EU Summit Sees Debate over Climate Change, Energy-Liberalisation Measures

Becoming the Pariahs?

The EU's 27 leaders met in Brussels, Belgium, yesterday in the first day of its two-day spring summit. Central to the agenda were discussions on the EC's suite of energy reforms—the third legislative package—as well as broader energy issues including agreement on future climate change measures.

Setting the scene for yesterday's discussion on energy liberalisation, EC President José Manuel Barroso this week released comments on the need for the current suite of proposals to be introduced, identifying those member states seen to be holding up the bloc's liberalisation process. In an interview with German business daily Handelsblatt and five other European newspapers, Barroso said France and Germany were doing little to liberalise the European energy market. "The position of France and Germany on opening up the energy market does not go far enough," Barroso commented. The two countries, keen to protect their giant energy players, have dragged their heels on agreeing to the EC's programme of liberalisation, in particular its efforts to split off the power and gas networks from other competitive energy-sector activities.

Barroso's sentiments appeared to receive general agreement among EU leaders during yesterday's meeting. In a series of draft conclusions on the discussions, the EU leaders issued a call for member states to take further steps towards the liberalisation of the region's energy markets, noting an "effective, fully-functioning, and interconnected internal energy market is an essential condition for secure, sustainable, and competitive supply of energy to Europe." France and Germany, although unnamed, can be considered to be the intended audience for such conclusions, adding pressure on the countries to reconsider their opposition to the EU's unbundling proposals.

Addressing Climate Change Concerns

Meanwhile, a side meeting of the Tripartite Social Summit saw calls made for the establishment of incentives to ensure those industries most affected by the bloc's climate change measures do not relocate offshore. The Tripartite Social Summit, chaired by Barroso, meets once or twice a year and brings together European social partners (trade unions and employers' federations) with the EC and the current and future leaders of the European Council. Prior to its meeting yesterday, German Chancellor Angela Merkel had pointed out the risk of heavy industries moving outside Europe to avoid strict environmental standards and emissions trading within the EU. Merkel's comments clearly set the agenda for the meeting, with agreement apparently reached that legislative measures to protect industry are needed. Speaking after the meeting, Barroso commented: "We have time, until 2009 or 2012, to put together a precise system, but we can already establish an obligation to define this objective." In a sign of a more collaborative and inclusive approach to climate change emerging, Barroso also called on business leaders to do more to contribute to addressing the issue of climate change, asking them to play a full role in future climate change decisions.

Outlook and Implications

While the EU summit did not produce any further firm agreement on the EU's energy reform proposals, it did reveal a growing pressure on those countries—led by France and Germany—continuing to oppose adoption of key pillars of the third legislative package. The EC and Barroso in particular played no small part in creating this pressure, perhaps sensing the opportunity for a softening of opposition presented by the recent decision by German utility E.ON to sell its power grid (see Germany: 29 February 2008:E.ON Reverses Course, Willing to Sell German Power Grid in Victory for EU Reformers). E.ON had until that point been a key opponent of the EC's network-unbundling measures and its change of tack was seen to undermine the stance of the German government, perhaps providing a glimpse of hope that it too would reconsider its position. While the government has given no sign that such a change of view is imminent, E.ON's decision, coupled with the growing pressure being applied by the EC, is serving to isolate Germany and France in their opposition to the unbundling proposals, and the EC will now surely be feeling it has a greater chance than ever before to gain some concessions from these key opponents.

Meanwhile, the agreement of the Tripartite Social Summit on the need for new incentives to encourage European industries to remain within the EU can be taken as a sign of the growing awareness of the EC to the broader implications of its climate change policies. With the EU taking a more stringent approach to its climate change policies than anywhere else in the world, the risk of "economic leakage", subsequent job losses, and corresponding social impacts is now beginning to receive the necessary attention. While the Summit appears to have done little more than agree on the need for action, such agreement is at least a first step and will be welcomed by those energy-intensive industries poised to be most affected by increasing climate change costs.

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