy to enhance access to markets or reserves.”35 As shown by Goldthau and Sitter, the EU prefers regulation over direct involvement in bilateral energy deals. Despite its promotion of certain infrastructure projects, the term energy diplomacy is still rarely used in the context of the EU.36 This is a consequence of a polarity of opinions on EU energy diplomacy, as to whether it should evolve towards a more geopolitical stance and an erosion of the market-liberal energy paradigm,37 or that it should remain rooted in that paradigm.38 A symbol of the emerging energy diplomacy of the EU may be the adoption by the Foreign Affairs Council on 20 July 2015 of Council Conclusions on EU Energy Diplomacy, which includes an EU Energy Diplomacy Action Plan. In it, four pillars of EU energy policy are set out: 1) “Strengthen strategic guidance through regular high-level engagement”; 2) “Establish and further develop energy cooperation and dialogues”; 3) “Support efforts to enhance the global energy architecture and multilateral initiatives”; 34 See Buchan, David: Energy and Climate Change: Europe at the Crossroads, Oxford 2009, p. 79. 35 Goldthau, Andreas: Energy Diplomacy in Trade and Investment of Oil and Gas, in: Goldthau, Andreas & Witte, Jan M. (eds.): Global Energy Governance, the New Rules of the Game, Global Public Policy Institute, Berlin, 2010, pp. 25-48, p. 25. 36 See Herranz-Surrallés, Anna: An Emerging EU Energy Diplomacy? Discursive Shifts, Enduring Practices, in: Journal of European Public Policy, Vol. 23, No. 9, 2016, pp. 1386-1405. 37 See Kuzemko, Caroline: Ideas, Power and Change: Explaining EU–Russia Energy Relations, in: Journal of European Public Policy, Vol. 21, No. 1, 2014, pp. 58-75. 38 See Abbasov, Faig Galib: EU’s External Energy Governance: A Multidimensional Analysis of the Southern Gas Corridor, in: Energy Policy, Vol. 65, 2014, pp. 27-36. 135 and 4) “Strengthen common messages and energy diplomacy capacities.”39 Interestingly, neither OPEC nor any of its member states are directly named in the document, unlike other major EU energy partners such as Russia or Norway. Neither does the European Energy Security Strategy from 2014 mention OPEC.40 3 The market situation in the first and second decades of the 21st century The EU and OPEC are among the most important institutions on the oil market. In this century, OPEC is responsible for over 40% of the global oil supply.41 The EU, on the other hand, was responsible for over 17% of global consumption in the first decade of the 21st century. That share fell to 13.5% in 2017 due to reduced demand within the EU (an increase in efficiency) and growing demand in Asia. Despite its falling share, the EU is still the second-largest oil consumer in the world – behind the USA, but ahead of China.42 The EU and OPEC may be defined as organizations that unite countries having conflicting interests. EU members are oil net importers, while OPEC unites exporters. In the first few years of this century, the worry that the world would soon reach a maximum level of oil production (peak oil) became widespread, and even the prospect of wars over access to energy resources began to be discussed. Due to the fast-rising demand in Asia and falling production in non-OPEC countries (the USA, UK and Norway), the reserves controlled by OPEC gained in importance. It was believed that only OPEC members had the potential to raise production and assuage the worries of oil importers about energy security (or at least security of supply). Control over oil resources gave OPEC members power in international relations. But in the second decade of the 21st century, the 39 Foreign Affairs Council: Council conclusions on Energy Diplomacy, 20 July 2015, 10995/15, available at: http://data.consilium.europa.eu/doc/document/ ST-10995-2015-INIT/en/pdf (25 March 2019). 40 See European Commission: Communication from the Commission to the European Parliament and the Council, European Energy Security Strategy, Brussels, COM (2014) 330 final, Brussels, 2014. 41 See British Petroleum: Statistical Review of World Energy, London, 2018, p. 14. 42 See ibid, p. 15. 136 situation changed. The shale revolution in the United States and a slowdown in demand growth resulted in overproduction. The emergence of shale oil changed the balance of power on the market, with both producers and exporters being seen as victims of the shale revolution. For consumers, such as the EU, the emergence of shale strengthened their market position. Although the hopes that it would be possible to replicate the US shale revolution in Europe were not fulfilled, and the shale revolution remains essentially a US phenomenon, it did lead to a price drop that benefited all consumer countries. The EU-28’s import dependency on petroleum and petroleum products grew from 74.1% in 1995 up to 86.7% in 2016.43 Despite that, the EU does not see oil dependence as an immediate threat to its energy security – a consequence of the interdependence between market participants, and the “availability of oil stocks, and the ability to trade and transport oil globally”44. In the context of oil, for the European Commission the biggest threat is the long-term dependence of the transport system on imported oil.45 That system is currently fully dependent on petroleum products, and replacing them will require time and huge investments; nevertheless, this “is essential for meeting the European Union goals of decarbonization and energy security”.46 It is also important to remember that, although OPEC members are collectively the most important suppliers of oil to the EU, with a 40% share of EU imports, it is the Russian Federation that is “the EU’s most important energy supplier”47. This is not only because Russia is the biggest single supplier of oil to the EU, but primarily 43 See EU energy in figures. Statistical Pocketbook 2018, p. 70. 44 European Commission: Communication from the Commission to the European Parliament and The European Energy Security Strategy, COM (2014) 330 final, Brussels, 2014, available at: https://eur-lex.europa.eu/legal-content/ EN/TXT/PDF/?uri=CELEX:52014DC0330&from=EN (25 March 2019), p. 10. 45 See ibid, pp. 10-11. 46 European Commission: Electrification of the Transport System. Expert group report, Brussels, 2017, p. 7. 47 European Commission: Green Paper on a European Strategy for Sustainable, Competitive and Secure Energy, COM (2006) 105 final, Brussels, 2006, available at: http://europa.eu/documents/comm/green_papers/pdf/com-2006_ 105_en.pdf (25 March 2019), p. 15. 137 because Russia is the dominant natural gas supplier. In 2017, the EU’s three most important OPEC oil suppliers were Iraq, Saudi Arabia and Nigeria.48 4 EU–OPEC cooperation In 2004, contacts between the EU and OPEC intensified. The Dutch EU presidency and the European Commission on the one hand, and the president of OPEC on the other, agreed to open an EU-OPEC Energy Dialogue. The first EU-OPEC High Level Meeting took place in Brussels in June 2005. In a joint press release, the two sides declared that they were interested in building “an effective framework enabling an exchange of views on energy issues of common interest”. Of course, the main area of interest was the oil market. The hope was that this exchange of views should contribute “to stability, transparency and predictability in the international oil market”. The goal was to increase “transparency in financial markets and their impact on the oil market”. The first High Level Meeting resulted in several important declarations. Both sides declared their readiness to cooperate both when prices are high and when they are low. They agreed that “extreme prices in either direction, over a sustained period, could create problems for both producers and consumers”, and so they set market stability and reasonable prices were a common goal. They also agreed to work towards increasing data transparency, and identified three areas of mutual interest: energy policy, energy technologies, and energy-related multilateral issues.49 Over the next decade, the EU-OPEC Energy Dialogue became an important forum for exchanging views. The press releases issued after regularly held summits announced important information, not only on the development of bilateral relations, but also on broader market developments. During the second EU-OPEC High Level Meeting, the EU and OPEC welcomed the formal inauguration of 48 See Eurostat: EU Imports of Energy Products – Recent Developments, October 2018, available at: https://ec.europa.eu/eurostat/statistics-explained/index .php/EU_imports_of_energy_productsrecent_developments#Main_suppliers_ of_natural_gas_and_petroleum_oils_to_the_EU (25 March 2019). 49 OPEC: EU-OPEC Energy Dialogue, Press Release, Brussels, 2005, available at: file:///C:/Users/Admin/AppData/Local/Temp/Temp1_2005_op ec_ministe rial_meetings.zip/2005_06_05_eu_opec_presse_release.pdf (25 March 2019). 138 the International Energy Forum’s Secretariat in Riyadh, and the official launching of a Joint Oil Data Initiative (JODI) database for improving data transparency.50 During the third High Level Meeting, the phrase ‘security of supply and security of demand were two faces of the same coin’ was used for the first time by OPEC and the EU. It was to be repeated in future press releases as well, showing that the two organizations have tried to build non-confrontational relations and to consider the interests of other side in the policies of each of them.51 During the fourth High Level Meeting, the EU- OPEC dialogue itself was praise for having “[...] helped strengthen key channels of communication across the two groups, and its accompanying joint roundtables, workshops and studies provide the facility to take an in-depth look at specific topics.”52 The two sides reassured each other that they were interested in market stability, which is important in the interdependent global economy.53 During the fifth High Level Meeting in June 2008, OPEC and the EU praised the Jeddah Energy Meeting as an important example of producer-consumer dialogue. That meeting took place as oil prices achieved historical record-high prices.54 The sixth High Level Meeting took place in the middle of the global economic crisis.55 The seventh High Level Meeting was held after the economic crisis had started, growth in oil demand had slowed, 50 See OPEC: The Second Meeting of the EU-OPEC Energy Dialogue, Vienna, 2005, available at: https://ec.europa.eu/energy/sites/ener/files/documents/eu_ opec_high_level_meeting_2005.pdf (25 March 2019). 51 See OPEC: The Third Meeting of the EU-OPEC Energy Dialogue, Brussels, 2006, available at: https://www.opec.org/opec_web/en/press_room/1159.htm (25 March 2019). 52 OPEC: The Fourth Meeting of the EU-OPEC Energy Dialogue. Further Significant Developments in the EU-OPEC Energy Dialogue, Vienna, 2007, available at: https://www.opec.org/opec_web/en/press_room/1149.htm (15 March 2019). 53 See ibid. 54 See OPEC: The 5th Meeting of the EU-OPEC Energy Dialogue. Further Steps in the Constructive EU-OPEC Energy Dialogue. Brussels, 2008, available at: file:///C:/Users/Admin/AppData/Local/Temp/Temp1_2008_opec_ministerial _meetings.zip/2008_06_24_press_release.pdf (25 March 2019). 55 See OPEC: The 6th Meeting of the EU-OPEC Energy Dialogue, Vienna, 2009, available at: https://www.opec.org/opec_web/en/797.htm (25 February 2019). 139 and prices had fallen, as was clearly reflected in the press release issued at the end of the meeting. The fact “that the global economy is emerging from the crisis” was indicated, but it was also stated that there were strong differences between different regions. The document again discussed the need for market stability. During the meeting, the two sides also discussed the issues of renewables and sustainable development, and agreed that “fossil fuels would continue to meet most of the world’s energy needs, with oil playing the leading role”, in the decades to come.56 The eighth High Level Meeting took place during a time of political unrest in certain North African countries, some of which are important oil suppliers.57 During the ninth High Level Meeting, a divergence of interests again became more visible. In his keynote speech, the EU Commissioner for Energy, Günther Oettinger, discussed the potentially adverse effect of high oil prices on the global economy, especially since global economic growth was fragile at that time. At the same time, he suggested that oil producers were not investing enough in “production capacities, which may lead to future supply bottlenecks”. Hani Abdulaziz Hussain, the Kuwaiti Minister of Oil, argued that price volatility on the market was the reason for the uncertainty in the global economy and excessive speculation. He spoke in favour of stronger regulation of financial markets and better oversight of the “paper market”. The OPEC Secretary General, Abdalla Salem El-Badri, underlined in his speech the importance of stable prices for long-term investments. He confirmed that exporters understood the worries of importers over the security of the oil supply, but underlined that exporters also expect security of demand.58 During the tenth High Level Meeting in 2013, much more attention was paid to issues such as climate change, environmental protection, diversity of energy sources to satisfy future energy demand, 56 See OPEC: The 7th Meeting of the EU-OPEC Energy Dialogue, Brussels, 2010, available at: https://www.opec.org/opec_web/en/1826.htm (25 March 2019). 57 See OPEC: The 8th Meeting of the EU-OPEC Energy Dialogue, Vienna, 2011, available at: https://www.opec.org/opec_web/en/press_room/2085.htm (2 May 2019). 58 See OPEC: Joint Conclusion of the EU-OPEC Energy Dialogue, Brussels, 2012, available at: https://www.opec.org/opec_web/en/press_room/2335.htm (25 March 2019). 140 and sustainable energy for developing countries.59 During the eleventh High Level Meeting, one of the topics discussed was nonconventional energy resources. Representatives of OPEC predicted that North American tight oil production may rise in the coming years. At the same time, they expressed the view that production would stabilize around 2017-2019, and then enter into a decline. In almost ritual style, the OPEC delegation reassured its European partners that the market was well supplied.60 The twelfth EU-OPEC High Level Meeting in March 2016 was held in completely different circumstances. Since the last meeting, the price of oil had fallen by 70%, investments had declined, and in consequence, employment in the petroleum sector had dropped significantly. The two sides shared the view that a radical reduction in investments could lead to an undersupply on the market in the future. They also shared concerns over the adverse consequences of price swings. Another issue discussed was the Paris Agreement adopted in December 2015, which both sides welcomed.61 Apart from these regular EU-OPEC High Level Meetings, other events in the format of Round Tables took place, at which various specific issues were discussed. In 2005, an OPEC-EU Workshop on the Impact of Financial Markets on the Oil Price was held; in 2007 there was a Round Table on Energy Policies, and in 2008 a Round Table on Carbon Capture and Storage. Over the next decade, further Round Tables were organized that resulted in the publication of joint reports: in 2014, a report entitled “Petrochemical Outlook: Challenges and Opportunities”, and in 2016 another report entitled 59 See OPEC: The 10th Meeting of the EU-OPEC Energy Dialogue, Vienna, 2013, available at: file:///C:/Users/Admin/AppData/Local/Temp/Temp12013 _opec_ministerial_meetings.zip/EU-OPEC%20press%20release%2011%20N ov%202013%20FINAL.pdf (25 March 2019). 60 See OPEC: Joint Conclusion of the 11th Meeting of the EU-OPEC Energy Dialogue, Brussels, 2014, available at: https://ec.europa.eu/energy/sites/ ener/files/documents/20140624%20EU-OPEC%20final%20joint%20conclusi on.pdf (25 March 2019). 61 See OPEC: Draft Joint Conclusion of the EU-OPEC Energy Dialogue 12th Meeting, Vienna, 2016, https://ec.europa.eu/energy/sites/ener/fil es/ documents/Joint%20Conclusion%2012th%20EU-OPEC%20Energy%20Dialogue %20EU%20and%20OPEC%2021March1300.pdf (25 March 2019). 141 “Prospective for Future Production of Non-Crude Liquid”62 was published. 5 Conclusions EU-OPEC cooperation has become an important element of the GEG regime complex. The diversified formats of EU-OPEC cooperation are a part of a broader trend of rising inter-institutional cooperation. Since 2005, EU-OPEC High Level Meetings and other forms of cooperation have made a lively exchange of views possible, and have been held regularly regardless of whether oil prices have been high or low. As the above outline of events shows, cooperation between OPEC and the EU has followed the evolution of the market in the 21st century. At first, discussions between them concentrated on security of supply, rising and volatile prices, and the future of the oil supply. Later, market instability and the consequences of high prices during the global economic crisis, and then the unstable economic situation, especially in Europe, became the main subjects of interest. There has been an observable increase in the relevance of climate change, environmental protection, sustainable development, and the decarbonization of energy in the EU-OPEC dialogue. During the last two High Level Meetings, the consequences of the emergence of tight oil for the oil market were discussed. At the most recent High Level Meeting, there was extensive discussion on the consequences of the oil price collapse for the future of the oil market and the energy security of exporters and importers. EU-OPEC cooperation is a symbol of both institutions’ growing understanding of their interdependence. The press releases issued at the end of High Level Meetings show that both groups of countries are seeking to find a way to balance their various interests. Aspects such as market stability are underlined. But this, of course, does not eliminate the fundamental difference between the EU and OPEC: the EU seeks to reduce the long-term importance of oil for its econ- 62 See European Commission: Organization of Petroleum Exporting Countries, available at: https://ec.europa.eu/energy/en/topics/international-cooperation/i ternational-organisations/organisation-petroleum-exporting-countries (1 May 2019). 142 omy, while OPEC wants to maintain the relevance of oil to the global economy in the coming decades. 143 Contributors Dr. Hubertus Bardt German Economic Institute (IW), Cologne Florian Engels, M.A. Institute of Political Science and Sociology, University of Bonn Prof. Dr. Wolfram Hilz Institute of Political Science and Sociology, University of Bonn Timo Karl, M.A. Institute of Political Science and Sociology, University of Bonn Dr. Shushanik Minasyan Institute of Political Science and Sociology, University of Bonn Dr. habil. Maciej Ra Institute of International Relations, University of Warsaw Dr. habil. Rafa Ulatowski Institute of International Relations, University of Warsaw

Abstract

After two decades of rather moderate interest in European energy issues, the awareness for this policy area began to grow again in the early 21st century. This is due to several changes in the energy market. Firstly, the great powers increasingly compete for access to energy resources. Secondly, the second biggest exporter of energy resources, Russia, started to develop its energy diplomacy by trying to transform resource wealth into political power. After several gas crises in Ukraine, the effectiveness of Russia’s “energy weapon” became only too clear. Finally, the impact of climate change on energy policy became a current topic in international politics, since the energy sector is the largest producer of greenhouse gases. The European Union as organization and international player has significantly gained importance in the field of energy policy. At first, it concentrated on creating a single market for energy goods and services, but subsequently became an important player on the international energy market: building institutions, promoting norms and transforming into a “realist” actor interested in improving its own energy security. Today, the EU’s climate policy strongly affects its energy policy, driving a transformation from fossil fuels to renewables. The goal of this volume is to contribute to the ongoing discussion on energy in international relations by covering different aspects of energy policy in Europe. The analysis focuses on the national perspectives of three EU members – Germany, France and Poland – as well as on the perspective of the EU. Mit Beiträgen von Hubertus Bardt, Florian Engels, Wolfram Hilz, Timo Karl, Shushanik Minasyan, Maciej Ras, Rafał Ulatowski

References

Abstract

After two decades of rather moderate interest in European energy issues, the awareness for this policy area began to grow again in the early 21st century. This is due to several changes in the energy market. Firstly, the great powers increasingly compete for access to energy resources. Secondly, the second biggest exporter of energy resources, Russia, started to develop its energy diplomacy by trying to transform resource wealth into political power. After several gas crises in Ukraine, the effectiveness of Russia’s “energy weapon” became only too clear. Finally, the impact of climate change on energy policy became a current topic in international politics, since the energy sector is the largest producer of greenhouse gases. The European Union as organization and international player has significantly gained importance in the field of energy policy. At first, it concentrated on creating a single market for energy goods and services, but subsequently became an important player on the international energy market: building institutions, promoting norms and transforming into a “realist” actor interested in improving its own energy security. Today, the EU’s climate policy strongly affects its energy policy, driving a transformation from fossil fuels to renewables. The goal of this volume is to contribute to the ongoing discussion on energy in international relations by covering different aspects of energy policy in Europe. The analysis focuses on the national perspectives of three EU members – Germany, France and Poland – as well as on the perspective of the EU. Mit Beiträgen von Hubertus Bardt, Florian Engels, Wolfram Hilz, Timo Karl, Shushanik Minasyan, Maciej Ras, Rafał Ulatowski