Sustainable energy Security: A transatlantic Opportunity [EN]

Climate Change and International Relations (Joe Brusky, Creative Commons)

Climate Change and International Relations (Joe Brusky, Creative Commons)

Introduction

Europe and the United States together face shifting dynamics in issues of both energy andsecurity: renewed concern regarding Russia's leverage over European gas supply, the market and geopolitical responses to the North American "shale revolution", and outmoded energy infrastructure and institutions that have yet to fully take account of the risks and imperatives presented by climate change. Alongside and in conjunction with these changes, the European Union and the United States are building new mechanisms that involve the integration of energy policy with foreign policy, such as the nascent EU's Energy Union project and the prospective US-EU Transatlantic Trade and Investment Partnership (TTIP). Though it is clear that energy policy and foreign policy are increasingly intertwined, as Shahrazad Far and Richard Youngs put it, "the direction of linkage between energy policy and foreign policy remain unresolved."[1] Considering the intersection of energy policy and foreign policy within the frame of climate-change mitigation offers a coherent and comprehensive approach to navigating the policy objectives in each policy realm. The rapid transformations in fossil-fuel production and consumption continues to shift oil and gas trade flows, rebalancing market power and causing instability in resource-rich states neighboring Europe. Climate change is a long-term, incremental, yet highly pernicious global challenge that demands a rapid deployment of clean, distributed, resilient energy technologies just when other more near-term security challenges are threatening to reinforce and expand the incumbent fossil fuel system. The effects of climate change have already intensified gruesome conflicts in Africa and the Middle East that have spilled over into Europe. Over the course of 2015, the Carnegie Endowment for International Peace and the Heinrich-Böll-Stiftung convened three workshops — in Brussels, Washington D.C., and Warsaw — to examine the challenges and opportunities these issues' shifting dynamics pose for greater understanding and collaboration between the energy and security communities on both sides of the Atlantic. The organizers sought to include participants not only with "energy security" perspectives but also with those with experience in the energy field as well as the broader security and foreign policy field. At the center of this approach was an effort to escape the echo chamber and engage communities of scholars and policy makers that are not accustomed to working with one another on a regular basis. The goal of this short synopsis is to spark a dialogue that can illuminate new aspects of these fields' intersections. Below, we discuss the key thematic currents that ran through the three workshops, and we attempt to build connections among them to make use of the surge of opportunities presented by an evolving energy sector and a shifting geopolitical landscape.

1. Arc of Instability, or Age of Opportunity?

The security challenges facing Europe can be characterized as an "arc of instability," a reference to migration and conflict-related issues in the MENA (Middle East North Africa) region, Russia, and Ukraine.[2] This arc of instability not only cradles the EU's geographic borders, it also serves to link what previously might have been understood to be disparate policy concerns: the effects of climate change, the growing refugee crisis, European access to energy resources, the terrorism of ISIS and its affiliates. Yet, even given the increasing recognition that the effects of climate change has contributed to conflicts in Africa and the Middle East, the EU has yet to take on climate-change mitigation as a strategy for addressing these conflicts over the long term.[3] Furthermore, given the instability of regimes whose revenue is reliant on fossil fuel consumption, simply developing an internal climate strategy will not ensure the provision of the global public good that is a stable climate. While the European energy-security response to this arc of instability has rightfully included an extensive focus toward internal policies, it has done so at the risk of under-specifying its geopolitical perspective. Where do opportunities lie to engage other states — European, Eurasian, MENA, Transatlantic — in climate-focused energy security policy? In addition to intra-EU dialogues surrounding the Energy Union vision to make the EU energy supplies more diverse and secure, the EU is carrying out a number of dialogues — from the Transatlantic Trade and Investment Partnership (TTIP) negotiations to the EU-U.S. Energy Council and beyond — that may promise further mechanisms for energy and policy cohesion across the Atlantic. Observers, critics, and advocates alike have discussed TTIP with respect to the role of U.S. LNG in relieving anxieties regarding the security of Europe's gas supply; but, as we discuss in further detail below, U.S. LNG is less important to TTIP than negotiators have made it out to be, since the EU's status as a US trade partner will allow exports de facto automatically.[4] There are, of course, still opportunities to make TTIP a strong and meaningful agreement for strengthening Europe's energy security, including, for example, by making progress on mutual recognition of relevant standards and lowering barriers facing renewable energy. Crucial here is the proposition – perhaps counterintuitive to some – that greater transatlantic trade in energy resources is no longer sufficient, on its own, to fully realize opportunities to improve EU and U.S. energy security. Given new technologies and business models in the energy sector, some of the largest fruits of transatlantic energy cooperation will also involve progress towards aiding each power in tapping its own alternative, homegrown energy resources (including energy efficiency), as well as a better mutual understanding of how each power interprets the concept of "energy diplomacy" in today's changing world. This more nuanced definition of cooperation — including mutual assistance towards self-sufficiency and common understanding of energy as a diplomatic tool — can also help the EU and U.S. to focus attention on the root causes of its energy security woes.[5]

2. Independence, Interdependence, and Instability

In order to understand these root causes of energy-security concerns, we must understand by what criteria the EU and the U.S. judge successful energy security policy. It is commonly believed that the U.S. energy policy is — at least rhetorically — singularly focused on achieving energy independence. The relative abundance of U.S. fossil energy resources, especially with the recent rapid development of shale (or "tight") oil and gas, now offers the possibility of realizing this independence (at least in net terms) that it purportedly seeks. The EU, with its diminishing oil-production capacity and its relative reliance on Russia for natural gas,[6] conceives of its position in the global energy space as defined, by necessity, by interdependence and institutional soft power. It is critical that, moving forward, both the U.S. and the EU ultimately seek interdependencies that are stable and resilient, rather than volatile and precarious. The EU's energy relationship with Russia is one such interdependency. Russia's fossil-fuel economy is dominated by two abundant resources: gas and oil.[7] The economics and geopolitics of these two resources, however, are quite different from one another. Considering each helps illustrate the ways in which instability arises not only from Europe's dependency on Russian gas, but also from Russian dependency on the European oil market for its revenues. This case study in volatile interdependency will illustrate the need not just for energy partnerships and coalitions but for sustainable, low-carbon energy partnerships. Russia's gas monopoly, Gazprom, supplies around 30% of Europe's natural gas. Its occasional use of its gas resources as a political tool — notably in 2006 and 2009 when Russia temporarily cut its supply to Europe after failed price negotiations with Ukraine[8] — has been a key motivator behind Europe's recent push to develop an "Energy Union".[9] Though Russian gas is a crucial — and dominant — component of Europe's gas supply and Eurasian geopolitical dynamics, it accounted for only 14% of Russia's 2013 export revenue, compared to the 54% of export revenue represented by Russia's crude oil and petroleum product exports.[10] The market for oil is more robust than the market for gas — there are many buyers and sellers, none of whom can unilaterally set a price. (This is, in part, due to Europe's limited pipeline and LNG import infrastructure which disallows more extensive long-distance trading that would allow for fewer regional political disputes.) Even though Russia's market power is relatively low in European oil markets, however, 72% of Russia's crude-oil exports went to Europe in 2014; this figure suggests just how crucial a role Europe plays for a country whose taxes on mineral extraction and exports contribute 50% of its federal budget revenue.[11] In the realm of oil exports, Russia has much less political leverage, which reflects the bi-directionality of its interdependent relationship with Europe. Even in the midst of significant regional tensions, oil supplies to Europe have not been significantly disrupted. In 2007, as a pricing dispute between Belarus and Russia led to a temporary shut-down of the Druzhba pipeline (supplying one-tenth of Europe's oil), key destination markets such as Germany and Poland were largely unaffected due to their refineries' ability to draw on their inventories and arrange for alternate supply sources from nearby storage and other infrastructure.[12] By contrast, Europe experienced historic petroleum supply disruptions in 2015 due not to geopolitics, but instead, at least in part, to changing climate patterns. With the Rhine River experiencing record low water levels from mid-2015 that significantly restricted navigation for large vessels such as fuel barges, upriver markets in Switzerland and Southern Germany experienced severe disruptions throughout the second half of the year.[13] Meanwhile, downriver locales in the Netherlands and Belgium saw significant stock build-ups, massively distorting price spreads for fuel delivery in various Rhine-dependent markets. These examples illustrate the instability that arises not only from Russia's exercise of its monopoly power, but also from the non-human forces to which human societies are increasingly subjected. The mutual energy security of both Europe and Russia is predicated on interdependency with the climate, albeit on a much less politically malleable timescale. There is a constitutive and mutual instability affected by relationships built on fossil fuels. Simply developing new fossil-fuel resources will not engender the stability and long-term resiliency that Europe seeks — such stability would be better achieved by focusing greater attention on interdependencies underpinned by renewables and well-integrated, competitive markets.

3. Energy Union: In the Eye of the Beholder

Regulatory action has a crucial role to play in energy-security policy, and, if it consciously takes aim at the demand-side causes of Europe's energy issues, the EU's fledgling Energy Union could facilitate the enactment of such regulation. In doing so, it could also expand the EU's operating space for foreign and security policy. Though an energy transition to renewable power introduces its own security-of-supply concerns, greater interconnectivity has the potential to reduce risks of intermittency. Think tank reports and EU mandarins have long discussed the ideal of optimizing the security, growth, and environmental profile of the European space through full linkage and coordination within its energy system. It is only recently that current events have provided the catalyst necessary for the European Commission to publicly formulate an Energy Union proposal. In its earlier articulations by the government of then Prime Minister of Poland, Donald Tusk, the Energy Union was a mechanism squarely aimed at buttressing the EU's security of supply. The aim was to establish a single EU natural-gas purchasing authority to match Gazprom's monopoly power as a seller with the theoretical monopsony power created through the consolidation of all EU gas demand.[14] Tusk's original conceptualization of the Energy Union analogized it to the EU Banking Union, initiated in 2012 in response to the recent financial crisis, and also included a generous number of references to the role that fossil resources could play in weaning the continent from dependence on Russian (likewise fossil) energy supplies. Like so many policy concepts whose rhetoric expands faster than their substance, the concept of an Energy Union soon saw the visions and agendas of other actors, at both the EU and member state level, grafted onto it. Renewables advocates, not least in the Commission itself, viewed it as an opportunity to more muscularly implement the market reforms and infrastructure linkages needed to allow higher penetrations of solar and wind resources in years to come. Countries mulling new pipelines or LNG terminals hope to capitalize on the opportunity to attract new funds or political support from the EU to push the new infrastructure forward. Germany sees in the nascent Energy Union idea the seeds of a continent-wide Energiewende (clean energy transition), and hopes to export some of its hard-earned lessons. Even outside partners, from Algeria to Azerbaijan to Norway and beyond, are watching developments closely in the hope of dovetailing their own export strategies with an evolving set of rules and norms in the European market. The Energy Union, in other words, took shape in the first instance as a bit of a Rorschach test, allowing every interested actor to see reflected in it their own unique perspectives, endowments, and strategic desires. At the macro level, it has been enabled not so much by historical inertia but instead by two key trends at the margin. Leaders in Eastern and Central Europe have recognized that aspirations to reduce their dependence on Russian gas and increase their access to other foreign suppliers can only be achieved with far greater levels of integration among European member states. Concurrently, it has become increasingly clear to leaders in Western Europe that large ambitions in the realm of climate change and renewable energy are only likely to be met, at a cost acceptable and endurable for European society, with far more liberalized and efficient flows of energy within the European market.As the project continues to unfold at the outset of 2016, its current contours already show a marked evolution from earlier forms. Gone is the notion of a single gas purchasing authority that would have encountered a number of tensions with the seemingly contradictory pursuit of market liberalization and competition through earlier regulatory foundations such as the EU's Third Energy Package. Similarly, the atomization of Energy Union objectives and authorities into individual "pillars" appears to have disappeared, replaced by reference to "mutually-reinforcing and closely interrelated dimensions". The shift may simply be a rhetorical one, but it suggests that European policymakers understand the need for efforts such as energy sector decarbonization, the EU single market, and security of energy supply to be pursued in a coordinated fashion from the outset, rather than being siloed in their respective Directorates and stitched together by an awkward, post-hoc process. Finally, while two instances of enhanced governance have already been borne from the Energy Union project — the empowerment of the Agency for Cooperation of Energy Regulators (ACER) and the European Networks of Transmission System Operators (ENTSOs) — much remains to be done to fulfill the promise of an "integrated governance and monitoring process."[15] The Energy Union concept has thus far been mobilized to build strong intra-EU networks and to forge a coherent energy strategy by, for example, collectively determining — or at a minimum providing oversight of — the terms of individual states' bilateral contracts with Russia. Already, these signals from the European Union are beginning to have impacts even without concrete policy follow-through, with Gazprom starting to experiment for the first time with extensive spot-price based gas auctions via the St. Petersburg trading hub.[16] Gazprom has indicated that it may soon move to sell up to 10 percent of its gas through spot auctions, in a move to better accommodate Europe's desire to move away from long-term oil-indexed gas contracts towards a more dynamic, hybrid pricing environment that mixes long-term supply contracts with extensive spot pricing. Despite these early signs of progress, however, larger questions remain. What remains to be seen is the extent to which cleaner, renewable, decentralized energy sources — which offer benefits across every dimension of the Energy Union's goals — will be embraced in the years ahead. Part of the challenge of any EU-wide policy strategy is that it will have to account for and navigate the domestic political concerns of its member states in order to realize the benefits of collective action. This has so far not been a strength of the Energy Union discussions. For one, Germany and Austria continue to negotiate with Gazprom on the Nord Stream II gas pipeline, which some believe could undermine the EU's aim to diversify its sources and preserve Ukraine's role as a gas transit state.[17] In the UK, austerity policies have drastically reduced subsidies for renewables at the same time as climate policy has ratcheted down coal-power production. This has lead to a crisis of incoherence whereby the country is now subsidizing emissions-intensive diesel generators for everyday power.[18] On the other hand, a number of Central European member states are increasingly locked into large, centralized energy sources as they aim for greater energy autonomy. While Hungary and the Czech Republic plan to add nuclear capacity, which will increase its citizens' access to energy in the short run, the cost competitiveness of these plants is poised to diminish over the coming decades as renewable resources gain traction across Europe. These projects have also been the subject of significant corruption accusations, calling into question the economic basis for their construction until governance and transparency are improved, and until the plants' role in a diverse low-carbon future generation portfolio is clarified.[19] Like Hungary, Poland is seeking to strengthen its energy autonomy. Indeed, it was former Polish Prime Minister Donald Tusk, now president of the European Council, who spurred the movement toward an Energy Union for this very reason, with an eye to Poland's coal resources.[20] The country's coal industry is well-known for its significant influence on domestic politics, even as coal continues to shrink its share within the country's increasingly diversified economy. The subsidies the Polish government provides for an increasingly uncompetitive industry — even buying 6 million tonnes of unsold coal in 2015 — attests to the fossil fuel's uncertain outlook.[21] However, the government's attitude toward coal belies the opportunities Poland faces to develop a more sustainable energy strategy that works in concert with its broader goals of economic development and energy security. For example, Poland is well-positioned to become a key player in Europe's data-oriented and services-oriented energy future, given the growth of major technology company offices (e.g. Google, Deutsche Telekom).The development of this industry will rely on forward-thinking, multilateral policymaking: crafting legal frameworks (in TTIP or otherwise) regarding data use, alongside efforts aimed at energy efficiency, could facilitate development that is sustainable environmentally, economically, and geopolitically. It is important to address the anxieties and implied labor market adjustments that would come with diversifying energy supply away from coal. In some cases complementary jobs in the emerging clean energy sector may readily present themselves, while in other cases direct state intervention will be necessary to re-skill and re-integrate a workforce for whom coal is not only a source of economic livelihood, but also a source of culture and identity. How can the EU emphasize the greater benefits of collective action in the face of pressing energy security issues in individual member states, particularly those that are relatively less wealthy? Greater connectivity between Member States and key infrastructure networks is poised to provide at least a partial solution to some of the constraints and price asymmetries, particularly in Central and Eastern Europe. This is not a regional issue, but indeed an inter-regional issue, with the role of traditional energy "islands" such as the Nordic and Baltic area poised to play a crucial role in expanding the energy options (and not to mention the low-carbon portfolio) available to Central and Eastern European states. But this process can also be catalyzed through effective partnership with the United States. Both the EU and the United States must work more diligently on the rules and standards that can facilitate the development of a modern, clean, and intelligent energy system across both sides of the Atlantic.

Conclusion

In examining transatlantic energy security along these lines, can we now say whether energy policy actually does or ideally should guide foreign policy or vice versa? The discussion above complicates this question by suggesting that energy security involves a complex assemblage of issues and actors whose tendencies and goals are in some places aligned and in others opposed. We found, for example, that intra-EU energy regulatory structures can to some extent diminish the threat of instability posed by a monopolistic and erratic Russia and other energy suppliers at Europe's periphery. This analysis demonstrates more generally the importance of pragmatic thinking, that is, thinking along the contours of a problem, rather than thinking in conceptually distinct categories like "energy" or "security." To this end, energy, security, and foreign policy analysts must constantly ask what we hope to achieve with the concepts we use. If the field of energy security was an ad hoc construction suited to a particular historical moment, the myriad issues we face today — climate change, ISIS's oil production, development goals — can illustrate the shortcomings of this approach in producing new insights and plans of action. Although this workshop series focused on three capitals — Brussels, Warsaw, and Washington — that were pivotal to the evolving transatlantic energy and security landscape in 2015, pulling at the thread of current trends points to a number of other regional and thematic "hotspots" that are poised to exercise significant influence on the energy/security/foreign policy nexus in years ahead. The future trajectory and policy choices of the Balkans, the Baltic/Nordic region, and Turkey — among others — all merit special attention by policymakers and independent experts in the near future in order to explicate the themes raised in this paper with greater resolution and granularity. It is clear that Russia's exercise of political power through energy leverage is also intrinsically linked to the situation of European energy demand. Europe is constrained by the uneven development of its renewables capacity and of energy-efficiency measures, which require the building of new infrastructure and coherent long-term policy strategies among member states. Thus far, European-level renewables strategy has been constrained by member state differences and a lack of clarity in the primary rationale behind policy mechanisms, be it energy security, decarbonization, or industrial policy. Similarly, there is far too little consideration given to demand-side strategies in managing Europe's exposure to oil dependence across security, foreign policy, and price volatility dimensions. If half the time and energy spent debating pipeline politics and the reliability of MENA suppliers was instead dedicated to completing the internal EU energy market and developing intelligent clean transport strategies, the dividends would be significant. Though it stands little to no chance of adoption in the current political environment, the clean transport strategy contained in President Obama's final budget proposal– including a $10/barrel oil tax – provides a starting point for considering an integratedapproach to delivering simultaneous economic, climate, and security benefits throughreduced oil demand. Moreover, it will be important to channel the growing momentum for multi-lateral partnerships toward sustainable energy goals. The intra-EU Energy Union and TTIP conversations can take a wider frame of energy security to discuss the energy-efficiency-focused data-sharing provisions and interoperability standards for low-carbon products on the horizon. Crafting legal frameworks regarding data use, alongside efforts aimed at energy efficiency, could facilitate development that is sustainable environmentally, economically, and geopolitically. For EU and non-EU states contiguous with Europe, energy policymakers should ensure that the pursuit of competitive advantage does not short-circuit the interconnectivity that 21st-century energy realities like renewable power generation will require. Third-party-agreement frameworks in TTIP that definitely include consideration of climate change may work to set standards for future partnerships, such as with Turkey. In turn, the sheer economic gravity of TTIP suggests that this model may also significantly impact future multi-lateral energy agreements. For TTIP, this includes ensuring that the agreement would remain compatible with future unilateral or mini-lateral actions to price carbon, such as through a carbon border adjustment that is non-discriminatory and based on a sound scientific foundation. It is key that any such agreements remain attuned to their impacts on climate change and, conversely, climate change's impacts on the terms of the agreement. What steps can policymakers take to appraise the above-identified networks of interdependencies and strengthen them? While it is true that the Energy Union and TTIP can provide rules and norms for policy planning, the content, not just the existence, of these rules is crucial in determining whether it can successfully facilitate a transition to a sustainable energy future. Addressing holistically, where possible, issues of GHG-emissions mitigation, security of supply, and the distribution of political and economic burdens will not only bring transatlantic energy security policy into the 21st century, but will contribute to the mitigation and management of global risks facing the world in decades ahead.

Foodnotes

[1] Shahrazad Far and Richard Youngs, Energy Union and EU global strategy: The undefined link, Swedish Institute for European Policy Studies, November 2015, 6. http://www.sieps.se/sites/default/files/sieps_%202....

[2] "The Road to Warsaw and Beyond," Speech by General Petr Pavel, NATO, October 11, 2015, http://www.nato.int/cps/en/natohq/opinions_123879.....

[3] John Kerry, "Remarks on Climate Change and National Security" (Old Dominion University, November 10, 2015), http://www.state.gov/secretary/remarks/2015/11/249....

[4] David Livingston, "TTIP's Lack of Energy," Strategic Europe (blog), Carnegie Endowment for International Peace, March 24, 2015, http://carnegieeurope.eu/strategiceurope/?fa=59478

[5] For a delineation of the EU's energy diplomacy concept and its goals see http://data.consilium.europa.eu/doc/document/ST-10....

[6] See, e.g., Claire Milhench, "Low oil price domino effect to shut more North Sea fields early," Reuters, July 14 2015, http://www.reuters.com/article/us-northsea-oil-dec....

[7] Andrey Movchan, "Just an Oil Company? The True Extent of Russia's Dependency on Oil and Gas," Carnegie Endowment for International Peace, September 14, 2015. http://carnegieendowment.org/2015/09/14/just-oil-c....

[8] Jonathan Stern, The Russian-Ukrainian gas crisis of January 2006, Oxford Institute for Energy Studies, January 16, 2006. http://www.oxfordenergy.org/wpcms/wp-content/uploa...; Simon Pirani, Jonathan Stern, and Katja Yafimava, The Russo-Ukrainian gas dispute of January 2009: a comprehensive assessment, Oxford Institute for Energy Studies, February 2009, http://www.oxfordenergy.org/wpcms/wp-content/uploads/2010/11/NG27-TheRussoUkrainianGasDisputeofJanuary2009AComprehensiveAssessment-JonathanSternSimonPiraniKatjaYafimava-2009.pdf.

[9] Georg Zachmann, "The European Energy Union: Slogan or an important step towards integration?" Bruegel (blog), September 27 2015, http://bruegel.org/2015/09/the-european-energy-uni...

[10] See https://www.eia.gov/todayinenergy/detail.cfm?id=17...

[11] See https://www.eia.gov/todayinenergy/detail.cfm?id=17231 and http://www.eia.gov/todayinenergy/detail.cfm?id=22392

[12] Keith Crane, Imported Oil and U.S. National Security, Rand Corporation, pp. 29-30, 2009. http://www.rand.org/content/dam/rand/pubs/monograp...

[13] U.S. Energy Information Administration, "Record low water levels on Rhine River are disrupting fuel shipments," Today in Energy, November 17, 2015, https://www.eia.gov/todayinenergy/detail.cfm?id=23792

[14] Donald Tusk, "A united Europe can end Russia's energy stranglehold," Financial Times, 21 April 2014

[15] European Commission, A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, COM (2015) 80, 25 February 2015.

[16] See: https://next.ft.com/content/ad9a8a5e-5556-11e5-8642-453585f2cfcd and http://www.platts.com/latest-news/natural-gas/london/russias-gazprom-edges-towards-flexible-gas-market-26210724

[17] See http://carnegieeurope.eu/strategiceurope/?fa=62161

[18] See Kiran Stacey, "UK turns to diesel to meet power supply crunch," Financial Times, November 3, 2015, http://www.ft.com/intl/cms/s/0/0f664c78-821b-11e5-....

[19] Andrew Byrne and Christian Oliver, "Hungary's Russian-built energy plants rebuked," Financial Times, November 19, 2015, https://next.ft.com/content/ddd83bfa-8ed9-11e5-a54...

[20] Andrew Kureth, "Why Poland still clings to coal," Politico.eu, October 17, 2015, http://www.politico.eu/article/why-poland-still-cl...

[21] Agnieszka Barteczko, "Poland to buy coal from stockpiles to help mines – PM," Reuters, December 4, 2015, http://www.reuters.com/article/poland-coal-idUSL8N...