The European way

by Dec 12, 2011 No Comments

The relationship between Scotland’s energy interests and Europe is in flux, but the EU must re-engineer itself first


With Scotland’s domestic politics becoming increasingly myopic as questions over the country’s constitutional future dominate proceedings, the role of the EU has been sidelined more than ever.

Listening to Scottish representatives in Brussels, the familiar lament is that the majority of what little media coverage there is of EU affairs remains painfully negative and misinformed. The perception is that Scots and their domestic politicians manage to simultaneously take for granted the hundreds of millions of pounds in EU largesse that flow back to Scotland while failing to understand or engage with the political process that directs it.

But Scotland can no longer keep its head in the sand on European matters, says SNP MEP Alyn Smith. “I first started paying attention to European matters in the second year of my first degree in 1993 – I have never seen anything like I’m seeing now,” he tells Holyrood. “To say the EU faces an existential threat is not overblown or exaggerated. It’s that big.” The problem facing Europe is hardly a secret: the future of the euro is in doubt, as an escalating sovereign debt crisis continues to erode the economies of some of the EU’s largest member states. However, the panic over the single currency spreads far beyond eurozone finance ministries. As Smith explains, uncertainty has permeated into every aspect of European decision making, and the entire architecture of the European system – its reach, its purpose, how it is sustained – is in flux.

For Smith, who in the new year will join the European Parliament’s Committee on Industry, Research and Energy, that could mean seismic changes in the role of the EU in directing Scottish environmental and energy policy.

That the UK remains outside the eurozone is irrelevant, Smith says, adding that the effect of the debt crisis on Scotland “cannot be overstated”. He continues: “Even now we’re still coming to terms with the implications that we could see in terms of budget and how the EU operates. The EU money coming back to Scotland, and it is our money, remember, is worth hundreds of millions of pounds…and I don’t think it is beyond the realms of possibility that it is going to take so much public money to shore up the euro short to medium term that there will be nothing left in the EU budget at all.

“We need to prepare for Plan B because that markedly changes the nature of the European Union, and it markedly changes what Scotland puts in and gets out of that apparatus.” Despite the all-encompassing gloom of the euro crisis, the machinery of EU governance continues to churn on, Smith’s doomsday scenarios put to the back of the mind. Indeed, in the field of energy the next year promises to be an important one, with a range of important announcements and reports being played out against the backdrop of the negotiation of the EU budget of 2014-20.

The good news for the Scottish Government is that European policymakers clearly share its enthusiasm about the potential of renewable energy on Scottish shores. Heiki Leberle, adviser on the European Parliament’s Energy Committee for the Greens and European Free Alliance bloc of MEPs, says she has lost count of the number of times she has heard Scotland referred to as ‘the Qatar of renewables’.

In the coming decade, the EU will focus on the infrastructure improvements needed to facilitate the growth of renewables, which could deliver more than 80 per cent of all EU energy needs by 2050, says Christophe Schramm of the EC’s energy directorate.

In comparison to the €155m third internal energy market package [2007-13], €9.1bn has been earmarked for energy infrastructure under the ‘Connecting Europe Facility’ [CEF] between 2014 and 2020.

Schramm says the new architecture, due to be formalised by summer 2012, will include measures designed to streamline permit granting and planning systems within member states, as well as bolster public support for alternative energy projects. The CEF’s 12 priorities include developing offshore grids in the North Sea as well as developing smart grids, both of which will assist Scotland’s aim to export electricity to European markets.

However, the renewables push will not be easy. Schramm is relaxed about presenting an unvarnished view of what the transition to the low carbon economy will mean for EU taxpayers. “I think that [in the popular imagination] there has been an association of the liberalisation of European energy markets and decreasing prices,” says Schramm. “After almost twenty years…I think it is clear this has not materialised”. The EC estimates that €200bn of investment will be needed by 2020 to bring infrastructure across the continent up to scratch.

That means rising energy prices are here to stay, says Schramm, and if member states have to double or even triple their regulatory levy on energy suppliers to fund improvements, then so be it.

Despite the apparent determination to drive through an ambitious renewables programme, there is still a lack of certainty as to how it will be achieved, says Eleanor Smith of the European Renewable Energy Council (EREC).

The EU is set to publish its Renewable Energy Strategy in June, and while Smith says the leaked provisional draft she has seen is “quite ambitious,” it falls short of what EREC considers would be an ambitious target for 2030 [45 per cent of total energy production] and 2050 [100 per cent].

Such challenges will only become more difficult if the financial position of the European institutions becomes increasingly tenuous.

Even as it currently stands, the €9.1bn of CEF funding must support not only EU energy plans but transport and IT schemes as well. Should member states such as the UK be allowed to carry out their wish of cutting EU funding, the total pot would likely be severely truncated.

A paucity of funding is likely to restrict other Scottish energy initiatives. Karen Burt, senior policy executive [energy] at Scotland Europa, a membership-based organisation acting as the “eyes and ears” for Scottish interests in Brussels, says the EU budget talks are likely to deliver increased support for marine energy, an area that has been “neglected” in the past. However, after the disappointment of the collapse of the Longannet deal, there is little chance that European funding can revive flagging Westminster interest in the development of CCS in Scotland.

Despite its inclusion in the EC’s Strategic Energy Technology Plan [SET-Plan], Burt admits CCS is unlikely to play any part in achieving the EU’s plan to reduce CO² emissions by 20 per cent by 2020.

The SET-Plan is without a budget under the current financial framework, with the hope being it can be allocated some resources from 2014 onwards. A target of having 12 CCS demonstration projects in Europe up and running by 2015 has already been written off by the EC. A new communiqué will be issued towards the end of 2012, but as Burt admits, “there’s not very much money at the moment”.

One source of potential funding is the New Entrants Reserve, but at €4bn available across a 27-member union it represents a fraction of the £1bn in support earmarked by the UK Treasury.

With funding so limited across the board, Scotland’s energy sector will increasingly look to Brussels’ regulatory output. This month, the Council of the EU is debating proposals on the safety of offshore oil and gas. The issue was triggered by the Deepwater Horizon spill of 2010, and an in-depth study has been carried out to ensure that EU regulations prevent a similar disaster occurring in European waters.

Leberle has been disappointed by the process, saying many of the suggested legislative proposals such as including a clause to protect corporate whistleblowers and that each oilproducing region pool together to construct a cap to be deployed in the event of a deepwater spill have already been rejected by the Council and the Parliament.

Ultimately, she says, the UK may even be forced to revise its regulations downwards, “which would not really be the purpose of the exercise”.

There is little doubt that the relationship between Scottish and European policy-making is changing fast. While the sentiment in Brussels appears to chime with Edinburgh’s objectives, the economic crisis has significantly lowered what Scotland’s energy sector can expect from its relationship with Europe. It is “crucially important” that Scotland stays ahead of the curve and is able to adapt to the new structures that shake out of the current crisis, says Smith. “I think we’ll see an EU energy market that is much more about rules than money. There will be much less public money for infrastructure investments,” he says.

“I think that has a potential to be negative for us, but we have a natural comparative advantage which hopefully the market, given suitable market signals, will follow.”

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