Energy union: Considerable shortcomings remain on infrastructure and markets
Industry could help usher in the next generation of the energy union, and help the EU export its climate solutions globally, writes Tellervo Kylä-Harakka-Ruonala.
Photo credit: Press Association
It has now been three years since the energy union strategy was launched. It stemmed from discussions on the need to improve the coordination of member states’ energy policies and to strengthen the common voice in external energy relations.
Energy security, related to importing of natural gas, was at the heart of discussions. Following its launch, the energy union strategy introduced the broad approach of energy transition, which is now seen as a key tool for modernising the EU’s economy.
While transitioning to a low-carbon economy is a central thread of the energy union today, it does not change the fact that the energy system - which is the core of the energy union - must function, and serve society, properly. In addition to decarbonisation, it has to fulfil the crucial objective of energy security, and to ensure reasonable costs and prices - from the perspective of both citizens and businesses.
To meet these objectives, a sufficient and reliable energy infrastructure, together with well-functioning energy markets, are needed. This is not currently the case.
Despite the progress made to date, there are still considerable shortcomings relating to both infrastructure and markets. Efforts are needed, for example, with respect to the power system, which has met with significant changes due to the rapid increase in variable and decentralised renewable energy.
Digitalisation is another remarkable progression affecting energy systems. It means that energy infrastructure has to be accompanied by advanced digital infrastructure. Given the interaction between smart electric grids and electric vehicles, electricity infrastructure is also becoming a key component of the transport system.
Energy, transport and digital systems are coalescing into an inseparable whole. Consequently, measures enhancing cybersecurity will be vital to energy and transport security. Energy transition demands a huge amount of investment, the bulk of which is provided by the private sector.
To encourage private investors, a favourable, stable and predictable investment environment is required. However, the overlapping and inconsistent use of policy instruments such as subsidies, emissions trading and taxes disrupts market mechanisms make actions less efficient and results suboptimal.
A comprehensive assessment of the current policy instruments should therefore be conducted, to make sure that appropriate tools are used to achieve the energy and climate objectives in the most efficient way. In order to avoid investment errors and stranded assets, the long-term and stable character of political decisions and legislation is also of crucial importance.
All in all, energy transition has considerable implications for the whole of society and for all economic actors. As for businesses, the greatest changes are experienced by the energy sector itself and by industries that use energy as a vital production factor. Simultaneously, expanding markets will become available to economic actors providing energy and climate solutions, be they technologies, services or new business models.
As energy transition incurs both costs and benefits, the EU should construct its policies in a way that helps companies tackle the challenges and grasp the opportunities. This applies to opportunities provided, for example, by digitalisation and artificial intelligence and low-carbon technologies, as well as the circular and bio-economies.
While energy transition is a central driver of industrial development, the link also works in reverse around. Industrial development could contribute to energy transition much more effectively than it does today. It could pave the way to the next stage of the energy union.
In essence, this next generation of the energy union would strengthen the EU’s role in the global energy transition and in achieving the goal of making the world carbon-neutral. Here, the EU would aim at increasing its ‘carbon handprint’ - its positive global climate impact - instead of focusing mainly on its own emissions and domestic measures.
This EU’s carbon handprint can be increased by developing and exporting climate solutions, as well as by supplying the world market with products that are produced with fewer emissions than those made by competitors outside the EU.
Given fierce global competition, a strong boost for innovation - from research to market entry - is needed to place the EU at the forefront of low-carbon technologies, products and services. Effective trade and investment policies are also an essential tool in delivering energy and climate solutions.
Furthermore, the EU should strive for a global carbon pricing system that would level the playing field for European companies competing in the global markets. An export-oriented energy union strategy of this kind could generate domestic advantages for the EU and, at the same time, contribute to global climate change mitigation.
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