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The German government is unlikely to support import tariffs for solar panels made in China despite domestic opposition to their policies. Veterans of the German renewable energy community, such as Hans-Josef Fell, have suggested that the German government’s decision to significantly reduce Feed-in-Tariffs for solar photovoltaic energy would be destroying the German solar industry. While it is true that the entire sector has come under increasing pressure, this is hardly a phenomenon that is limited to Germany. China, in fact, currently seems to suffer just as much as any other country, as the recent bankruptcy of Suntech suggests. And despite the recent stock price surge for First Solar, this doesn’t seem to be much different in the U.S., despite the trade war the country started with China.

It is important to keep in mind, that behind the push for protectionism in the U.S. is a German company, SolarWorld, which has a significant manufacturing footprint in the United States. In a paper published last year by Germany’s Heinrich Böll Foundation as second installment of a series on the German Energy Transition, Craig Morris explains why. The quick answer is, as a leading exporter Germany cannot afford a trade war with China. Morris quotes Fell acknowledging that.

More importantly, however, is the business case behind it. And Morris lays out how Germany benefits economically even if the panels installed are made in China. There are two main reasons for this. Firstly, the German solar industry is strong all along the value chain which leads to the fact that products made in China will likely lead to some value creation in Germany. Germany is particularly competitive in the equipment sector which exports production lines to China which is a more sophisticated technology than producing solar panels. Secondly, the value of services and components that are needed to install and connect the panels is actually higher than the value of the panel, and the services can only be sourced locally. Morris estimates that more than 50% of the total value creation is local.

So far, so good. Morris states that a large solar market helps Germany to secure these advantages. And here is where I would start questioning his very positive assessment of the economic benefits on Germany. The fact is that the solar boom in Germany is paid by all consumers of electricity, with energy-intensive industries paying a much-reduced fee. The size of the German market is driven by the level of Feed-in-Tariffs that the German renewable energy law guarantees. So to answer the question whether Germany really profits from local installations of solar panels made in China, we would need to consider the question whether (a) the subsidies are necessary and (b) efficiently allocated.

It seems to me that while German electricity consumers are doing the world a favor by driving down the cost of solar with the demand created by the Feed-in-Tariffs, they may not profit that much themselves as the total cost is still quite high. Morris is right to call for the U.S. to jump into solar now, because with the more beneficial weather conditions the cheap panels make even more economic sense. The U.S. would only need to brush aside bureaucratic hurdles, and a solar boom may be coming.

As to the question of why Germany is against a solar trade war, I think Morris is right: The question of Feed-in-Tarrifs aside, free trade is Germany’s best option.

In a recent interview with the German business webpage manager magazine online, Arnold Schwarzenegger, the Austrian-born bodybuilder, actor and former governor of California, sharply criticized U.S. energy policy, or, as he put it more pointedly, the lack thereof. Schwarzenegger, a champion of renewable energy during his tenure as governor, says he admires Germany’s determination to switch to (a mostly) renewable energy production in a single generation, while he despises what he sees as a lack of strategy and coordination of energy policy in the U.S.

Schwarzenegger’s endorsement of German energy policy is pretty light on facts. He doesn’t bother to discuss the Energiewende’s issues, which committed readers of this blog may be familiar with. But he is not alone in criticizing the lack of vision and coordination in U.S. energy policy. In fact, both business leaders and environmentalists are united in their criticism of current policies.

Tellingly, Schwarzenegger doesn’t offer any pragmatic proposals. He doesn’t map out which fixes would help the U.S. to become more like Germany in energy terms. He suggests that the German energy transition is better policy altogether because it is a daring plan. While enthusiasm for planning in the realm politics has yielded mixed results in the past, there is an underlying question here which deserves some scrutiny: Is Germany’s approach to energy policy more effective and more politically and economically sustainable (i.e. smarter and cheaper) than Obama’s “all of the above” strategy? I.e., is the Energiewende, which could be dubbed “either/or” in policy terms as it plans to first phase out nuclear and then fossil fuels altogether, better suited to tackle climate change and cheaper than Obama’s approach? Note that this question is asking for actual effects rather than lofty rhetoric and long-term planning objectives.

The question couldn’t be timelier, as with last week’s nominations for the relevant cabinet positions, the outlines of Obama’s second term energy policy became clear. It is marked by three goals: (1) Provide affordable energy for a growing economy and a recovering middle class while (2) reducing the United States dependency on energy imports from unfriendly and/or undemocratic nations and (3) pragmatically tackling climate change. While Germany’s Energiewende may tackle the latter more explicitly, and may render Germany more energy independent in the far future, it is certainly failing on the first goal and moreover relying on Russian imports for about a third of its natural gas.

But let’s have a look at the U.S.: Obama nominated Ernest Moniz, MIT physicist, as energy secretary, and Gina McCarthy to lead the Environmental Protection Agency, where she is currently working as assistant administrator. At MIT, Moniz currently runs the school’s energy initiative, a position in which he oversaw research on pretty much any energy source known to mankind. After the Fukushima nuclear disaster, he wrote an influential article in Foreign Affairs, defending nuclear power on environmental grounds: Nuclear power plants don’t emit any CO₂ which is why we need them to tackle climate change. McCarthy may be less outspoken, but her job at the EPA may require precisely that. Coral Davenport reported in the National Journal, that Obama remains quiet about Climate Change for strategic reasons, but his administration is determined to tackle the problem nonetheless: not through legislation, which is currently unthinkable in Washington due to Republican denial of climate science and their determination to kill any relevant bill, but through the regulatory authority of the EPA, and in consultation with industry and other business leaders. She writes:

“Inside Washington, in a warren of back rooms at EPA, dozens of environmental officials are working to craft landmark climate-change regulations that they hope will curb industrial pollution—and withstand a tsunami of legal and political attacks. To help them do it, they’re inviting in heads of the industries and businesses that will soon be forced to implement the rules. Business leaders, although they’re not happy about the coming regulations, are jumping on the opportunity to communicate their concerns and perhaps help shape the rules they’ll have to live by. And the Obama administration hopes that the dialogue will help defuse some of the opposition to come.”

If we accept that Obama will tackle climate change through enhanced regulation by the EPA, two major differences between the U.S. approach and the German approach remain: Nuclear power, obviously, but more importantly shale gas. While Moniz’ nomination was sharply criticized by environmentalists because of his favorable position on fracking (even if DoE does not have jurisdiction over that issue, as some acknowledge), Germany is effectively rendering fracking in the country impossible and is instead using lignite to back-up the intermittent renewable energy production. This negatively affects Germany’s over-all CO₂-emissions, because gas burns cleaner than lignite. While the U.S. is reducing its carbon footprint by switching from coal to gas, Germany is struggling to do the same even though it invests heavily in renewable energy.

This means, however, that despite the lofty rhetoric around Germany’s Energiewende – and Mr. Schwarzenegger’s endorsement, the de facto effects of these policies are not that convincing. The U.S. “all-of-the-above” energy policy may be better policy – if it includes serious attempts to tackle climate change. And it may be politically and economically more viable.

It’s been nearly two weeks since Barack Obama was inaugurated for his second term, and Beyoncé is still in the headlines. “Give the girl a break…Wouldn’t you use a backing track?” Please….surely this kerfuffle has more to do with her own PR people looking to drum up anticipation for a little gig she’s got on Sunday and she wants to beat someone else’s record? I digress….

The US got a new Diplomat in Chief today in the shape of former Senator John Kerry. If the past two weeks are anything to go by, he’s got his work cut out for him.

Africa’s moving back in to the agenda (has the Asian pivot distracted State Department, I wonder?). France has taken the lead in Mali, but the UK quietly sent troops in this week. Will America follow? I was surprised at how quiet the White House and Foggy Bottom were during the siege at In Amenas, but Secretary Kerry said in his confirmation hearing that embassy security and stability in the Maghreb would be priorities for him.

Syria’s headed in to the third year of civil war; 65,000 have died and violence keeps dancing on the border with Turkey. And this week, Israel got involved.  It will be interesting to see how that plays out in the next few weeks.

Later this month: picking back up with the “talks” with Iran with the UN Security Council (and Germany)….or they might happen, if those Western Powers would just stop being so darn tricksy. Potentially good timing – “defiant” Iran has just announced they’re upgrading their enrichment capabilities at Nantaz. (NB: I think calling Iran “defiant” is like calling one of these “potentially dangerous”).

Egypt continues to be rocked by instability, and more than 50 people have died after riots, which followed a ruling about…riots. Say what you will about President Morsi, he was able to step up when it came to negotiating with Hamas and Israel last autumn. Can Secretary Kerry rely on him to focus on “other people’s problems” when he’s got so much on his own plate? And would it be right to do so?

And that brings us back to Israel…Kerry has historically been a supporter of Israel. They just had elections too, and while Prime Minister Netanyahu is still in power, he’s weakened, and some far right parties have made gains. This may not bode well for the Palestinian peace process, or indeed for the situation with Iran.  I’m not a foreign policy expert, or a political expert, but I can’t help but wonder if Kerry’s appointment was a subtle olive branch to Prime Minister Netanyahu that the US is still onside, despite the less-than-cuddly relationship between the Prime Minister and President Obama.

Secretary Kerry has big shoes to fill, and has to fill them at an increasingly fraught time for geopolitics and international stability, and to be the international face for a country that needs to redefine its role in world affairs. I shall be watching with interest…

The ambitious goal of Germany’s energy concept for the next 40 years “Energiewende” is to create a model for secure, affordable and climate friendly energy supply. It entails all nuclear power plants to go offline by 2022, 80%-95% reduction in greenhouse gases by 2050, a significant growth of the renewable energy share in the energy mix and an essential increase in energy efficiency.

From 22 – 24 January 2013 one of, if not the most important German energy industry conference will take place in Berlin. Among the topics for keynotes and panel discussions are: “The German Government’s “Energiewende” in a national and international context”, “Cost, opportunities, risks of the “Energiewende” – setting the right framework conditions”, “Stress testing the transformation of the energy system: Development of security of supply and costs by 2020”, and “The “Energy turnaround” and its impact on Germany as an industrial location”.

More than 1,200 participants with 70 % executives and board managers from energy industry companies will meet in Berlin, discussing next steps to make Germany’s Energiewende a success. Among them are the ministers of the Ministry for the Environment, Peter Altmaier and the Ministry for Economics, Philipp Roessler, having the biggest dispute about regulatory aspects of the Energiewende. Also attending is Guenther Oettinger the European Commissioner for Energy who urged the German Chancellor, Angela Merkel, to create a German Energy Ministry. We might hear some new arguments from these gentlemen re their plans to make Germany’s Energiewende a success.

An interesting alternative and compromise all ministries might be able to live with is the National Forum Energiewende, announced in December by BDEW (German Association of Energy and Water Industries) and WWF. The forum would act as a neutral and transparent platform carefully listening to all stakeholders. A neutral platform could be better positioned to ensure ongoing sociopolitical support in an increasing diverse and decentralized energy mix in Germany. Time is pressing because decisions such as having the consumer paying for “ready to deliver but not yet connected offshore windparks” are not ideally suited to mobilize a lot more Energiewende supporters for the existing government among voters. The price per kilowatt hour for households rose by appr. 20% since 2008 while the price for energy intensive industry customers dropped by the same amount.

In the last decade, the Brazilian economy enjoyed its largest growth in 70 years. More than 20 million jobs have been created since 2001 – an increase of 68% — due to business investments and increased production across several industries.

This recent growth was driven in part by the discovery of the pre-salt layer off the coast of Brazil. It is currently being explored by Petrobras, the world’s 5th biggest energy company, through partnerships with other national and international companies. Currently, the pre-salt layer (including Campos Basin and Santos Basin) has a total production yield of 230 thousand barrels per day, which represents almost 12% of the state owned company`s total production (1.94 million barrels per day).  In 2016, the pre-salt fields are expected to represent 31% of the country’s total production.

Exploration of Brazil’s pre-salt has also highlighted a lack of skilled labor in Brazil, which is needed to meet the demands of the energy industry. Obviously, the shortage of skilled labor is a global issue, not a Brazilian one, but there are some policies in this country that make everything a little harder. One of them is the local content law.

The local content law establishes that Brazilian people and services have hiring priority, but this varies according to each segment. The minimum percentage depends on a number of factors since the law is so complex. There are projects in which at least 50% of the individuals/companies hired need to be Brazilian, and other areas where demand is 70%. In the energy industry, this percentage is 65% and is one of biggest obstacles that hinder its development.

In the country, the oil and gas industry is expected to double its production by 2020, but the professionals who graduate every year are still very few and won’t meet the demand.

Some companies have already taken notice of this problem and have been investing in trainee and internship programs, partnering with universities and offering international opportunities for its employees, as well as great pay. These are moves that aim to attract what little manpower is available today, since these professionals are also being sought by other industries such as mining and infrastructure, both very heated markets in Brazil.

This lack of manpower in Brazil means the country is at risk of serious stagnation in productivity levels. Currently, only 7 percent of Brazilian workers hold a university degree. Other economies that are less developed than Brazil have a higher proportion of workers with university degrees. This is true in countries like Chile (24%), Russia (23%), Kazakhstan (18%) and South Africa (9%).

To solve this issue, some ideas have been proposed by industry experts: relaxation of work permit requirements for foreigners while still valuing domestic labor,  ensuring that foreigners who come to Brazil help train the local workforce; providing training for current workers; and more government investments in technical education and training courses for those who are interested in the opportunities generated by this period of growth in the country’s energy sector.

Hopefully the Brazilian government will address the situation shortly – it has already started public hearings about the relaxation of work permits – avoiding a collapse of the infrastructure sector and allowing companies investing in Brazil to continue growing and creating more jobs.

Petrobras Mexilhão jacket launched to the sea in Brazil - photo credit Petrobras News Agency

In a recent interview with Welt am Sonntag, Günther Oettinger, the European Commissioner for Energy, urged the German Chancellor, Angela Merkel, to create a German Energy Ministry after the general election this fall. While his advice is somewhat presumptuous because Ms. Merkel first has to win the election before she would have that opportunity, it is a timely request.

Germany’s Energiewende proves to be much more challenging than Ms. Merkel initially thought when, in the wake of the Fukushima nuclear disaster, she called for a nuclear phase out and a predominantly renewable electricity generation within a generation. The energy issues her government is facing are manifold: from sluggish grid extension and black-out threatening volatility of renewables to exploding electricity prices, rising CO2 emissions and lacking investments in traditional generation capacity.

Political leadership, however, is hard to find.

This is partially due to the fact that today, the German energy portfolio is contested between four different Federal Ministries: The Ministry for Economics regulates electricity markets, traditional electricity generation and grids while the Ministry for the Environment oversees nuclear power plants and subsidies for renewables. Energy efficiency and electric mobility, however, are partially claimed by the Ministry of Transport, Building, and Urban Development, while many research grants are awarded by the Ministry of Education and Research. This is obviously confusing, if not counter-productive, particularly considering the on-going quarrel between the Federal Minister for the Environment, Peter Altmaier, and the Federal Minister for Economics, Philipp Rösler.

One ministry with the entire energy portfolio could remedy that.

Mr. Oettinger argues on a tactical level: He claims that Germany’s position on energy issues is often neglected in Brussels because there are too many voices to be effective. But his request is in line with demands from industry leaders and lobbyists. Some pundits, however, are more cautious. Ms. Merkel could be quite happy with the current arrangement: While her Ministers are fighting about the energy portfolio, she is the one in control and calls all the shots.

This may be the case. But as the policy output continues to deteriorate, Ms. Merkel may soon learn that she may need someone in charge for energy who takes the blame. Otherwise voters may hold her personally accountable.

So chances are that Mr. Oettinger will get what he wishes for.

We are witnessing an energy revolution, Walter Russell Mead, professor at Bard College and editor-at-large of The American Interest, recently proclaimed in a series of blog posts (parts one, two, three, and four); a revolution “much bigger, and more consequential than the Arab Spring;” a revolution, moreover, that will result in “a powerful boost to American power.” Mead sees a “new age of abundance for fossil fuels” in the making which proves peak-oil theories wrong and renders chatter about American decline irrelevant. Due to now extractable resources in tar sands oil in Canada and shale oil & gas in the U.S. the “center of gravity of the global energy picture is shifting from the Middle East to … North America.” This energy revolution will consequentially bring about a new American century.

That, in a nutshell, is Mead’s bold thesis at which I will have a closer look in this first installment of my e-Ideas series. And just to state the obvious: the series is going to evolve around discourses, books, and studies, i.e. the impact of energy trends and innovations on society and politics adn vice versa, rather than technological innovations of which I would only have very limited understanding.

Mead’s energy revolution is driven by unconventional oil and gas resources that recently have become technically and economically extractable and/or have been discovered. These resources make Canada and the U.S. “each richer in oil than Iraq, Iran and Saudi Arabia combined.” Israel and China also have such resources and will profit accordingly.

According to Mead this new fossil fuel reality has four major consequences:

1. New Geopolitical Fundamentals
The energy revolution will substantially shift the fundamentals of geopolitics by creating “winners and losers”; namely the U.S., Canada, Israel, and China as winners, and Russia, the Middle East, and petro states such as Venezuela as losers. The economically most advanced countries of the West will become less dependent on energy imports from autocratic regimes and unstable regions such as the Middle East, Mead argues, and can shift political attention and military resources to other areas. Shale oil will also make China more independent from imports and therefore less aggressive in its drive to secure energy resources overseas. Russia, on the other hand, will lose leverage because Europe will have alternative sources of supply. The Middle East will lose its prominence on the world stage, because its resources are not as relevant any more.

2. A New American Century
This geopolitical shift will stabilize the liberal global order, stimulate global economic growth, and allow the potential rivalry between the U.S. and China to become ever more cooperative. Because energy was critical to the first American century, Mead continues, and since the energy abundance that propelled the U.S. to global leadership is back, a new American century is in the making. A less Middle East-centric foreign policy will allow the U.S. to become more of the benevolent hegemon it has been after World War II, securing the liberal capitalist global order, rather than fighting wars in the sands Iraq.

3. The Reincarnation of the American Dream
The new fossil fuel resources in the U.S. will dramatically alter the domestic situation as well, Mead claims. For the first time in decades, new well-paying blue-collar jobs are created, a second coming of the American Dream. Demand for skilled labor will change the immigration debate. Manufacturing may return to the U.S. because cheap energy will be a major competitive advantage. A new geography of power will alter politics: A shift to the Mississippi-Ohio-Missouri river system and the Midwest, where most of the new resources are located, will strengthen a pragmatic moderately conservative ideology and weaken liberals and ultraconservatives. And more of American prosperity will actually remain in the U.S., because less energy imports will significantly cut the trade deficit.

4. A Cleaner Planet
Somewhat counter-intuitive, Mead claims that the new abundance of fossil fuels will also help protect the climate and strengthen environmentalism. In his final, and most polemic, blog post he argues that cheap shale gas will accelerate the switch from coal to gas, resulting in less carbon emissions. The newly accumulated wealth will help fund more environmental initiatives. And until these resources are dried up later in the twenty-first century, the wind and solar industries can mature, become more competitive and more reliable. This will all help the transition to a cleaner, low-carbon economy.

Mead’s argument is conclusive and well thought through, even if his polemic against green energy seems widely overstated. He somewhat underestimates, however, the political risks that come with the production of unconventional oil &  gas. Hydraulic fracturing increasingly becomes a major concern not only for environmentalists in the U.S., while in Europe this extraction technology is stigmatizing as dirty and risky. The same is true for Canadian oil sands. Consequentially, American pundits such as Thomas Friedman, the NY Times columnist, are much more skeptical of a golden age of gas in the U.S. While its economic and geopolitical benefits are obvious in the short term, Friedman states in an opinion piece, the shale gas boom may delay renewable energy production. “That would be reckless,” he writes because in light of recent droughts in the U.S., climate change becomes ever more apparent, and dangerous. A warning, Fatih Birol, chief economist of the International Energy Agency, already voiced earlier this year, reacting to the EU’s labeling of natural gas as “green energy”.

But Friedman pushes further and specifically targets unconventional gas. “Extracting it can be very dirty,” he writes, essentially demanding a life cycle analysis of all energy sources. While he concludes with proposing a carbon tax, which in his eyes will level the playing field for renewables and also allow raising more taxes to tackle the U.S. federal budget deficit, his article that has been duly refuted from conservative side, shows that unconventional gas is highly politicized.

Politics may thus derail Mead’s energy revolution, if not managed professionally. A good start would be sound energy policies. As The Economist recently noted, neither presidential candidate appears to have, however, “the vision now required in energy policy.”

One year into Germany’s “Energiewende”, senior politicians of the conservative-liberal coalition in Berlin begin to question the feasibility of the government’s plan to fundamentally change the country’s energy system. The simultaneous move away from nuclear power and fossil fuels seems to create more political challenges and unanswered questions than imagined when these policies were railroaded through Bundestag and Bundesrat, the two chambers of the German parliament, last summer.

While many distinguished German research institutes, think tanks, analysts, and professors contributed to the German energy debate in the past year, the majority of studies produced support for one or the other argument and is for or against certain policy details. As a well-known critic of lobbying in Germany, Thomas Leif, recently stated, such studies are “part of the political battle of opinions” rather than research in the traditional sense. (Leif’s text in German here)

It may therefore be worthwhile to look internationally for a comprehensive and non-partisan assessment of recent German energy policy. David Buchan’s “The Energiewende – Germany’s gamble”  is a timely contribution to the debate. Buchan, a former editor at The Economist and the Financial Times, and currently Senior Research Fellow at The Oxford Institute for Energy Studies at Oxford University, manages to capture both the challenges Germany’s energy policy is facing, and the current debate in its historical context. His paper is discussing the targets Merkel’s government has set itself: Besides the nuclear phase-out these are, most prominently, by 2020, a 40 percent cut in greenhouse gas emissions (compared with 1990), 18 percent green energy share of total energy and a 20 per cent reduction in primary energy consumption (compared with 2008). While Buchan takes these policy goals very seriously, he also puts them in the context of Germany’s over all position as a major industrial economy, EU energy and climate policies, and the global climate regime.

It’s an interesting read for experts as well as for those who need a quick but thorough overview of the general framework of German energy policy. Buchan’s assessment is well researched and balanced. He comes to the conclusion that both the emissions reduction target and the energy consumption reduction target will most likely be missed while the green energy target will be met. These targets, Buchan says, really aren’t that important, though. “Even partial transformation of such a big industrial economy to a lower carbon system would be remarkable. The country has taken a gamble”.

A gamble that is partially paying off: Germany’s industrial base is currently not threatened, but even strengthened by new renewable technologies. More critical, however, is the fact, that the “notion of competition in energy … has fallen out of fashion recently” – which may have disastrous effects on the over-all costs of the energy transition. Germany also needs a friendlier European and global policy environment to maintain competitiveness, that is, a reasonable price on carbon, for the huge investments in renewables to pay off. Finally, Buchan states, it may make sense to create a European support scheme for renewables, rather than the Germany-only system of feed-in-tariffs. (Buchan specializes on the EU’s energy and climate policy, and is author of the book “Energy and Climate Change: Europe at the Crossroads”.)

Welcome to Hill+Knowlton Strategies’ regular update on key European regulatory developments that will directly impact businesses in the energy sector.

This edition of the H+K Strategies Brussels Energy Newsletter looks that the energy priorities of the new Danish Presidency of the EU Council of Minsters and the energy roadmap 2050.

Read on for the latest developments, impacts and opportunities surround these issues in Europe.  

Danish Presidency of the EU Council – Energy Priorities

Latest Developments

On 1st January, Denmark assumed the rotating presidency of the EU Council of Ministers, taking over from Poland for a period of six months. As holder of the Council Presidency, Denmark is responsible for setting the agenda for intergovernmental discussions and leading the negotiations with the other EU institutions. At the same time, however, its priorities are closely linked to the European Commission work programme for 2012.

While the ongoing Euro-area debt crisis will continue to preoccupy meetings of heads of state and government, at ministerial level the Danish government intends to advance its agenda of a responsible, dynamic, green and safe Europe. Indeed, energy issues form a substantial part of the Green Europe focus area, with many policy proposals which were introduced in 2011 still on the table and at crucial stages in their negotiation.

First, the proposed new energy efficiency directive, intended to set a common framework to promote energy efficiency across the EU, is a major priority, with the Danish Presidency aiming for an agreement before the end of June. This ambition may be thwarted by delays in the European Parliament adopting its position due to the vast number of conflicting positions being put forward by MEPs, while the national delegations in the Council have proposed limiting the scope of the public building renovation requirement to buildings owned by central governments.

The proposed infrastructure package is the Presidency’s second priority, where it will work for the development of an effective and intelligent transmission network, so as to enable the integration of large-scale renewable energy into the EU’s energy supply. The proposed new legislation will enable a streamlined mechanism for identifying cross-border “projects of European interest”, within a set of strategic corridors and priorities, which will benefit from a shorter permitting period and streamlined administrative procedures. Third, negotiations on the proposed regulation on the safety of offshore oil & gas activities will be a further focus of the Presidency. As an oil and gas producing nation, Denmark has a clear interest in this proposal, particularly as it seeks to extend the regulatory approach of the North Sea nations to all European waters. While it is fairly unlikely that an agreement be reached before the summer, the Presidency will work to ensure that discussions get off to a good start and seek to make its mark building on the expertise which comes from decades of exploration and production in Danish waters.

All this is set against the backdrop of the debate on deepening the EU’s CO2 emissions reduction targets. Discussions over a possible move to a 30% target for 2020 (up from 20%, compared to 1990 levels) were put on ice under Poland’s presidency, due to that country’s objections to such a move given its high share of energy-intensive industries and reliance on coal. While Denmark has traditionally been supportive of stricter emissions targets, the new Presidency has mollified its stance in order to garner Polish support for a draft resolution on the Commission’s recent roadmap to a low-carbon economy in 2050. The text now before national delegations refers to the fact that if the EU achieves its 20% energy efficiency objective in 2020, then 25% emissions cut may be possible, without referring to this as a target. The Danish presidency has similarly been careful to ensure that references to deeper cuts between 2020 and 2050 are portrayed as possible milestones, rather than explicit targets. This debate will also feed into attempts to find agreement on endorsing the 2050 Energy Roadmap (see article below).

Impact & Opportunities

The six-month Presidency term is an important opportunity for Denmark to present itself as an influential EU Member State capable of assuming leadership in a new institutional set-up (since December 2009, the European Council has a permanent president chairing the meetings of the 27 heads of state and government, which clearly weakened the role of the EU Council Presidency). This is especially important given that Denmark is a small country which remains outside the Eurozone, and is one of the few EU states to currently have a left-of-centre government in the current climate of economic austerity. While the sovereign debt crisis in the Eurozone is dominating EU strategic decision-making, Denmark will be keen to push forward on the above energy objectives, not least because the investments required to deliver energy effi¬ciency improvements and infrastructure connections are seen as a means to create jobs and growth.

Energy Roadmap 2050

Latest Developments

On 15 December 2011, the European Commission adopted the “Energy Roadmap 2050” Communication which explores the challenges posed by delivering the EU’s objective of 80- 95% decarbonisation by 2050, while ensuring at the same time competitiveness and security of supply. The sectoral roadmap is one of several that follow the Commission’s all-sector “Low carbon economy roadmap”, released in March 2011, which compares a scenario of global action with a unilateral scenario.

The analysis set out in the long-awaited Energy roadmap explores five scenarios created by different combinations of the four main decarbonisation routes – renewables, energy efficiency, nuclear and carbon capture and storage technologies (CCS) and contrasts these with a ‘business-as-usual’ approach.

In outline, the projections include a scenario in which the EU improves its energy efficiency, enabling renewables to provide 64% of electricity consumption by 2050, and a ‘high renewables uptake’ scenario where they would provide 97% of electricity consumption, with nuclear power and coal almost eliminated from final energy use. A third scenario would see no energy source preferred, with each competing on a market basis. Decarbonisation would instead be driven by carbon pricing.

The two other scenarios explore a “low-nuclear” scenario where coal power plants using carbon capture and storage (CCS) technology make up the difference along with renewables and a scenario with the highest share of nuclear energy at 18%, which would still be a decrease from today’s 20%. Inclusion of a sixth scenario, which combined energy efficiency and increased use of renewables, was being urged by the Commission’s Climate Action department. This was, however, opposed by Energy Commissioner Günther Oettinger, on the grounds that such a scenario can only be considered after Member State support for the proposed new energy efficiency directive becomes clear.

All in all, the roadmap finds that, although the decarbonisation routes would demand large upfront capital expenditure until 2030, by 2050 investment costs would be roughly the same owing to increasing fuel costs. Continuing current policies would bring total energy system cost to 14.6% of European gross domestic product (GDP) in 2050, roughly the same as the other scenarios. This compares to the 10.5% of GDP spent in 2005.

However, according to Mr Oettinger, the final configuration is likely to be a mix of the projections, following a debate with a wide range of stakeholders. As a result, he expects to “achieve clarity with investors” on what future strategies are worth pursuing by 2013 or 2014 at latest. He expressed his wish for the adoption of a new EU binding renewables target for 2030 by 2014 to give low carbon investors long-term certainty. The roadmap currently suggests a renewables share of about 30%.

The roadmap is more careful in its wording and, arguably, less ambitious in its scope than previous leaked drafts. The final version stops short of recommending targets, a key source of controversy, while it recognizes that EU Member States and investors need milestones.

While some Commission officials expressed criticism over the Roadmap’s lack of ambition, Green groups praised the roadmap’s demonstration that a high uptake of renewables would come at little extra cost compared to a business-as-usual scenario. But they maintain that the Commission has purposefully underestimated renewables potential.

The Danish Presidency of the EU Council is to prioritise the reaching of an agreement between Member States on endorsing the Roadmap, although discussions are likely to be impeded by disagreements between Member States over interim targets to 2050.

Impact & Opportunities

The debate over further targets and milestones for the years to 2050 will be a key element of continued discussions around the Roadmap. An earlier draft said that “further renewables targets for 2030 could be an option since Europe is currently on the right track to achieve the targets for 2020”. In the same paragraph, which has since been scrapped, interim targets on CCS and energy infrastructure were envisaged as a possibility. But the roadmap says that the modelling for these scenarios is dependent on a global climate deal, which could be many years away. The Commission consultation on a post-2020 renewable energy strategy, running from 6 December 2011 until 7 February, has been an opportunity for stakeholders to voice their views on whether there is a role for further renewable targets and the findings will feed into the discussions. The upcoming Communications on CCS (by the summer) and energy technologies (in Q1 2013) should also be closely monitored.

 Industry in general has been strongly pushing the need for regulatory certainty and clarity over whether there will be further targets, in order to be able to make necessary investments, a point which is readily accepted by Commissioner Oettinger. The coming months will therefore offer the opportunity to make such arguments to policy-makers, and to offer suggestions as to what the policy framework should look like post-2020.