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9 Energy policy

Access to reasonably priced energy essential for cohesion

In addition to liberalisation of markets, the major aspect of EU policy is support for improvements in the distribution network, to increase the availability of supply in peripheral regions, in particular. EU finance has, therefore, contributed to the construction of high-tension electricity lines and of gas pipelines as part of the trans-European Networks, to increase the possibility of trade in energy between Member States and to provide access to natural gas to regions where this energy source does not exist. Accordingly, assistance has been provided under the REGEN and INTERREG II programmes to help improve infrastructure in Greece, Spain, Portugal and southern Italy in order to increase the chances of consumers there benefiting from a single market.

These measures are aimed at reducing regional disparities in access to energy and prices. The establishment of a single market in energy should further help in this respect, by stimulating more trade and competition, especially in peripheral regions where monopoly suppliers tend to be more prevalent, and so pushing down prices.

The reduction in prices brought about could benefit the cohesion countries disproportionately, since their energy use in relation to GDP, though it has fallen in recent years, remains above that in the rest of the Union. This is specifically the case for Greece and Portugal, where consumption relative to GDP is some 40% above the EU average, reflecting the composition of economic activity, though to a major extent inefficiencies in the use of energy. Nevertheless, the economic development of these countries in particular, involving, as it is likely to, increased industrialisation, will almost certainly necessitate increased energy consumption and, therefore, stands to be assisted by lower prices. At the same time, it is important for environmental reasons, in particular, that any reductions in price which occur do not lessen efforts to improve energy efficiency.

The scale of the effect of moving to a single energy market on the energy price differences, which at present exist across the Union is, however, hard to predict, especially since taxes of one kind or another (excise duties, value-added tax) represent a significant, but highly variable, component of the price of fuel in all countries.

The net reduction in energy prices from the establishment of a single market should benefit most consumers, including many poor households. There is no certainty, however, that prices will come down for everyone. In particular, those living in more remote communities, especially islands, where the cost of providing supply is relatively high, will not necessarily benefit from lower prices and might even see prices increase as these come to reflect more closely the true costs of provision. Increased competition, in itself, is unlikely to help much in this respect. Accordingly, the case for the incorporation of universal service provision guarantees in legislation, to ensure that everyone has access to affordable fuel, is a compelling one. Without such provision, there is a danger that a single market could lead to a widening of disparities in society and damage social cohesion.

Increasing security of supply

The EU's dependence on imports of energy is set to increase in future years as North Sea reserves begin to run down. Dependence on imports varies greatly between Member States, as do the measures adopted (mainly regulatory ones) to minimise the risks involved in this. Such dependence does not have any direct implications for cohesion as such, so long as supplies are maintained and prices are relatively stable. However, the differential vulnerability to external shocks, such as an increase in world oil prices or the suspension of supply, is a potentially important source of disadvantage and, therefore, a possible factor in the decisions of businesses of where to locate, especially during periods of global instability.

In general, each Member State is responsible for safeguarding its own supplies (a common feature is that all member countries of the International Energy Agency continue to respect the norm of maintaining emergency stocks at a level equivalent to 90 days of net imports of petroleum). This may mean, to some extent, trading off lower prices for increased security and, therefore, overriding the market or imposing a fiscal and regulatory framework, which explicitly incorporates security considerations as well as those relating to the long-term availability of supply, within which the market can operate. Accordingly, the main long-term guarantee of security is to have access to multiple sources of supply, which can be achieved by diversifying both the sources of energy used and their origin.

For coal, supply is already extremely diversified. Apart from domestic mining (which is heavily subsidised), there are many exporting countries, in Central Europe, North and South America, South Africa and so on. For petroleum, although there is an efficient, well-established world market, there is a high degree of dependence on countries in the Middle East, and this is likely to increase further in future years. For natural gas, there are two major sources apart from the North Sea - Russia and North Africa.

Indeed, securing access to supplies is particularly strategic in respect of natural gas, which is likely to become an increasingly important source of energy in future years, not only in the generation of electricity - almost all investment in generating plants worldwide in recent years has been in gas-fired stations - but also as a possible replacement fuel for petrol in vehicles.
Accordingly, Structural Funds support for investment in natural gas networks in the cohesion countries is vital not just for increasing their diversity of supply, but also in preparing them for the future.

Environmental considerations

The pursuit of a path of economic development which is environmentally sustainable in the long-term is a central objective of policy and one which conditions the structural measures taken in the EU to assist regional convergence. This gives rise to a potential conflict between the pursuit of cost competitiveness - ie ensuring that production costs are not out of line with those elsewhere in the Union - and following a path best suited to achieving sustainable economic development. Accordingly, it suggests that there are mutual gains to be made, particularly in the long-term, from the adoption of a common policy on tackling the ecological damage caused by energy use, including in respect of fiscal measures.

At the same time, the EU continues to assist Member States in the pursuit of environmental objectives, through the ALTENER programme to encourage the development of renewable energy sources, SAVE, to promote more efficient use of energy, and PCCE, to support the co-generation of electricity. Moreover, the European programme for diversification and energy saving, which is aimed at stimulating international cooperation, is part of the 5th Framework Programme for science and technology.

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