Identifier
Created
Classification
Origin
07BERLIN121
2007-01-22 11:47:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Berlin
Cable title:  

GERMAN REACTION TO EUROPEAN COMMISSION'S ENERGY

Tags:  ENGR SENV PGOV PREL GM 
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R 221147Z JAN 07
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC 6731
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNFRG/FRG COLLECTIVE
RHEHAAA/THE WHITE HOUSE WASHDC
UNCLAS SECTION 01 OF 02 BERLIN 000121 

SIPDIS

SENSITIVE
SIPDIS

EUR/AGS FOR O'KEEFFE, EUR/ERA FOR LCATIPON AND DLIPPEAT,
OES FOR WATSON & REIFSNYDER, THE WHITE HOUSE FOR CEQ

E.O. 12958: N/A
TAGS: ENGR SENV PGOV PREL GM
SUBJECT: GERMAN REACTION TO EUROPEAN COMMISSION'S ENERGY
PACKAGE


SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION.

UNCLAS SECTION 01 OF 02 BERLIN 000121

SIPDIS

SENSITIVE
SIPDIS

EUR/AGS FOR O'KEEFFE, EUR/ERA FOR LCATIPON AND DLIPPEAT,
OES FOR WATSON & REIFSNYDER, THE WHITE HOUSE FOR CEQ

E.O. 12958: N/A
TAGS: ENGR SENV PGOV PREL GM
SUBJECT: GERMAN REACTION TO EUROPEAN COMMISSION'S ENERGY
PACKAGE


SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION.


1. (SBU) SUMMARY. On January 10, the European Commission
unveiled its proposals for the EU's first common energy
strategy, to be released in March. The German government's
reaction was mixed. The Ministry of Economics criticized
plans for "unbundling," i.e., the separation of energy
generation from the distribution and supply systems. German
energy companies complained that unbundling would lead to
under-investment in energy infrastructure and could also open
the way for foreign ownership (e.g., Russian) of strategic
European energy networks. Chancellery officials have made
this same point in discussions with Emboffs. In its
Presidency role, Germany feels it must present the
Commission's proposal to the other member states to see if
there is consensus, but seems confident that others support
the German view that unbundling and a European-wide regulator
are unnecessary. However, the Environment Ministry praised
the plan's call for significant cuts in greenhouse gas
emissions targets and the goal of fostering clean energy
technologies. END SUMMARY.


2. (U) The European Commission's energy package is the
result of a year-long review of EU energy policy. It focuses
on combating climate change, fostering new energy technology
goals and increasing competition in European energy markets.
The proposals lay the groundwork for the EU's first common
energy policy. The EU heads of government are expected to
approve most of the plan elements, or to offer alternative
proposals, when they meet in March.

CRITICISM ON UNBUNDLING
--------------


3. (SBU) A major concern for Germany in Brussels is the
Commission's proposal for a separation of energy generation
from distribution and supply activities, i.e., "unbundling."
The Economics Ministry is also resisting calls for a
European-wide energy regulator. Economics Minister Michael
Glos (CSU) said forcing German energy companies to divest
themselves of strategic assets is questionable from a legal
standpoint. While the Commission contends such a move would

lead to more competition and lower prices, critics charge it
could result in under investment and open the door for
foreign ownership of European energy networks and
infrastructure. One Chancellery official said under such a
scheme, Gazprom or other Russian firms could pick up
significant pieces at "firesale prices." This charge seems
designed to exploit lingering energy security fears following
the recent oil supply disruptions due to a conflict between
Gazprom and Belarus.


4. (SBU) The Chancellery's Office Director for EU Economic
Affairs, Andreas Hermes, reported on the outcome of an
internal government meeting on the Commission's proposal,
held on January 18. Hermes said that while the government is
opposed to the measure on unbundling, it believes that in its
Presidency role it must present the proposal to the other
member states in a neutral manner and see if there is
consensus. Hermes said there are several other EU members
states, in addition to Germany, who are opposed to this
measure, so Germany can afford to remain in the background on
this proposal. Hermes also stated that there appears to be
little support among the member states (with the possible
exception of the Netherlands) for a European-wide energy
regulator.


5. (U) The head the world's largest private energy company,
E.ON AG, Wulf Bernotat, sharply criticized the Commission's
proposal. Bernotat called the different measures
"conflicting and contradicting," and argued the unbundling
proposal would not increase efficiency but would lead to
supply disruptions. Bernotat believes the Commission should
continue its policy of regulation to ensure competition in
this market. He praised the work of the German regulator,
BNetzA, claiming that no energy company has more than a 17
market share as evidence that no energy oligopoly exists in
Germany. Bernotat also called the Commission's backing for
an EU-wide energy regulator "premature." He said the EU
should focus on creating a true internal market, first
regionally and then Europe-wide. Only at that point should
there be discussions over a European regulator.


6. (U) The German Electricity Association (VDEW) greeted the
plan with more enthusiasm, calling it a "groundbreaking step
towards a unified European energy policy." The VDEW lauded
the Commission's desire to integrate security of supply,
competition, and environmental concerns. However, like
Bernotat, the VDEW also opposes the Commission's call for
unbundling, stating it would lead to under investment in
power stations and the energy grid by companies that would no
longer have an interest in maintaining this infrastructure.
The EU regulations currently require energy companies to
create subsidiaries to administer their energy networks by
July 2007. The VDEW believes the Commission should wait
until this measure is implemented to evaluate whether it
brings the necessary competition to the network.

PRAISE FOR THE CLIMATE CHANGE AGENDA
--------------


7. (SBU) Martin Schoepe, Deputy Director of the Office of
International and EU Affairs at the German Environment
Ministry, told ECONOFF that the most important part of the
plan, from his ministry's perspective, is that it "frames
climate change as the driver of European energy policy." The
key elements for Germany, he said, are the EU-wide energy
review and focused R&D funding for clean energy technologies
such as carbon capture and sequestration (CCS). The plan
specifies a goal of building 12 CCS demonstration plants by
2015; German energy companies have announced plans to develop
two such plants.


8. (SBU) Schoepe noted Germany is recommending that the EU
adopt a goal of lowering greenhouse gas emissions by 30%
below 1990 levels by 2020. The German target would be more
aggressive than the European Commission's, which calls for a
reduction in greenhouse gas emissions of 20% below 1990
levels by 2020. Schoepe also wants the EU to set this
emissions target of a 30% reduction from 1990 levels as a
benchmark for all OECD members, including the U.S. The
Council of Ministers will decide on the emissions reduction
target on February 20 in Brussels.


9. (U) The German Renewable Energy Association (BEE),which
represents solar and wind energy interests, considers the
EC's Energy Policy Proposal for Europe too meager. The BEE
has called on the German government to use their EU
presidency to establish minimum levels of renewable energy
use in the heating and electricity sectors and to push for an
increase in the amount of renewable energy in the overall
energy mix to 25% by 2020. The current plan does not set
targets for specific energy sectors but states a general goal
of deriving 20% of energy from renewable sources by 2020.
TIMKEN JR