On the Proposed European Energy Union - Eastern Europe Stands to Benefit Most from Pan-EU System

In the face of the crisis in the Ukraine, several countries – Poland especially – have pushed for a common energy policy to reduce Europe’s dependence on Russian imports. Environmental economist Andreas Löschel assesses the opportunities and risks associated with an energy union.

Andreas Löschel is head of the Research Department “Environmental and Resource Economics, Environmental Management” at the Centre for European Economic Research (ZEW). He is Professor of Economics at the University of Heidelberg and served as lead author for the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (2010–2014). He is also the chair of the Energy Expert Commission, which monitors Germany’s efforts to transition to a sustainable energy economy.

What do you think of the proposal that the EU should broker energy deals with Russia and other supplier countries for its member states? Would Germany benefit?

Collectively, Europe has more leverage vis-à-vis Russia than individual countries. We should remember, though, that the firms that sign natural gas supply contracts with Russia are in competition with one another. So while EU collective bargaining can help companies, it can also jeopardize competition within Europe. Only if the EU can succeed in pulling off this balancing act does collective bargaining make sense.

Europe already has a common climate policy. Isn’t it the logical next step to collectivize the energy market? Or does an EU energy union run the risk of putting economic interests before climate targets?

The vast majority of EU states want to become more independent from supplier countries. But there is no consensus about how to reach this goal. Some want to expand the use of renewable energies. Others, such as Poland, favour greater use of traditional domestic coal and national gas from unconventional geological formations. There is a trade-off here – climate policy ambitions, on the one hand, and the evasion of political risks, on the other. It’s easier for the EU than for individual countries to strike a balance between the two.

How must a European energy union be configured to reach the goal of greater independence from Russian natural gas and other energy imports?

In itself, independence from energy imports makes no economic sense. But the number of supplier countries does need diversifying, especially given the political risks faced by some EU states. Dependence on a specific supplier country is less dramatic when the dependence is mutual. To truly decrease dependence, the EU needs to improve its energy infrastructure. Take natural gas. It’s not just the diversification of supplier countries that’s important. We also need a greater variety of supply routes. One example is the construction of the natural gas pipeline Nord Stream after the crises in 2006 and 2009.

Which countries would benefit most from energy collectivization?

In the current situation, Eastern European countries stand to gain the most should Europe present a more unified front in energy negotiations and improve its energy infrastructure, as these states very much depend on fossil fuels from Russia and have few alternative sources. Collectivization will increase their supply security and lower costs. Right now, prices for natural gas still vary considerably among member states. German companies, for instance, pay less for Russian natural gas than do firms in Eastern Europe.