The international politics of climate change and energy policy: which role for Europe?

The EU is well placed to address the twin challenges of climate change and energy security. So far however, Europe’s record in these areas has been mixed. It has already shown determination to tackle global warming, in particular by using innovative market mechanisms like the Emissions Trading Scheme to reduce CO2 emissions and setting ambitious emission reduction targets. That is to be welcomed and the EU now has a historic opportunity to champion carbon dioxide capture and storage (CCS) – a promising technology that could help cut CO2 emissions and lay the foundations for a new, low-carbon energy system of the future. In the area of energy security, the EU’s track record has been less encouraging. Member States would benefit greatly from closer policy coordination to help secure a diverse energy portfolio. The European Commission should pursue this policy with a single, strong external voice.

The international politics of climate change and energy policy: which role for Europe?

Good morning ladies and gentlemen. Let me start by changing the terms of the discussion slightly. Before asking ‘which role for Europe?’ some may question whether Europe has a role at all, and if so, how well it is doing.

My response to the first question is an emphatic yes. Energy security and climate change are global problems that can only be addressed collectively. Europe is well placed to do so. Margaret Thatcher was never known for her enthusiasm for Europe. Yet even the ‘Iron Lady’ once said: “on many great issues the countries of Europe should try to speak with a single voice... Europe is stronger when we do so.” Though she was speaking in 1988, as the last winds of the cold war retreated across the continent, Thatcher’s words are still relevant today. At a time when the EU is seeking to reconnect with its citizens, energy security and climate change are issues that could also help galvanise European unity around common challenges.

My response to the second question – ‘how well is Europe doing?’ - is less enthusiastic. If I were a professor – like many of you present today – and the EU were my student, the report card might read “7 out of 10, talks too much in class, could do better.’ I’ll explain why.

Energy security

First, let’s look at energy security. Europe - or I should say European Member state governments - have so far failed to agree common positions to make sure that in future, the light bulbs will always come on when you flip the switch. Instead, Europe is developing a spaghetti bowl of bilateral deals and fragmented relations and policies. To a degree this is understandable – the energy situation differs between countries. Nevertheless, in an increasingly interdependent world of energy, more coordination would be a good thing. Europe needs to develop a coherent, pragmatic policy focused on securing a diverse energy portfolio. And it should pursue it with a single, strong, external voice. The European Commission is the obvious candidate to do both.

That policy should be based upon 4 pillars. First, the EU needs to diversify the types of energy it uses; yes, we need more renewable energy, biofuels and probably more nuclear power. But we also have little choice but to increase supplies of fossil fuels, in particular natural gas and Liquefied Natural Gas (LNG). Second, the EU must diversify the geographical sources of its energy. In future North Africa, the Gulf and the Caspian region are likely to become important suppliers of natural gas for Europe. Third, Europe needs more pipeline capacity and routes under diverse independent control. Russian gas through Russian pipes is fine. But direct Russian government control over pipelines bringing gas from third countries to Europe does not bring added value to either the customer or the supplier. Technology and innovation is the fourth pillar. Technology can provide flexibility and flexibility means greater security. So the EU should encourage more technologies capable of using multiple fuels, more hybrid and flex-fuel car engines, and power plants using coal gasification technology for example. It should also encourage the use of synthetic liquid fuels, made from coal, gas and biomass. To research, develop and deploy these technologies, industry needs predictable long-term policies that will provide the  incentives necessary to invest on a large scale. And we need talented young engineers and scientists to pursue careers in this critical field. If policy is the vehicle to a more dynamic, secure future, then talent is the fuel that will get us there.

While we are on the subject of talent, let us not forget the ‘soft power’ tools at the EU’s disposal. It must develop broader-based dialogues with major resource holders. Money alone won’t make us preferred customers forever. So let’s be creative to develop ties that will bind us closer. Here’s where some of you in the audience could play a role. Why not use programs like the Erasmus education exchange program to get future leaders from those countries to study in Europe, establish friendships and professional relationships and even get married and have children? When it comes to oil, blood may prove thicker than water.

Before I move on to climate change I want to make an important point that is too often ignored. Energy security is a two way street. Europe needs security of supply. But our energy-producing partners need security of demand to justify investing the billions of dollars necessary to increase their production. And let’s not forget that increasingly, Europe will be competing for natural gas supplies with other big markets like China. So how can the EU encourage investment and make sure we’re first in line? The EU must remain an attractive market: It should offer efficiency, transparency and long-term stability. It must continue to invest in LNG terminals and should promote new pipeline routes that signal clear long-term financial commitments to particular suppliers. Furthermore, Europe’s efforts to create a low carbon energy system must be gradual, transparent and predictable so that suppliers can adjust.

All this would give energy producers confidence that Europe is a reliable partner to do business with. Being a reliable partner should also mean accepting reciprocity in relations with Russia. Europe should accept foreign ownership – at least partly - of strategic assets such as energy networks. After all, Russia allows foreign investors to own up to 49% in individual energy assets. Europe should offer Russian companies the same deal. That will strengthen commercial and political ties, not weaken them. Russia would have greater reason to protect relations with its largest customers. Interdependence increases sense of responsibility on both sides. For those who fear that Russia will gain too much control, it is worth remembering that the Soviet Union supplied oil and gas without interruption for the whole of the cold war.

Climate change

Now let’s consider Europe’s performance on tackling climate change. The report card, I am happy say, is stronger on this subject. The EU is active on many fronts, including ongoing efforts to promote energy efficiency, and encourage renewable and low CO2 energy forms like wind, solar and biofuels.

But two policies deserve particular recognition. First, Europe is leading international calls for challenging binding emission reduction targets for industry. (20% by 2020 and up to 30% if international agreements can be reached.) That is something the EU is rightly proud of. The EU’s firm position is crucial to cajole other regions to cut emissions too. There are many advantages to being first mover. But a word of caution – don’t promise more than you can deliver. Targets must be realistic, credible and doable. Unachievable goals will undermine confidence... and some politicians may still be around to face the music when the first deadlines fall due in 2020.

The second policy that deserves recognition is the EU’s use of innovative market mechanisms to combat climate change. The EU Emission Trading System ( ETS) is a crucial tool to reduce emissions of CO2 in a cost-efficient way from large stationary emission sources like power stations and most industrial facilities. But to effectively tackle this global problem, regional ETS systems must be linked together and eventually cover all markets and all emissions and provide a level playing field for industry worldwide. The EU should therefore take the lead – and share its experience - to encourage other regions and countries to adopt similar trading schemes that are inter-operable and accelerate the development of a global market for carbon dioxide.

CCS – the EU’s next big project?

Diversifying the energy mix, leading the international push for binding emission reduction targets and championing the ETS are all areas where the EU can take – in some cases already has taken - decisive action. That is to be welcomed. But what else could the EU do? What is Europe’s next big project?

Averting dangerous global climate change provides Europe with a rallying cause that may prove just as historic as securing long-term peace on the continent was for the EU’s founding fathers. And one new promising technology provides the EU with an exceptional opportunity to make a difference. Carbon dioxide capture and storage - or CCS for short – captures CO2 from large industrial facilities and stores it underground. It could help cut CO2 emissions and support the transition to a new, low-carbon energy system of the future. It won’t single handedly solve our challenges. But the UN’s Intergovernmental Panel on Climate Change IPCC estimates that CCS may deliver up to 55% of the emission reductions scientists recommend. That simply can’t be ignored. Indeed, Andris Pielbags, Europe’s Energy Commissioner, has called CCS ‘a key solution for dramatically reducing CO2 emissions in Europe’.

The EU is playing – and must continue to play - a pivotal role to accelerate the development and deployment of CCS. There are 3 priorities: First, the EU should continue its work to develop the regulations, permits and liability guidelines necessary before CCS can be used. Second – the EU must help companies make money from CCS to ensure it is widely deployed as fast as possible. Storing CO2 underground has little or no commercial value at present – it’s a technology driven entirely by climate change. So, stored CO2 should be recognised under emission trading systems – not just in Europe but as other systems develop around the world. The EU has a major role to help deliver that recognition.

And third – most crucially - the EU must help companies finance early demonstration plants as fast as possible to prove we can really build large power stations with CCS and how much they will cost. Demonstrations plants will take too long to build if left to the private sector alone. They are expensive and commercially risky. Yet time is of the essence. The IPCC says we have 10 years – 20 at most – first to stablise greenhouse gas levels then reduce them sharply to avoid massive climate change shocks. If we are to have a hope of meeting the tough CO2 targets proposed by the EU, we need to get this technology up and running as fast as possible. That won’t happen without a viable and properly funded demonstration programme supported by the EU to kick off the full deployment of this technology.

Conclusion

There’s a long list of areas in which the EU can and should play a decisive role to address energy security and climate change. I’ve highlighted some of the most pressing. The EU is already taking action and has demonstrated remarkable determination to lead from the front – particularly on climate change. May that continue. But these challenges cannot be addressed separately. They require a unified, multi-faceted and pragmatic set of policies. If the EU were to deliver them it would go a long way to securing Europe’s long-term economic and social wellbeing. And if I were a professor, the EU’s report card would then read 10 out of 10.