EU STRATEGIC ENERGY REVIEW

UNCLAS SECTION 01 OF 04 BRUSSELS 001761

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET EUN
SUBJECT: EU STRATEGIC ENERGY REVIEW

REF: BRUSSELS 1670


1. (SBU) Summary. On November 13, EU Energy Commissioner
Andris Piebalgs presented the Commission's 2nd Strategic
Energy Review (SER) to the Parliament. The SER contains a
new five-point "EU Energy Security and Solidarity Action
Plan," focused on: infrastructure needs and diversification
of energy supplies (including interconnections and new supply
corridors),external energy relations, oil and gas stocks and
crisis response mechanisms, energy efficiency, and the best
use of the EU's indigenous energy resources (including
renewables, coal, and nuclear energy). The plan charts the
policy priorities for the next Commission, due to take office
in November 2009 and includes a "vision for 2050"
characterized by a carbon-free energy production, the end of
oil dependence in transport, low energy buildings and 'smart'
interconnected electricity grids. However, sorting out the
details on how this structural shift will be realized has
been left to the next Commission. End Summary.


2. (U) On November 13, EU Energy Commissioner Andris
Piebalgs presented the Commission's 2nd Strategic Energy
Review (SER) to the Parliament. The SER focuses on security
of supply and is intended by the Commission to complete the
picture in developing a new "Energy Policy for Europe". The
first SER concentrated on climate change, introducing the
20-20-20 targets, leading to the proposed new Renewables
Directive and the revision of the Emissions Trading Scheme
Directive, as well as the 3rd Energy Package. The 2nd SER
contains a wide-ranging energy package which is intended to
give a new boost to energy security in Europe by:

-- Putting forward a new strategy to build up energy
solidarity among Member States and a new policy on energy
networks to stimulate investment in more efficient,
low-carbon energy networks.

-- Proposing an Energy Security and Solidarity Action Plan to
secure sustainable energy supplies in the EU and looking at
the challenges that Europe will face between 2020 and 2050.

-- Adopting a package of energy efficiency proposals aiming
to make energy savings in key areas, such as reinforcing
energy efficiency legislation on buildings and energy-using
products.

The EU Approach to Energy Security
--------------

3. (U) Energy security is an issue of common EU concern.
With the integration of energy markets and infrastructures
within the EU, the Commission views specific national
solutions as often insufficient. And while each Member State
is responsible for its own security, the Commission views
solidarity between Member States as a basic feature of EU
membership. The Commission argues that strategies to share
and spread risk, and to make the best use of the combined
weight of the EU in world affairs can be more effective than
dispersed national actions.


4. (U) There is a close link between the EU's approach to
energy security and its initiatives on climate change. To
meet the EU's 20-20-20 climate goals, the Commission
envisages an energy system with a diversity of non-fossil
fuel supplies, flexible infrastructures and capacities for
demand management that will be very different in energy
security terms than today's system. In the short to medium
term, the Commission recognizes that Europe's dependence on
imports means that effective provisions for preventing and
dealing with supply crises must be in place. Europe
therefore seeks to diminish its vulnerability to energy
supply shocks.

Energy Security and Solidarity Action Plan
--------------

5. (U) The SER contains a new five-point "EU Energy Security
and Solidarity Action Plan," focused on:

1.) Infrastructure needs and diversification of energy
supplies (including interconnections and new supply corridors)

2.) External energy relations

3.) Oil and gas stocks and crisis response mechanisms

4.) Energy efficiency

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5.) Making the best use of the EU's indigenous energy
resources (including renewables, coal, and nuclear energy).


6. (U) The plan charts the policy priorities for the next
Commission, due to take office in November 2009.

Infrastructure Needs and Diversification of Energy Supplies
-------------- --------------

7. (U) The 3rd internal energy market legislative package
(currently under consideration in the Parliament and Council)
encourages investments in infrastructures, notably
cross-border infrastructures. The Commission argues that
"Europe's energy networks are no longer up to the task of
providing secure energy supplies in the foreseeable future."
It therefore urged member states to ease their reliance on
Russia for gas by building an EU-wide distribution network so
that import cuts -- like those of 2006, when Russia stopped
deliveries to Ukraine -- can be offset by getting gas from
somewhere else. "A major benefit of a European network is
that everyone can help each other ... in a crisis." It said
by 2030, 1 trillion euros ($1.25 trillion) must be spent
improving the EU's power grids and production capacity and
about 150 billion euros ($188 billion) on gas networks.


8. (U) The Commission proposes that the European Council
endorses the identification of six "priority infrastructure
actions" as "Community priorities", notably:

-- Development of a Baltic interconnection plan, better
linking the region with the rest of the EU, improving the
security and diversity of its energy supply, enabling
solidarity;

-- Development of a Southern Gas Corridor for supply from
Caspian and Middle Eastern sources and possibly other
countries in the longer term, improving security of supply;

-- Development of an LNG Action Plan. As liquefied natural
gas (LNG) is now contributing to diversity of gas supply,
sufficient capacity should be available to all Member States,
either directly or through other Member States on the basis
of solidarity arrangements; particularly important for the
Member States which are currently overwhelmingly dependent on
a single gas supplier.

-- Completion of a Mediterranean energy ring, linking Europe
with the Southern Mediterranean through electricity and gas
interconnections to improve energy security and to help
develop the vast solar and wind energy potential;

-- Development of North-South gas and electricity
interconnections within Central and South-East Europe;

-- Development of a blueprint for a North Sea offshore grid,
interconnecting national electricity grids and plugging in
planned offshore wind projects.


9. (U) The Commission then proposes a three step approach to
ensuring that these projects become reality. First, it
invites the next European Council (December 11-12) to agree
that these are indeed the EU's key infrastructure priorities.
Second, by 2010, the Commission will set out a concrete
plan for each priority project through six public
Communications, identifying specifically what needs to be
done. Third, the Commission now starts the process to ensure
that the tools and instruments at Community level will be
available to then implement these concrete plans.


10. (U) Two main issues are identified in this latter
respect. First, the Commission underlines the importance of
speaking with one voice on these issues (which "does not mean
a single Community representative for external issues, but
effective planning and co-ordination to ensure a commonality
of both action and message at Community and Member State
level. To put this into practice, in 2009 the Commission will
identify the concrete mechanisms necessary for ensuring
transparency between Member States and the EU").


11. (U) Second, the Commission has announced its intention to
revise the Trans-European Energy Networks (TEN-E). TEN-E and
its budget were conceived and developed when the EU was
considerably smaller and faced energy challenges of a
completely different dimension compared to today. The
Commission has tabled a Green Paper on how the existing TEN-E

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instrument could be replaced by a new "EU Energy Security and
Infrastructure Instrument" with the possible objectives of
completing the Internal Energy Market, ensuring the
development of the grid to permit the achievement of the EU's
renewable energy objectives and guaranteeing EU security of
energy supply, through infrastructure projects within and
outside the EU. In addition, the Green Paper launches a
reflection on how best to ensure the effective use and
evolution of the EU's external policy and financial
instruments to contribute to achieving these objectives.

External Energy Relations
--------------

12. (U) On external energy policy, the SER identifies a
number of key priorities for the Community, notably, Russia,
the Energy Community of South-East Europe, the Caspian, OPEC,
and Africa. It also identifies where progress needs to be
made in moving to more formal, legally-binding relations on
energy with our suppliers, notably with Russia. Confidence
in Russia has been shaken by its war with Georgia in August.
"Today eight member states are reliant on just one supplier
for 100 percent of their gas needs," Commission President
Jose Manuel Barroso told reporters as he released the SER
proposals on the eve of the EU summit with Russia. "This is
a problem we must address. We must shield European citizens
from the risks that external suppliers cannot honor their
commitments," he said.


13. (U) With producer countries outside Europe the Commission
argues the EU should develop a new generation of "energy
interdependence" provisions in its broad-based agreements.
The Commission believes that as much as Europe seeks security
of supply, external suppliers and industry seek security of
demand. There is little new, however, in terms of concrete
initiatives, aside from those mentioned above regarding
infrastructure.

Oil and Gas Stocks and Crisis Response Mechanism
-------------- ---

14. (U) The Commission proposes a revision in the EU's
strategic oil stocks legislation, improving coherence with
the International Energy Agency regime, reliability and
transparency on available stocks and clarifying emergency
procedures. To improve oil market transparency, the
Commission proposes that the EU publish weekly, on an
aggregated basis, the level of commercial oil stocks held by
EU oil companies.


15. (U) Regarding gas the SER is accompanied by a
Communication that reviews the implementation and
effectiveness of the existing Security of Gas Supply
Directive. It finds that the Directive needs to be improved.
In particular, it finds that greater harmonization of
security of supply standards and predefined emergency
measures on regional and EU levels are needed. However, it
does not go so far as to propose obligatory strategic gas
stocks, on the grounds that "strategic gas stocks cost at
least five times more than oil stocks. A more effective
approach is to promote the development and effective
transparent operation of commercial storages, diverse supply
connections enabling flexible sourcing from LNG or
neighboring providers within the EU internal market, and
rapid demand reduction through interruptible contracts and
fuel switching especially in electricity generation". A
revised Security of Gas Supply Directive has been announced
for 2010.

Energy Efficiency
--------------

16. (U) Regarding energy efficiency, the SER underlines that
this is one of the most important European energy polices
regarding energy security, in addition to its role in
combating climate change. The Commission tabled a new
energy efficiency package, comprising a number of measures,
the most important of which are a revision of the Energy
Performance of Buildings Directive to extend its scope,
simplify its implementation and develop energy performance
certificates of buildings into a real market instrument; and
a revision of the Energy Libeling Directive to apply labeling
to a broader range of energy-using products (thus including
industrial rather than just household products). Under a
separate legal instrument, a new energy label is proposed for
car tires. In addition the Commission announced a green tax
package that will "include a proposal to review the Energy
Tax Directive to make it fully compatible with the energy and

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climate change goals and an examination of how VAT and other
fiscal instruments can be used to promote energy efficiency."

Making the Best use of the EU's Indigenous Energy Resources
-------------- --------------

17. (U) Indigenous production currently provides 46% of the
energy used in Europe. The Commission believes the EU's
greatest potential source of indigenous energy is renewable
energy. Today it accounts for about 9% of final EU energy
consumption and the agreement is to raise this to 20% by

2020. To encourage indigenous energy production the
Commission has proposed a new "Sustainable Energy Financing
Initiative", which is a joint initiative of the Commission,
European Investment Bank and European Bank for Reconstruction
and Development


18. (U) The Commission views technology as crucial in
developing and using resources in a cost-effective and
environmentally-sustainable way. As such, its next step in
the Strategic Energy Technology Plan will be a Communication
on Financing Low Carbon Technologies, which is expected next
Spring. This will propose ways to support large scale
demonstrations at EU level, including up to twelve Carbon
Capture and Storage (CCS) demonstration plants.


19. (U) On nuclear energy the Commission continues to send
cautious, but positive messages on the importance of nuclear
in the EU's energy mix for its climate change commitments and
energy security objectives, whilst however stressing that the
choice whether or not to use nuclear is up to each Member
State. However, as it believes the nuclear safety and
security framework applied everywhere in the EU is of common
interest the Commission is tabling a revised proposal for a
Directive on Nuclear Safety because it believes a common
legislative framework on the safety of nuclear installations
and the management of nuclear waste is needed.

Towards a vision for 2050
--------------

20. (U) The final element of the SER is a rather
forward-looking chapter, asking what needs to be done to
prepare for the energy challenges towards 2050, rather than
the 2020 timescale which the Commission, and EU, has focused
upon until now. The SER announces that "the Commission will
therefore propose to renew the Energy Policy for Europe in
2010 with a view to charting a policy agenda for 2030 and a
vision for 2050". In particular the Commission highlights a
number of issues that will be the focus of this longer term
"Roadmap towards a 2050 Energy Policy", notably: a low or
zero carbon electricity industry by 2050, ending oil
dependency in transport, leading on low and then positive
energy buildings, and a smart electric grid.


21. (U) The Commission believes that the EU needs to go
beyond its 20-20-20 goals and develop a vision for 2050 and a
policy agenda for 2030. It argues that the fundamental
technological shifts involved in decarbonizing the EU
electricity supply, ending oil dependence in transport, low
energy and positive power buildings, a smart interconnected
electricity network will only happen with a coordinated
agenda for research and technological development,
regulation, investment and infrastructure development. The
Commission also believes that the transition to a
high-efficiency, low-carbon energy system needs to be
promoted not only in Europe but worldwide. As such, the
Commission plans to prepare a roadmap towards a 2050 Energy
Policy, in dialogue with Member State officials, academics
and industry experts.


22. (SBU) Comment. The recommendations included in the SER
could be adopted by the March 2009 European Council. The
Council would then call on the Commission to draft
legislation to carry out these proposals. Some of the
recommendations could be implemented without new legislation,
but for those requiring legislation we are unlikely to see a
package submitted to the Parliament until some time next
fall. We see no immediate red flags in the proposals
outlined above, and indeed we are encouraged by the
initiatives to increase Europe's energy security. If these
packages do go forward, they will no doubt be heavily debated
and amended by the Parliament and Council and as always, the
devil will be in the details. End Comment.

Silverberg.
.