Hill+Knowlton Strategies

Glen Hodgson, a Director with Hill + Knowlton Strategies based in Brussels and Stockholm, writes about new legislation which will affect the market for biofuels in Europe and therefore create opportunities as well as threats for operators, producers and users.

What is the issue?

The European Commission proposed in October 2012 new legislation on the indirect land use change (ILUC) effect of biofuels intended to minimise the climate impact of their production. In this context, the proposed rules may lead to new classifications and subsidy streams for sources of biofuels. If adopted in its current form by the European Parliament and the EU Council, this will limit the amount of food crop-based biofuels and bioliquids that can be counted towards the EU’s 10% target for renewable energy in the transport sector by 2020 to a 5% level. This is clearly of concern for the whole industry.

 The European Commission also proposes double- and quadruple-counting the contribution of some low-ILUC biofuels towards the EU’s 20% emissions reduction target for 2020, one of the aspects of the proposal which had proved controversial within the Commission prior to its publication. In general, land-using second-generation biofuels are intended to be double-counted, while non-land-using second-generation biofuels are to be quadruple-counted due to their low-ILUC factor.

Timing and next steps

The proposal has been adopted, but work in the European Parliament and Council of Ministers has not yet begun. There is therefore a great deal of scope in shaping opinions at the national and Brussels levels to protect business interests. This also opens the possibility of setting up a biofuels debate platform which would support and complement future lobbying towards the European Parliament and the EU Council around the ILUC legislative proposal. This could establish a dedicated online channel through which to directly engage targeted decision-makers, influencers and media as a transparent means to advance policy objectives and educate on key concerns. Furthermore, such a dynamic platform would also rapidly address misinformation and showcase relevant videos, while supporting targeted offline engagement and outreach activities. Clearly, the time is right and there is a need to re-energize the debate and make it more visible ahead of this year’s first-reading negotiations in the Parliament and Council.

EU leaders are meeting in Brussels today to discuss the continent’s future energy policy. The euro debt crisis and events in Egypt are taking centre stage, but significant energy issues remain on the agenda. 

• Security of supply – the European Commission should submit a Communication on energy security by June 2011. Memories of the gas being cut off to parts of Eastern Europe two winters ago still loom large and the inability to move gas and electricity across borders is a serious concern for leaders and EU decision-makers. At the same time, there is a clear desire to not be dependent on a limited number of producers.
• Energy efficiency – the EU has agreed to improve energy efficiency by 20% by 2020, and a review is now scheduled for 2013.
• Infrastructure – this is a key element that is being discussed and the requirement for more interconnections has been underlined. By 2015, no EU state should be isolated from the European gas and electricity grid. Funding has already been earmarked for specific projects, but future projects will mainly need to be financed via the market.
• A true EU energy market – Europe currently consists of a patchwork of different regulatory regimes which hinder the functioning of a true EU energy market and prevent competition. In this regard, a full internal energy market should be completed by 2014.

These discussions, and the Summit’s conclusions, will offer companies in the energy sector a number of opportunities as the EU energy paradigm changes over the coming years.

The answer will very much depend on the quality of the industry’s communications.

The environmental consequences of the Gulf of Mexico oil spill have led to the most critical political and media focus on the offshore drilling industry in recent years, on either side of the Atlantic. Last week, the American administration announced that it would not allow offshore oil drilling in the Gulf of Mexico or off the Atlantic and Pacific coasts as part of its next five-year drilling plan.

For Europe the problem is no less critical, given that almost as much as 90% of European Economic Area oil production originates offshore. On one hand, the Gulf of Mexico’s natural conditions and the US regulatory framework present quite a different set of circumstances to that in European waters, meaning that the response will probably not be as radical on this side of the Atlantic.

However, the European offshore industry is facing new challenges such as ageing installations and infrastructures and the necessity to shift operations into more complex environments and weather conditions, meaning that the EU will feel the need for action to ensure the continued safety of offshore operations as these challenges are met.

Not surprisingly then, last week EU Energy ministers agreed in Brussels that more safety rules should be put in place and asked the European Commission to come up with new legislative proposals at the beginning of 2011. They judged at the same time – not without the pressure of some Member States – that a moratorium on offshore oil drilling in EU waters would be an excessive measure at this point in time.

The Energy Commissioner Günther Oettinger and his team therefore received a green light to act, though their appetite was slightly hampered by reduced terms of reference. They will now focus on developing an EU-wide legal framework, which will probably mean stricter licensing criteria and greater control over the safety of drilling activities. 

It goes without saying that the industry needs to further engage in the dialogue with the European Commission and national governments to ensure that Europe comes up with the best possible solutions in terms of safety requirements, while leaving enough space for the industry to further develop and remain competitive. 

The willingness of policymakers to listen to the industry will very much depend on trust built through timely communication and transparency. Indeed, Commissioner Oettinger has now obtained the first evidence in favour of stricter regulations – the BBC has revealed that a Transocean oil rig – the same company that was operating BP’s Deepwater Horizon – “narrowly avoided a similar accident in the North Sea, four months earlier”.  

Experts are already divided on whether such a headline is correct or not, given that the procedures worked and the accident had been avoided. The bottom line is, however, that uncertainty and questions are already there. And as the BBC reported: “We asked Transocean for an interview. Sadly no one was available to comment, but in a statement the company stressed the importance of safety and well control on all its installations”. Is it now time for the industry to become more proactive in its communication efforts?

This post was written by Malgorzata Figwer, Consultant, Hill & Knowlton Brussels

As with a number of other issues, the Europeans can’t decide what to do about the shale gas.

The perspective of a shale gas revolution similar to the US one, further transforming the global energy scene and ensuring greater energy security, is tempting. But is it really possible in Europe, ask many, given different geological conditions, environmental challenges and the lack of European know-how?

Some European countries tempted by the promise of wealth, and even more importantly of security of supply, have already taken action. The UK Department for Energy and Climate Change has just launched an inquiry into the future of shale gas in the UK. Poland whose reserves of shale and tight gas may be as much as 3 trillion cubic metres, potentially turning the country into a net exporter of gas, has already started exploratory drilling mostly with American partners.

At the same time the big European players such as Statoil, Total and ENI are thinking of ways of getting the know-how and bringing it to Europe. This is, however, costly. Gazprom, previously reluctant to admit that shale gas could be an option, is also trying to acquire the necessary knowledge.

The idea, received with a dose of scepticism at the European level, is slowly gaining supporters who think it is worth taking the risk and investing.

In his recent interview for a Polish newspaper Günther Oettinger, EU Commissioner for energy, one of whose goals is to ensure energy security, did not reject the idea that shale gas could be a part of this plan. Recently, five members of the European Parliament submitted a written declaration calling on the Commission to conduct an initial analysis of the possibility of extracting gas from alternative sources and to support geological research in order to estimate the potential for extracting shale gas in Europe. They would also like to see financial support for relevant programmes aimed at increasing technological development in the area. These are the first tentative attempts to put shale gas on the European agenda.

In this context we ask the question openly and invite you to start the debate – should shale gas be much higher on the European agenda and become part of strategic discussions about European energy security and self-reliance?  Should such political engagement then be translated into concrete support measures for the development of European shale gas technology, just as the European Commission decided, for strategic reasons, to support such innovative technologies as Carbon Capture and Storage (CCS)?

Our view is that we should learn from our American partners, but there is no reason why the Europeans should not develop their own know-how in this regard, which is costly and would require public support. It seems that only then the truly European “shale gas dream” will have a chance to materialise.

This post was written by Malgorzata Figwer, Consultant, Hill & Knowlton Brussels

The Energy Strategy for 2011-2020 was adopted this week and will shape the energy landscape in Europe over the next 10 years, thereby affecting governments, companies and consumers alike. Concrete legislative proposals are to follow within the next 18 months and European leaders will hold their very first EU Summit on Energy on 4 February 2011. As such, energy policy has clearly underlined its importance on the EU stage.

The next decade, and beyond

The strategy is intended to complement the Europe 2020 economic and industrial strategy, and the Strategic Energy Technology (SET) Plan, which calls for an extra EUR 50billion to be invested in low carbon technologies. This all falls under the umbrella of Europe meeting its 20:20:20 goals. In a nutshell, this means lowering emissions, and increasing energy efficiency, by 20% by 2020, while ensuring that renewables make up 20% of the energy mix.

EU leadership in technological innovation is therefore a key part of the new energy strategy, in order to deal with market failures, and bottlenecks for investment in energy innovation. With this in mind, the new energy strategy focuses on five priority areas:

• Achieving an energy efficient Europe;
• Building a truly pan-European integrated energy market;
• Empowering consumers and achieving the highest level of safety and security;
• Extending Europe’s leadership in energy technology and innovation;
• Strengthening the external dimension of the EU energy market.

 Implementation and market opening

Poor implementation by EU Member States of existing legislation has meant that the internal energy market does not yet properly function, thus impeding the promotion of affordable and secure energy, as well as hindering the transition to a low-carbon energy mix. The EU Energy Commissioner, Günther Oettinger, wishes further to open and liberalise the market, in order to enable easier access for renewable sources and to improve the ability of Member States to share their resources.

The development of appropriate regulatory conditions to facilitate a demand-responsive electricity market is identified as a key goal, to be achieved through such tools such as smart metering and consumer-focused promotional activities. The revised Emissions Trading System, energy taxation and the phasing-out of fossil fuel subsidies are also to be considered so as to provide incentives and price signals for the uptake of low-carbon energy sources.

Infrastructure development

The strategy identifies a need to better join up infrastructure within the EU, as well as between the EU and its neighbours. A European infrastructure framework is needed so as to ensure security of supply, to interconnect various markets, to link renewable sources with existing grids and to develop smart grids. The Commission is set to propose an accelerated permitting system for projects identified as being of “European interest”, through, for example, the nomination of a single national authority. A Europe-wide infrastructure for the transport of CO2 may also be considered.

External dimension

The current weak co-ordination of the external dimension of EU energy policy is also addressed in the energy strategy. In this regard, it is cited that relations with Russia need to be upgraded and strengthened in particular. The European Commission will also propose mechanisms to align international agreements with the EU’s internal market rules, particularly in the gas field. At the same time, the Commission believes that the EU’s first-mover advantage in the renewables sector, and on energy efficiency standards, should allow it to strengthen international work in these fields.

Energy efficiency

The strategy highlights “achieving an energy efficient Europe” as a leading priority at its heart. Wasting energy is contributing to climate change, and there are two main areas where this can be addressed: renovating the existing building stock and decarbonising transport, while making it more sustainable.

Next steps: smart grids, renewable and smart cities

In addition to the discussions at the February 2011 European Council meeting of heads of state and government, which is to be devoted solely to energy, four new large-scale projects are to be launched:

• Major initiative on smart grids so as to integrate the entire grid system;
• Initiative on electricity storage so as to prepare the grid for the massive uptake of small-scale decentralised and large-scale centralised renewable energy;
• Implementation of large-scale biofuel production;
• Providing cities with ways of making greater energy savings through the Smart Cities innovation partnership (to be launched in early 2011), while doing the same for rural areas through the Regional Policy framework.

New techniques and technological advancements have been synonymous with the energy sector for decades, and have proved essential in accessing resources that were previously out of reach. The recent oil spill in the Gulf of Mexico, however, has raised questions about deep-sea drilling, security and where our energy comes from.

From the US perspective, there is a great deal of rancor around, with company executives summoned to Washington DC earlier this month to address a Senate Committee hearing. Furthermore, the Obama administration is talking tough, just after it was agreed in March that new stretches of the US coast would be opened up to deep-sea drilling. The likely upshot will be an increase in spillers’ liabilities (this currently stands at a maximum of USD 75 million), an increase in costly regulation around deep-sea drilling, and a likely split of the Minerals Management Service into two separate bodies: one responsible for permitting, and one responsible for the oversight of the sector.

Changes are also likely from a European perspective too. The EU Energy Commissioner, Günther Oettinger, has already called in representatives from large oil companies to speak about oil industry safety following the Gulf of Mexico crisis. He has been seeking assurances that companies operating off EU coastlines are managing risks effectively, and also wants to check that the current regulatory framework is sufficiently robust. This should ring some alarm bells for oil companies, since the NGO community and certain MEPs will be pushing for more stringent measures to be applied.

There could also be fallout from the approach taken by EU and US bodies for the rest of the world too, with a tighter, regulation-heavy regime being promoted across the globe.

Amid the baying for blood, and the understandable shock at the Deepwater Horizon disaster – both from a human and an environmental angle – we should not lose sight of the fact that there is no such thing as risk-free energy. Decision-makers across the globe need to balance questions of security of energy supplies with environmental concerns, while striving for jobs and economic growth. At the end of the day, having the right energy mix, with the necessary safeguards in place, is in all our interests.