Guest Blog: Alexander Medvedev – Gas being squeezed out by EU bureaucracy

The Eu­ro­pean Com­mis­sion recently pre­sented a roadmap for its cli­mate and en­ergy poli­cies up to 2030. It did so for the right rea­sons, stat­ing that en­ergy in­vestors “need cer­tainty and […]

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By Vicky Ellis

The Eu­ro­pean Com­mis­sion recently pre­sented a roadmap for its cli­mate and en­ergy poli­cies up to 2030.

It did so for the right rea­sons, stat­ing that en­ergy in­vestors “need cer­tainty and re­duced reg­u­la­tory risk”. I agree, whole­heart­edly.

The en­ergy in­dus­try needs a trans­par­ent, rule-based and non-dis­crim­i­na­tory pol­icy frame­work, where in­vest­ment de­ci­sions are taken by mar­ket play­ers, not bu­reau­cra­cies.

Coal is elbowing gas out

But while the EU has been busy debating its energy future, coal has re-emerged as fuel of choice in Eu­rope. Indeed, the US shale gas boom has led to the Amer­i­can ex­cess coal getting dumped on the old con­ti­nent.

This unexpected shift in Europe’s energy mix is a symp­tom of fail­ing EU cli­mate change poli­cies: while large sums of pub­lic money are used to subsidise ex­pen­sive renewable energy tech­nolo­gies, the very same poli­cies set per­verse in­cen­tives to burn heav­ily pol­lut­ing coal. As a result, gas is being squeezed out, with gas-powered plants mothballed across Europe.

And yet gas is the flexible and clean balancing fuel that is necessary for the EU climate policies to succeed.

How do you fill the impending gas supply gap?

Burning gas instead of coal reduces CO2 emissions by 50-60%. Increasing the share of gas in the EU energy mix by only 1% will reduce the emissions by 3%.

But fore­casts sug­gest that domes­tic gas pro­duc­tion in Eu­rope will fall sharply.

In a best-case sce­nario shale gas can partially com­pen­sate for this, going on estimates from the EU’s Joint Re­search Cen­tre. It is ex­ter­nal sup­pli­ers and large im­porters who have the most in­cen­tive to help close this im­port gap. Often, they are also the only play­ers that can af­ford to take large shares in big infrastructure projects.

Half empty Nord Stream pipe shows red tape is absurd

Un­for­tu­nately, in­fra­struc­ture rules re­cently adopted by the EU do not encourage such investments. They imply the Com­mission gets to pick so called ‘pro­jects of com­mon in­ter­est’ and make them sub­ject to fast-track pro­ce­dures. All other pro­jects will con­tinue to face red tape.

Such an ap­proach re­duces EU as­pi­ra­tions for smart reg­u­la­tion to ab­sur­dity; more im­por­tantly, it also sends the wrong mes­sage to in­vestors.

Take the ex­am­ple of the OPAL pipeline, the German ex­ten­sion of Nord Stream through the Baltic Sea. For years, it has been standing half-empty be­cause Brussels de­cided that 50% of the pipeline’s ca­pac­ity must be auc­tioned to third par­ties, even though no one has ex­pressed an in­ter­est in ac­quir­ing this ca­pac­ity. Given that Nord Stream was an EU pri­or­ity pro­ject, this exem­pli­fies how far away Eu­rope is from re­duc­ing reg­u­la­tory risks. This is a real issue – and it needs to be ad­dressed be­fore 2030.

South Stream must not fall to same red tape

We are not ask­ing for spe­cial treat­ment for our South Stream pipeline pro­ject, which is to de­liver large quan­ti­ties of gas through the Black Sea and on to Italy.

But we do urge Brussels to apply ex­ist­ing rules in a way that al­lows mar­ket play­ers to do their job: de­liver en­ergy and not at half-speed.

If Eu­rope is se­ri­ous about the twin ob­jec­tive of build­ing a com­pet­i­tive, low-car­bon econ­omy, it must fi­nally put cost ef­fi­ciency at the heart of its en­ergy and cli­mate-change poli­cies.

Solution? Slash red tape bureacracy

Firstly, the EU should re­duce the num­ber of pol­icy in­stru­ments. The com­plex in­ter­ac­tions be­tween quo­tas, sub­si­dies, and mar­ket mech­a­nisms lead to un­ex­pected and un­in­tended con­se­quences. This is the op­po­site of clear in­vest­ment sig­nals, which every­one agrees we need. The Eu­ro­pean coal boom is a case in point.

Sec­ondly, the EU should focus its ef­forts on putting its emis­sions trad­ing scheme (ETS) back on its feet, for a pe­riod way be­yond 2020. This will not be easy.

In my view, in­stead of de­bat­ing po­lit­i­cal ad hoc in­ter­ven­tions into the car­bon pric­ing mech­a­nism, Eu­rope should es­tab­lish a car­bon floor price.​ These mea­sures would de­crease pres­sure on al­ready strained state cof­fers and leave the choice of en­ergy tech­nolo­gies where it be­longs: to the mar­ket.

Alexander Medvedev is Director General of Russian energy firm Gazprom’s export arm Gazprom Export and Deputy Chairman of Gazprom Management Committee.