Peak Oil, Climate Change and energy security in Europe: Austerity, A Green New Deal and decarbonising the economy

Dr. John BarrySchool of Politics, International Studies and PhilosophyQueen’s University Belfast j.barry@qub.ac.uk

The context

Climate change

Peak oil

Energy security

Austerity and economic recession

Energy Geo-Politics The rise of energy security

Crises Economic and Financial

Political and Legal

Civil and Military

Resource Nationalism ‘energy independence’ as new objective of national energy policy-makers

Political Instability In key energy producing and transit regions

Growing demand Rising Powers (BRICs)

Climate Change EU global leader

Price instability Spikes and disruptive lows

Investment uncertainty

Peak oil Peak gas – at least inside the EU

Unconventional sources – fracking

Pipeline Politics

EU Energy Politics Framing European Union energy politics

‘Energy Security’ Dependency upon energy imports Concerns with security of supply Environmental stress

Governance Developing shared institutions

Formal rules, legal systems, binding treaties Informal patterns of cooperation, trust, reputational factors

Pipelines do not solve energy security problems Pipelines transfer energy security problems to question of governance in

transit states

Marketization Need to create competition amongst suppliers Energy prices set by supply and demand to solve energy security issues Promotion of market norms in energy by the European Commission

EU Energy Policy Core objective of EU energy policy is to achieve energy security through:

The transformation of energy governance in Europe’s energy partners This is referred to in the broader literature as an ‘EU external governance’ strategy

This transformation of energy partners will ensure: Cross-border regulatory harmonisation Crucially: based the adoption of EU standards by energy partners ‘Policy transfer’ at the heart of EU energy policy

What policies? Global Best Practices for Energy Sector Reform Unbundling (building a competitive and structurally differentiated energy sector)

Generation, Transmission, Distribution

Market pricing Energy prices to be determined by supply and demand

Private Sector Participation (explicit or implicit) New Regulatory Framework

The governance dimension

Independent regulatory agencies

Clear legal framework so as to ensure a ‘positive investment climate’

EU ETS

Permits in the ETS are trading at prices well below the level thought necessary to stimulate green investment and innovation.

The target was for the price to be €30/tCO2 in 2020 and rising.

Last week prices continued to fall and closed at €6.88/tCO2.

In response, the European Commission has announced that new permits will be withheld, a short term measure that will help prop up the market.

"The EU ETS has a growing surplus of allowances built up over the last few years. It is not wise to deliberately continue to flood a market that is already oversupplied" (Connie Hedegaard, European Commission, August 2012)

Part of the steep learning curve and constant adjustment for this policy innovation

European Emissions Trading System

In 2005, the EU launched the Emissions Trading System (EU ETS), the first international carbon-trading scheme in the world.

Following a three-year pilot period, Phase II of the EU ETS was launched in 2008. Across its 27 Member States, the EU ETS covers large plants from CO2-emission intensive industrial sectors, namely power generation, mineral oil refineries, coke ovens, iron and steel and factories producing cement, glass, lime, brick, ceramics, pulp and paper, and all combustion activities with a rated thermal input exceeding above 20MWh.

Bulgaria and Romania joined the trading scheme in 2007, bringing the total number of installations to 11,300.

Next trading phase to start this year (2013)

EU flagship policy on decarbonisation and promotion of green/clean industrial innovation

Successful…but would a carbon tax have worked better to incentivise decarbonisation?

Or a higher floor price for carbon?

Other EU drivers

Lisbon Strategy: “The European Union should become the most competitive knowledge-based economy of the world with sustainable economic growth and more and better employment opportunities and greater social cohesion.”

Sustainable Development Strategy: “break the link between economic growth, the use of resources and the generation of waste”. Decoupling

EU Commission (2011): Roadmap for moving to a competitive low carbon economy in 2050

UK context

UK Climate Change Act (2008)

Improve carbon management and help towards a low carbon economy in the UK

Demonstrate strong UK leadership internationally-

‘Green deal’

Investment in renewables (and nuclear)

The dash for gas

Current gas prices in UK reflect not current gas supply-demand Oversupply due to massive investments based on demand projection prior

to the economic crisis

Oversupply due to the closure of US market (Shale/Unconventionals)

Demand collapse due to economic crisis

Yet prices rocketed – due to predictions of cobweb-style future supply shortages?

‘Fracking’

Austerity

Resilience of ‘green growth’ and low carbon sectors and initiatives?

“The evidence we have seems to suggest that, on the expenditure side, objectives such as promoting green growth are being shielded from austerity: spending cuts in environmental protection tend to be mentioned only rarely and to constitute a low share in the overall packages. At the same time, a number of countries have taken steps to combine the need for additional government revenue with ecological policy goals by raising or introducing various ecological taxes, as well as other measures….In the UK, energy and the environment spending will buck the trend to severe cuts, raising spending in real terms”.

(European Trade Union Institute, ‘Withdrawal symptoms: an assessment of the austerity packages in Europe’, 2011, pp.26-27)

But jobless investment?

‘Green New Deal’ approach

Counter-cyclical investment strategy – energy, housing – to create /sustain jobs in low carbon infrastructure

Finance – from pension funds, green bonds (local authorities), green investment bank

Not simply a ‘tax and spend’ policy – also need to reduce carbon subsidies – politically difficult

Conclusions