Energy Cooperation – The Strength of the EU's Economic Development

Ruggiero, Francesco; Vlad, Liviu Bogdan; Vlăsceanu, Gheorghe; Gavriș, Alexandru; Vasile, Dragoș Article Energy Cooperation – The Strength of the EU's Economic Development Amfiteatru Economic Journal Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Ruggiero, Francesco; Vlad, Liviu Bogdan; Vlăsceanu, Gheorghe; Gavriș, Alexandru; Vasile, Dragoș (2015) : Energy Cooperation – The Strength of the EU's Economic Development, Amfiteatru Economic Journal, ISSN 2247-9104, The Bucharest University of Economic Studies, Bucharest, Vol. 17, Iss. 40, pp. 1080-1094 This Version is available at: https://hdl.handle.net/10419/168966 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ AE Energy Cooperation – The Strength of the EU’s Economic Development 1080 Amfiteatru Economic ESSAY ENERGY COOPERATION – THE STRENGTH OF THE EU’S ECONOMIC DEVELOPMENT Francesco Ruggiero1, Liviu Bogdan Vlad 2, Gheorghe Vlăsceanu3, Alexandru Gavriș4 and Dragoș Vasile5 1)Polytechnic of Bari, Italy 2) 3) 4) 5) The Bucharest University of Economic Studies, Romania Please cite this article as: Ruggiero, F., Vlad, L.B., Vlăsceanu, G., Gavriș, A. and Vasile, D., 2015. Energy Cooperation – The Strength of the EU’s Economic Development. Amfiteatru Economic, 17(40), pp. 1080-1094 Abstract Continuous economic development of the European Union countries has reached a stage in which both intraand inter-state cooperation together with the interaction of economic actors, have become biggest strength. The present paper analyze the level of cooperation between European Union countries and the European Union policies in the energy field to emphasize a better image of the European Union energy security level and its future geopolitical trends. In spite of numerous consensus problems among Member States towards a unitary common direction, every state appears to have the same objective – to secure its economic development through energy. As such, the centre of economic gravity in the European Union countries has to be energy cooperation and all policies should be focused on it. Keywords: energy cooperation, strategic resources, sustainable development, economic development, geopolitics JEL Classification: F53, P48, Q48 Introduction Cooperation within states is an essential principle of the European Union (EU), supporting the organization and its functionality from its inception. It has expanded and strengthened contiguous aiming to attain an increased cohesion among the Member States. Naturally, the energy sector has become the EU's central point for economic sustainability and is anchored  Corresponding author, Liviu Bogdan Vlad – [email protected] Amfiteatru Economic recommends AE Vol. 17 • No. 40 • August 2015 1081 in the norms of this principle. Moreover, every economic assembly includes discussions on energy topics and regulations in which energy is very much related to the security, the unity, and the future strategic development of the EU. Given these conditions, the study aims to analyze different aspects of the energy cooperation framework between EU countries and the EU policies, using as working hypothesis the fact that the strength of the energy sector lies in the multitude of regulations, alliances and partnerships, despite the functional relative success. The research and practical significance of the work lies in the stepwise description of actions taken by EU Member States in order to formulate a common European energy policy. Different authors have emphasized that the EU energy cooperation framework faces inconsistent levels of expression (Gandara, 2007; Youngs, 2009; Birchfield and Duffield, 2011). The German Länder have their own energy policies which have to be included in the cooperation framework. Another situation refers to the Member States’ options of sharing energy. Furthermore, each member state may develop bilateral partnerships with other nonEU countries. Finally, the liberalization of the energy market is still under thorough scrutiny and there is no clear harmonization yet. All these factors challenge the cooperation principle of common and coherent energy policy. Besides these, the EU Member States strongly adopt the sustainable development perspective, seeking “long-term reconciliation between industrial production and consumption needs, on the one hand, and the protection of an environment conducive to life, on the other hand”. To perform the analysis of energy cooperation, the paper structure focused on several key elements. The characteristics of the European energy market were discussed and appended with aspects concerning energy industry. These provided support to the next section, in which the challenges of EU's energy collaboration were explored alongside the advantages created through collaboration. The paper concludes the analysis, suggesting that the scale of energy cooperation will produce an integrated system of enormous dimension, with significant effects for the whole EU's industry sector. 1. Characteristics of the European energy market The EU energy markets are prerogative of the Member States and both are subject to particular energy market regulation and more general competition policy regulation. The unique characteristics of the European states' energy sectors have kept them outside of the European Union loop competences for decades. However, during the past decades a number of trends in the European Union energy sector have appeared and intensified: the European Commission and the competition authorities of the Member States have become increasingly actively using competition policy tools in the EU natural gas and electricity sector. Every economic assembly includes discussions on energy topics and regulations in which energy is very much related to the security, the unity, and the future strategic development of the EU. Another situation refers to the Member States’ options of energy sharing. Furthermore, each member state may develop bilateral partnerships with other non-EU countries. Finally, the liberalization of the energy market is still under thorough scrutiny and there is no clear harmonization yet. All these factors challenge the cooperation principle of common and coherent energy policy. Alongside these internal issues, the threat of the Russian energy dependence has grown ominous because of the lack of clear solutions. Still, there are successful projects, but the bureaucracy of the organization (Hille and Knill, 2006; Kuus, 2011) and the political disagreements have rendered them similar to fantasies. AE Energy Cooperation – The Strength of the EU’s Economic Development 1082 Amfiteatru Economic The critical situation in Ukraine – transit country for the energy pipelines – and the EU's sanctions against Russia have raised a new challenge, with multiple implications in energy. Its solution emerges from the European energy cooperation, an argument that will be developed in the paper assessing evolution of the EU energy sector and investigating the current energy dynamics. Regarding the energy industry an important number of particular geopolitical characteristics have developed and started to shape the sector dynamic:  The primary energy resources are owned by the state.  The majority of governments prefers to control or influence the national energy industry.  Energy represents the vital element of the current economy and the security of energy distribution represents a main interest for many governments.  A growing number of states are becoming increasingly dependent on a smaller number of energy suppliers.  The energy industry remains dominated by large scale projects, financially as well as in terms of duration, and is controlled, as such, by a small number of national and multinational companies with experience in project execution.  The financing of energy projects is increasingly becoming an international activity, requiring complex documentation capable of satisfying the contracting parties as well as the stakeholders.  Long distance energy transportation represents a monopoly, and must therefore be regulated by treaties.  The energy industry represents a large share of national, regional and global pollution.  Nuclear energy is dependent on technology and therefore on nuclear weapons.  The concentration of extraction, production and distribution activities in a single company (Gazprom holds shares in German and Polish companies and recently it has concluded an agreement with Italy concerning distribution).  Orientation towards alternative energy sources has become a priority in the EU.  The vulnerability to the lack of alternative pipelines.  Energy cooperation between 2 or several states requires an agreement between all parties involved, not just immediately, but also long-term, through secure agreements and partnerships and under the institutional control of the parties involved.  The problem of natural gas supply and the shaping of a specific market, in the context of supply being a regional issue, defined by the countries transited by the pipeline. 2. Guidelines 2.1 Stages of the drafting of the EU energy policy Energy has become one of the key points of EU development, requiring stability and security. The problem of energy security in the EU states has been a matter of concern ever since the beginning of the organization of this economic community. Even the initial name Amfiteatru Economic recommends AE Vol. 17 • No. 40 • August 2015 1083 – the Organization for Economic Cooperation of Steel and Coal – underlines the economic importance of regional cooperation between European states; the economic community recovered after the Second World War through energy. Although energy cooperation appears at the forefront of talks and agendas in past periods, it was the least discussed until recently, because the interests of states and companies were beyond consensus. Furthermore, the viability of the EU became visible after 1990, when the fall of the Soviet bloc and its common market left only one large party in the region that could manage international relations at the European level. The history of cooperative relationships in the EU in the energy field allows for an observation of the development and functional dynamics of the EU organs for ensuring economic security. Energy issues are in fact the key issues of the EU, energy being the most difficult problem to tackle in agreement. Even in these moments of crisis, in which dependency on Russia is ever increasing, the prospects are bleak, collaboration between EU states and the EU economic agents are still tense and difficult to put in agreement. As a first element of our methodology of underlining the advantages of European economic development from the standpoint of energy cooperation, we will inspect what has happened with regards to attempts of unions to cooperate to this end. The first moments of ensuring the European energy security were shaped in the wake of the Second World War, when the energy industry was considered among the most important elements of economic development, and therefore the conclusion of most European states was that it had to be under the full control of national structures. In this first stage (1945-1970), the great European energy conglomerates were formed, largely state-owned: Electricite de France, Gaz de France (1946), ENEL (1962). The year of 1951 was the reference point, when the Treaty for the Constitution of the European Community of Coal and Steel (Paris) was formed in order to create a common market on a European level of what was the most important energy resource. Moreover, the geopolitical problem of creating the community derived from the change in the belligerent perspective on resources – coal and steel represented symbols for weapons production – to a peaceful one, in which former enemies could collaborate and help one another towards economic recovery (Schumann, 1950). Nevertheless, in this period of infancy, the problem of regional security wasn’t tackled until later (1957), when the Treaty for the Constitution of the European Community for Atomic Energy is signed in Rome (Euratom) for the reduction of dependency on imports from the Middle East (the Suez oil crisis in 1956). From this point onwards, the European states confronted a first energy threshold in which dependency on a certain area, possibly involved in conflict, must be avoided by alternative solutions and technological cooperation to this end. In 1964, collaboration was for the first time observed between European organizations and other world structures, through the signing by Euratom and AEC (American Energy Commission) of an agreement to exchange information for ten years in the field of nuclear energy. The collaboration between Member States of the new European structures is also underlined by the Communications of the European Commission towards the Council of Ministers of 1967, where the first elements towards the creation of a common policy of energy cooperation are set out, without insisting on their development in depth. This state in which some of the guidelines for the energy collaboration are set is characterized by the fact that only the importance of the national energy section increases (the Euratom directives), and AE Energy Cooperation – The Strength of the EU’s Economic Development 1084 Amfiteatru Economic nuclear energy must be developed in more and more states. Evolutions based on energetic policies related to the EU treaties contextualized in the basic principles of the Euratom Treaty that continued the policies in the same manner until the end of the 1970`s. The second phase of the European energy collaboration takes place between 1970 and 1990, the main events being the discovery of solutions to strengthen national energy industry (a first step) or the liberalization of energy markets (as a result of the USA and UK’s privatization). New world economic crises, caused by more problems in the Middle East during the 70’s, heightened the energy safety issue and, consequently, the economic issue. They determine the measures taken in the energy industry that were independent from the conventional energy resources. Thus, the increasing need for reliable energy supplies becomes more and more visible to the European Community, the results of this fact being more funds given to the construction of nuclear plants but, at the same time, alternate energy resources are exploited through subsidies. The International Energy Agency is founded in 1974, ten years after the agreement between EURATOM and AEC, and represents a further collaboration with the States, through which the geopolitical aspect of energy is emphasized. The stated purpose is that of supervising the distribution of financial funds and the encouragement of diversified forms of unconventional energy resources. National energy policies and executing agencies began to form. However, some interventions planned in this traditional way proved to be too hasty and even ineffectual, and that is why the governments’ capacity of drafting its own energy policy is questioned. The problem of energy collaboration falls into a second spot, the main topics being related to the strengthening of the European internal market in 1987 through The Single European Act where, as a consequence, the energy subject was of no great interest. During the third phase (1990-2000), at the same time with the further development of the European legislation, the level of cooperation concerning energy and related European policies gather more and more importance. A significant goal was the establishment of a legal framework of the EU energy markets liberalization (e.g. the Electricity Directive 96/92/EC, the Gas Directive 98/30/EC), providing such economic approaches as vertical and horizontal unbundling, network access and interconnection, market opening or universal service obligations (Oprescu, Papatulica and Vasile, 2002). The European Union’s common policies are also backed up by various agreements and signed treaties:  In 1990, at the European Council in Dublin, it was widely accepted that the rebuilding of the ex-communist area, as well as the safety in the energy supplies of the community’s space could be sustained through collaboration in the energy industry.  In 1991, the European Energy Charter from Hague states the principles, objectives and mains of achieving the pan-European energy collaboration.  In 1992 The Maastricht Treaty brings new aspects in defining the concept of an internal energy market. In the same year, the proposal to include the chapter on energy was rejected by Member States, even if the one who sustained that chapter was the European Parliament.  In 1994, The Energy Charter Treaty represents the legal framework for cooperation in order to apply the principles of the Charter. The main objective is “promoting the energy collaboration on a long term” on the Eastern-Western axis (the Treaty has been applied since 1998). Amfiteatru Economic recommends AE Vol. 17 • No. 40 • August 2015 1085  In 1995 The Green Charter “For a European Union Energy Policy” traced the following guidelines: the reduction of prices for oil products, the development of unconventional energy and the improvement of energy infrastructure.  In 1995 The White Charter “An Energy Policy for the European Union” presents the energy dynamics in the context of globalization and promotes the integration of national energy markets as a decisive European political element.  In 1996 and 1997, the “Green Paper for a Community Strategy – Energy for the Future: Renewable Sources of Energy", respectively the “White Paper: Energy for the Future – Renewable sources of Energy", are documents which still sustain the present common energy policy and the European legislation.  In 1997, The Amsterdam Treaty contained the common initiative for creating TransEuropean Networks (TEN-s), a step which implied an ample development of the European energy infrastructure, and also the telecommunication and transport infrastructure. Thus, the European energy cooperation already has solid ground to start form and the directions of development union-wise are starting to become visible, even if there still is a different approach on the matter in some Member States. The fourth phase (2000 – present day) is characterized by pursuing the implementation of regulation plans in the energy domain, and also by the development of various policies in accordance with the latest European and geopolitical events. A new image of energy and economic security is defined for the EU Member States, the guidelines being provided by:  The 2000 Green Charter on energy “Towards a European strategy for the security of energy supply", written by the European Commission and later adopted at the European summit defines the two major aspects of the common energy policy: the strengthening and finalization of a common external policy in the relationship with external suppliers to ensure the security of energy supplies.  In 2002, The European Council from Barcelona decided on the total liberalization of the electric energy market (by introducing a new common directive for gas and energy) for the industrial and commercial consumers, starting from 2004, through which the rules are simplified and the single European market becomes more homogenized.  In October 2005, the council at Hampton Court – the heads of states and the European Governments expressed their interest to revitalize Europe’s energy policy.  In December, 2005, The European Council underlined the importance of an integrated approach of the objectives linked to the climatic change-energy-competitiveness.  2006, The European Commission’s Green Book “A safe, competitive and sustainable energy policy” traces the leading principles of the new energy policy : it should contribute in a balanced way to the security of energy supplies, the competitiveness and long-lasting development (the three pillars), to ensure transparency and lack of discrimination on the market, to agree with the laws of competition, to respect the obligations of public service, to respect the independence of the Member States in what energy resources and the choice of the energy mix is concerned.  The creation of regional energy partnerships as an expression of the liberalization of market direction (in 2007, the signing of a “Memorandum of Understanding” which will connect the energy markets of France, Germany, Belgium, the Netherlands and Luxembourg in one regional area). AE Energy Cooperation – The Strength of the EU’s Economic Development 1086 Amfiteatru Economic The fact that, even though the energy markets have functioned very well on national and even union level, they cannot face bigger crises alone is relevant in this troubled period. Therefore, without the attempt to collaborate and find common ways of proceeding in solving the problem, one can clearly see that the EU functions well only on few levels, one of the most important of which the energy level, having been only recently (for 15 years) in the attention of general coordination. 2.2 Collaboration in the European Union and the energy options As an organization composed of many states, the EU is, from its energy resource standpoint, not nearly functional, given the fact that until now it has focused mainly on national policies. As a result, the energy networks of the Member States are capable of ensuring positive dynamics for the economic development; but in order to have a secure future, a framework on a political level is needed in order to guarantee the continuity of the energy sources on which the EU depends. The energy agenda of the EU is, at present, defined by its attempts to ensure a coherent policy for the future in which the main components will revert around:  Source diversity.  The emphasis on the importance of nuclear energy, taking into consideration the opinion expressed by the states that desire it as an alternative.  Extensive research in unconventional energy sources.  The re-evaluation of politics with Iran, Libya.  The accelerated signing of bilateral agreements.  The acceleration of the reversal of the monopoly process (the complete separation of electrical distribution networks and their supplying companies, the companies choosing this policy being then able to pick an “independent system of collaborators” (separate companies that will own access and investments in the distribution networks, but which can also be suppliers). Furthermore, as part of the long term strategy, the European Commission’s plan form Lisbon was characterized by the following objectives:  The coherence of the energy program, in which no major differences between the internal policy of the Member States and that of the EU should appear.  The further application of the bilateral programs and of energy and economy agreements in accordance with the ecological elements which are strongly promoted by the EU.  The execution of the agreement with Russia, only if there are feasible conditions set by each side.  The cooperation with other energy actors, independent from the relationship with Russia, given the fact that the EU is directly surrounded by 80% of the world’s carbohydrate reservoirs. Amfiteatru Economic recommends AE Vol. 17 • No. 40 • August 2015 1087  Establishing a network of specialists in the energy field who will be able to analyze the general situation in the EU and also that of the Member States in any moment of crisis, in order to supply the EU with all relevant data to continue its energy strategy. If these measures are taken, the capacity to absorb energy shocks will rise, guaranteeing the EU’s energy security. Within this background sketched by the EU’s plans of action directed towards energy sector, EU’s options of collaboration are divided between the desire to continue its cooperation with Russia and the possibility of reorienting itself towards other energy resource suppliers from closer, more strategic areas (Algeria, Nigeria, Norway, the Caspian states). From this point of view, one can understand the framework of collaboration that the EU has created in the past years through the agreements and proposals it has made, especially in the energy industry. Each of the energy actors, the traditional ones as well as the more recent ones, are thus the EU’s economic development engine. The wellfunctioning of the economic ensemble represented by the EU will be accomplished through the tightening of energy relationships, a final expression of unity in collaboration. The collaboration strategy with each of the actors involved in the energy and economy communication shall be carried out according to the new principles of cohesion in sustained development even if the relationship between the EU and its partners isn’t symmetric. We have different types of states, from an energy collaboration point of view:  States that supply with energy - Dependent: Russia, Algeria, Norway, Qatar - Alternative: states from the Caspian Sea, states from the Middle East - Possible : Nigeria - Optional-necessary: Iran, Libya  States through which the energy transits - EU neighbors (Ukraine, Belarus, Turkey, Georgia) - Intermediaries (African states) During the negotiations with Russia in 2005, the EU became aware of its vulnerability when faced with this partner and that moment became the turning point for establishing new strategies. The relationship between the two political structures is far more diversified than the simple status of supplier that Russia has for the EU. Russia is not only the source for 30% of the EU’s energy sources, but also an important trade market for goods and services for the EU. 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