To reform or not to reform EU energy markets? In this FSR Debate, we explore the two sides of the issue.

On the one side, the European Commission, energy regulators and incumbents see no need for change: “there is of yet no clear evidence that alternative market framework would provide cheaper prices and better incentives” (EC, COM(2021) 660, 13.10.2021); “ACER’s assessment is that the current market design is worth keeping” (ACER Final assessment of April 2022); “We, therefore, urge the European Commission and all Member States to avoid changing the current electricity price-setting mechanism” (joint industry call to safeguard the benefits of the Internal Energy Market of 29.04.2022).  

On the other side, Governments announced structural market reforms: “As part of the expansion of renewable energies, we will develop a new electricity market design” (German Government Programme, 2021); “We also wish to revise, in structural terms, how the price of electricity is formed (…) This is a systemic problem and must be resolved with structural solutions, decoupling the price of gas from the price of electricity” (Mario Draghi’ speech at the European Parliament, 03.05.2022). 

In a recent report, written with the support and contribution of several energy experts, Jorge Vasconcelos proposes a reform of EU energy markets based on two principles:  

• ensuring the existence of a revamped, open to innovation, cross-border electricity market based on common rules; 
• fostering the emergence of local markets where energy system integration takes place through suitable local platforms. 

The report offers a conceptual framework for the design of innovative multi-sector and multi-level energy architectures and brings new light on several related issues, from fairness to financing and infrastructure planning. The aim is to better understand how electricity market reform can accelerate decarbonization and strategic energy autonomy.   

Agenda of the event

Introductory remarks

Jean-Michel Glachant | FSR Director, Loyola de Palacio Chair 

Report introduction

Jorge Vasconcelos | FSR Part-time Professor

Comments

Claude Turmes | Minister for Energy and for Spatial Planning, Luxembourg 

Christian Zinglersen | ACER Director 

Vicente López-Ibor Mayor | President, European Federation of Energy Law Associations 

Frauke Thies 

Discussion

Jorge Vasconcelos was the first Chairman of the Council of European Energy Regulators and one of the founding fathers of the existing cross-border EU electricity market model. He is a strong supporter of the Internal Energy Market but, on the other hand, he has been advocating structural reforms to align the market with current policies (carbon neutrality) and technologies (digitalization, storage, etc.) for many years. 

The European Union’s (EU) energy policy has been giving increasing priority to biogas and biomethane, and this has accelerated significantly with the RePowerEU Communication, where the Commission proposes increasing the ‘Fit-for-55‘ ambition of producing 17 bcm of biomethane by 2030 to 35 bcm, with already the production of 3.5 bcm by 2022.

Biomethane will need to be an important part of the EU’s net-zero strategy. As evidenced in the Sustainable Carbon Cycles Communication, when its use is combined with CCS, it can lead to negative emissions. It will be an integral part of developing a sustainable farming sector, and financing can come partly from energy and partly from agricultural revenues.

The industry is however in its infancy compared to other energy sources in Europe and will need huge scaling up and cost-efficiencies to contribute at the scale and speed envisaged by the Commission.

This debate looks to unpick these challenges, asking what are the bottlenecks that need to be overcome, what needs to be done in regulatory terms to realise the RePowerEU target in practice, and what should be the longer-term EU biomethane strategy.

Introduction 

Galin Gentchev | The European Commission

Daan Peters | Common Futures (Keynote)

Panel

Ilaria Conti | Florence School of Regulation (FSR)

Cyril Harry |  Engie

Marilda Dhaskali | Birdlife Europe

Conclusions

Christopher Jones | FSR

#FSRDebates

Session “Alignment: possible reforms for carbon market integration” (Topic 5)

The third meeting of the Carbon Market Policy Dialogue (CMPD) of the LIFE DICET project brings together academia, stakeholders and senior policymakers from different carbon markets worldwide in a unique process for a fruitful exchange on carbon market integration. The CMPD meeting will be held on Thursday 7 July from 16.00-19.00 (CEST) on Zoom. Participation is by invitation only and the discussion will be held under Chatham House Rules.

This session of the CMPD meeting discusses “Alignment: possible reforms for carbon market integration“. Before the session, a background report will be shared with the participants to help stir the discussions. At the CMPD, the participants will discuss how, in concrete terms, the integration of the emissions trading systems (ETSs) may be realised. Specifically, the policy dialogue will address the following questions:

1. What rules should ETS Regulators change in the respective ETSs, and how should they change them for integration?
2. How should ETS regulators coordinate among themselves?
3. What are the next steps to consider for carrying out these reforms?

The event will be chaired by Simone Borghesi, Director of FSR Climate. External speakers include:

• Hannah Lewis, Department for BEIS
• Jean-Yves Benoit, Québec Ministry of Environment
• Julia Ziemann, DG Climate Action
• Luca Taschini, University of Edinburgh
• Billy Pizer, Resources for the Future

The project LIFE DICET supports the European Union and Member States policymakers in deepening international cooperation for the development and possible integration of carbon markets. At its core, the CMPD aims to facilitate enhanced cooperation between Emissions Trading Systems regulators (ETS regulators), namely the European Commission (DG Climate Action), California-Quebec, China, Switzerland and New Zealand within the framework of the LIFE DICET project.

The conclusions reached concerning the four previous CMPD topics will be very useful for addressing these questions. The feedback received during the event will help us craft the report’s final version.

The project LIFE DICET is co-financed by the EU LIFE Programme of the European Commission.

The FSR Energy Union Law Area is pleased to announce the next edition of its biennial update on recent and pending energy case law at the Court of Justice of the European Union (CJEU). This event will offer a comprehensive overview of the most significant energy cases since the last case law update, which took place in December 2021.

In this briefing, Dr Adrien de Hauteclocque, Head of Cabinet of the President of the General Court and Professor Leigh Hancher, Director of the FSR Energy Union Law Area, will discuss highlights from the latest case law.

The cases that will be discussed include:

ACER

T-684/19 – MEKH v ACER

Internal Market

C-179/20 – Fondul Proprietatea

C-290/20 – Latvijas Gāze

C-306/19 – Milis Energy

Energy/Environment

C-181/20 – VYSOČINA WIND

C-177/19P – Allemagne – Ville de Paris and Others v Commission

State Aid

T-623/20 – Sun West and Others v Commission

C-429/20P – Solar Ileias Bompaina v Commission

T-565/19 – Oltchim v Commission

Competition

T-399/19, T-616/18 – Polskie Górnictwo Naftowe i Gazownictwo v Commission

C-377/20 – Servizio Elettrico Nazionale and Others (Opinion of Advocate General Rantos)

C-721/20 – DB Station & Service

More on ECJ Case Law

If you want to catch up on earlier CJEU developments, you can watch the recordings of our sessions from November 2020 here, June 2021 here, and December 2021 here.

Energy Union Law & Policy

FSR Energy Union Law area provides a forum for critical discussion and independent analysis of the developments in EU energy law and policy. Our activities are aimed at professionals from national energy regulatory authorities, European and international institutions, energy-focused law firms, consultancies and energy utility companies.

This Debate will aim at identifying which steps are still required for Ukraine to join the Internal Energy Market.

Following the invasion of Ukraine by the Russian Federation’s army, repeated statements have been made, at the highest European political level, about the prospect of Ukraine joining the European Union. While Ukraine’s accession will not happen immediately, there may be an opportunity for Ukraine to participate in part or even in full in the Internal Energy Market even before it becomes a member of the European Union.
Ukraine is already a contracting party of the Energy Community and has been making steady progress in implementing the energy acquis communautaire.

During the event we will discuss the current state of play in that process and aim at identifying which steps are possible – especially at regulatory and market design level – in order for Ukraine to participate actively in the Internal electricity and gas Markets in the short term.

The event will be available with live translation in English and Ukrainian.  

Draft Programme

Introduction to the Debate and Opening Presentations

14.00 – 14.05     Introduction to the Debate

Alberto Pototschnig | Florence School of Regulation

14.05 – 14.15     An introduction to the issue

Olena Pavlenko| President, DiXi Group

14.15 – 14.25     The perspective of the Ukrainian regulator

Kostiantyn Ushchapovskyi | Chairman, National Commission for State Regulation of Energy and Utilities of Ukraine

14.25 – 14.35     The perspective of the Energy Community Secretariat

Dirk Buschle| Deputy Director, Energy Community Secretariat (TBC)

Panel Discussion: Introductory Remarks, Polls and Comments

Moderator: Leigh Hancher | Florence School of Regulation and Tilburg University

Panellists:  Sonya Twohig| Secretary General, ENTSO-E

Claude Mangin | Market Development Manager, ENTSOG

Jan Haizmann | Member of the Board, EFET

14.35 – 15.00     Introductory remarks from the panellists

15.00 – 15.05     Polls

15.05 – 15.25     Comments on the polls outcome and Q&A from the audience

Panellists

15.25 – 15.30     Concluding remarks

Leigh Hancher | Florence School of Regulation and Tilburg University

Alberto Pototschnig | Florence School of Regulation

#FSRDebates

Hosts: Leigh Hancher and Alberto Pototschnig (FSR)

The focus of this series is on recent court cases, regulatory decisions, EU legislation, or public consultations to be discussed by a panel of experts.

A recent study undertaken by the Indian Institute of Technology Delhi (IIT Delhi) and the Centre for Policy Research (CPR) examines the various climate modelling tools used in the context of India.

As modelling studies are increasingly used to inform energy and climate policy design, it is imperative that the construct and results of these various studies be adequately understood and contextualised. At the Unpacking Models (UM) initiative the authors develop and employ a common reporting framework to assess, compare, and interpret the results of various modelling studies.

Watch the recording

The UM assessment framework unpacks the modelling study in a two-step process. In the first step, it helps policymakers understand the robustness of the modelling study, by assessing five dimensions of its structure:

1. The validity of its input assumptions;
2. The appropriateness of the model for the purpose to which it is applied;
3. The construction of the scenarios;
4. The overall treatment of inherent uncertainties;
5. The validity of its outputs.

In its second step, the framework interprets what modelling results imply for six policy priorities relevant to a low-carbon transition:

1. Energy transition pathway;
2. Emissions;
3. Development pathway;
4. Investments;
5. Equity;
6. Energy security.

The authors hope that this initiative will contribute to more informed and measured use of these various modelling studies in the design of energy and climate policies, by policymakers, academics, and civil society.

Host: Jean-Michel Glachant (Florence School of Regulation – Energy)

Invited guest: Kaveri Iychettira (Indian Institute of Technology, Delhi)

Discussants: Franziska Holz (DIW Berlin) and Albert Ferrari (Florence School of Regulation – Climate)

In its Communication “Tackling rising energy prices: a toolbox for action and support” of 13 October 2021, the European Commission indicated, inter alia, that it would have tasked ACER “to study the benefits and drawbacks of the existing electricity market design and propose recommendations for assessment by the Commission by April 2022”. ACER is on track to publish the results of its analysis by the end of April 2022.

This policy workshop will consider the results of ACER’s analysis and discuss what the implications of these results are for any future enhancement of the wholesale and retail electricity markets in the EU.

For this purpose, after an opening session, the workshop will be structured in two further sessions:

–         Session I – from 10:30am to 1pm, CET – will focus on the wholesale electricity market and, possibly, the wholesale gas market, to the extent that the ACER’s analysis covers the latter as well;

–         Session II – from 1:30pm to 3pm, CET –  will focus on the retail energy market.

“Carbon lock-in refers to the self-perpetuating inertia created by large fossil fuel-based energy systems that inhibits public and private efforts to introduce alternative energy technologies.”

“Carbon lock-in” has been characterized as an equilibrium in which certain carbon-intensive technological systems or practices persist over time, either “locking out” the potential for change or braking further movement towards low or zero carbon . This equilibrium directly or indirectly hinders the deployment of low-carbon technologies, which either cost more upfront or cannot compete with the lower prices of high-carbon technologies. The literature refers to various categories of lock-in effect.

Infrastructures and energy technologies often lock societies into carbon-intensive emission pathways because of the length of time before investments pay off . Oil and gas extraction projects are usually not only capital intensive but also require many years of planning, exploration, and development, and only once the projects have been explored, appraised, and developed, revenues can be earned.

Institutional carbon lock-in can shape choices and limit the actions of state institutions, and institutional choices sustain the competitive advantage of fossil-fuel technologies, inhibiting public and private investment in clean energy

Since a sustainable energy transition is complex and uncertain, it is also claimed that behavioural carbon lock-in must be absent in order for individual and collective decision-making to be made in accordance with principles of sustainability.

Carbon Lock-in and State Aid

The EC’s new Guidelines on climate energy and environmental state aid (the CEEAG) adopted in 2022, provide the framework for public authorities to support the European Green Deal objectives efficiently and with minimum distortions of competition. These Guidelines provide that when approving state aid for. ‘transiton fuels’ such as natural gas, the Commission may require commitments to ensure the ‘lock in’ of fossil fuels is avoided and fossil fuel installations are compatible with the 2030 and 2050 targets. This may include for example commitments related to the future deployment of Carbon Capture and Storage (CCS).

Carbon Lock-in and the Taxonomy

The concept of ‘carbon lock-in’ is also topical in relation to the proposed Taxonomy Regulation (TR). Article 10(2)c of the present draft states that an economic activity should not lead to the lock-in of carbon-intensive assets.

The definition of ‘transitional activities in’ Art. 10(2) TR explicitly states the need to avoid environmentally harmful carbon lock in-effects. However, the measure allows for the greenfield construction of fossil-based energy infrastructure with ambitious targets for low-carbon/renewable phase-in only at a later stage.

It has been observed that as these forward-looking assumptions cannot be validated as of 2022, the risk of creating stranded fossil-based energy assets in Europe should be highlighted- going against the TR principle of avoiding stranded assets in Art.19 1(i) TR. Asset stranding or extended operation at high emissions levels may result if insufficient quantities of low-carbon gaseous fuels are available. Negative consequences for financial market stability and concerns about greenwashing arise . Next to financial market impacts arising from stranded assets, there could be a risk of crowding out necessary investments in renewable energy generation capacities and development of alternative low-carbon technologies , given the ability to shift sustainable finance towards financing fossil gaseous fuels, particularly until 2030.

This Debate will discuss how the risks associated with carbon-lockin can be avoided. How should regulators identify these risks and what tools are available to assess the nature and extent of the risks? How can forward-looking assumptions be validated in an effective way?

Programme

#FSRDebates

Host: Leigh Hancher | Florence School of Regulation and Tilburg University

Achieving net-zero emissions in the next decades implies a rapid reduction in emissions, significant increases in carbon prices, and deep structural economic changes. These changes are generating concerns about their social impact. Possible job losses in specific sectors and increases in carbon prices may be perceived as socially unacceptable for their potentially regressive effects, especially at a time in which energy prices are increasing in most countries.

This raises the questions addressed in this session taking place on on May 5 from 17:15 to 18:15 CEST:

1. Can climate neutrality be socially sustainable?
2. Will it pass the social acceptability test?
3. How can it be reconciled with the need to minimize/eliminate social impacts?
4. How do different jurisdictions (EU, US, India, China) address this problem?

The panel session is featured in the programme of the 12th edition of The State of the Union organised by the European University Institute and held from 5 to 7 May 2022.

Simone Borghesi, Director of FSR Climate and Secretary General of the Policy Outreach Committee of EAERE, will chair the discussion with the following speakers:

• Beatriz Yordi, Director, Carbon Markets and Clean Mobility, DG Climate Action, European Commission
• E. Somanathan, Professor, Economics and Planning Unit, Indian Statistical Institute and Head of the Centre for research on the Economics of Climate, Food, Energy and Environment (CECFEE), Indian Statistical Institute/CECFEE
• Michael Spence, Philip H. Knight Professor of Management, Emeritus, and Dean, Emeritus, Stanford Graduate School of Business and 2001 Nobel Prize in Economics, Stanford Graduate School of Business

The EU’s energy relations with Russia have become a headline issue in shaping the bloc’s response to Russian aggression in Ukraine. In the REPowerEU Communication of March 8, 2022, the European Commission laid out plans to end dependence on Russian fossil imports whilst combating record-high energy prices and accelerating decarbonisation of the sector in the process. Renewable hydrogen is a key component in these plans as it is a possible substitute for natural gas that can be produced by a range of international partners or indeed within the EU itself.

The REPowerEU Communication established new aims for renewable hydrogen far in excess of the already ambitious targets outlined in the original 2020 EU Hydrogen Strategy and subsequent Fit for 55 package of summer 2021. Under REPower EU, the new target for clean hydrogen consumption by 2030 increases from 5 million tonnes to 20 million tonnes. According to the Communication, the development of hydrogen infrastructure and funding streams should also expand correspondingly, including storage facilities and port infrastructure, streamlined state aid processes, adjustments of regulatory frameworks, and the creation of a Global European Hydrogen Facility.

These goals are laudable and if realised could go a long way to reducing the EU’s dependence on Russian fossil fuels, particularly fossil gas. Nevertheless, there is still no internal market for hydrogen. Moreover, numerous other foreseen and unforeseen bottlenecks must be overcome to make these hydrogen ambitions a reality, such as massive renewable electricity capacity, preparedness of hydrogen import infrastructure, and so on.

Within this context, a panel of experts will meet in an installment of the FSR Policy Webinar series on April 27, 2022, from 15h00 – 16h30 to explore some key questions. Including, how best to trigger investment and developments? What needs to be done on national and European levels?

Agenda

Opening: Kitti Nyitrai, European Commission

Keynote: Alejandro Nuñez-Jimenez, Harvard Kennedy School (Presenting report “The Future of Renewable Hydrogen in the European Union”)

Panel discussion: Jorgo Chatzimarkakis, Hydrogen Europe

Timo Bollerhey, H2Global

Dr Roland Roesch, IRENA

Ilaria Conti, FSR

Conclusions: Christopher Jones, FSR

A Bruegel – Florence School of Regulation common initiative

The terrifying invasion of Ukraine is destroying former relations between the European Union and the Russian Federation. Since Russia is the EU’s main supplier of oil, natural gas and coal, the EU must redefine its energy future, and started doing it on 8 March, with the publication of the communication “REPowerEU: Joint European Action for more affordable, secure and sustainable energy”.

However, we still have to discover how the EU will enter this new world. And the best way to do that is presumably to meet and discuss it altogether.

It is what Bruegel, a leading Think-Tank in Brussels, and the Florence School of Regulation, a Higher Education Centre, decided to do, organizing a mini-series of two online events.

The first event on 24 March explored how the life of European countries could look like without Russian energy.

On Tuesday 12 April, there will be a second online event, where we will enter more into the practicalities of how Europe can get rid of Russian energy addiction in the coming months and years.

We will do that with the help of a lawyer knowing well EU energy law and regulation (Klaus-Dieter Borchardt), a former national energy regulator (Walter Boltz), an expert of energy trading (Egbert Laege), and an expert of gas storage (Carole Le Henaff).

Agenda:

First session: Can the current EU legal and regulatory framework support the phase-out of Russian energy?

Moderator: Georg Zachmann (Breugel)

• Klaus-Dieter Borchardt (former director for the internal market at the European Commission – DG Energy)
• Walter Boltz (former director at E-Control)
• Q&A

Second session: Can the European energy system deal with the phase-out of Russian energy?

Moderator: Ilaria Conti (FSR)

• Egbert Laege (Boston Consulting Group and INSEAD)
• Carole Le Henaff (Storengy – Engie)
• Q&A

Read more:

Can Europe manage if Russian oil and coal are cut off?

High gas prices in Europe: A matter for policy intervention?

This Debate will discuss how the envisaged gas storage obligation could be framed and how its costs could be allocated to the different Member States to reflect the benefits that better utilisation of storage capacity in Europe can bring. It will also aim to identify other aspects that an EU storage policy should cover.

Watch the recording:

Energy sector developments over the last six months dramatically impacted energy prices. A tight international gas market in the second half of 2021 led to a sharp rise in gas prices, which, in many countries where gas is heavily used to generate electricity, or at least is the marginal fuel, led to comparably sharp increases in wholesale electricity prices.

Since the end of February 2022, as a result of the invasion of Ukraine by the Russian Federation army, the situation has further exacerbated, especially in those regions heavily depending on gas imports from Russia.

Sanctions imposed on the Russian Federation by many countries following the invasion of Ukraine have included or might include, a ban on fuel import from Russia. And, in any case, it is unlikely that the Russian Federation will return to be considered a reliable trading partner anytime soon.

These developments have prompted policy action by the European Union, which, as a whole, depends on the Russian Federation for more than 40% of its gas consumption^[1].

In its REPowerEU Communication of 8 March 2022[2], the European Commission stated that “following the invasion of Ukraine by Russia, the case for a rapid clean energy transition has never been stronger and clearer” and that “the EU needs to be ready for any scenario. It can reach independence from Russian gas well before the end of the decade”. The Communication proposes a number of measures to pursue this goal, with gas storage playing an important role as it can both reduce the need to import additional volumes of gas during the heatings eason and contribute to absorb supply shocks. This requires additional measures to be introduced to ensure that storage can contribute to security of supply to its full potential. In particular, the Commission proposes to introduce a filling obligation for gas storages and has announced that it will make a legislative proposal by April for this purpose. “This proposal will require that existing storage infrastructures in the EU territory are filled up to at least 90% of their capacity by 1 October each year. In order to make storage more attractive to market participants, the Commission will propose to increase the rebate level to 100% as an incentive to refill storage”[3].

This would be part of an EU gas storage policy that “will ensure fairness and allow making smart use of existing infrastructure, limiting the need for new infrastructure as not all Member States have underground storage facilities in their territories. The legal proposal will set out a mechanism to ensure a fair allocation of security of supply costs”.

Draft Programme

Introduction to the Debate and Opening Presentations

14.00 – 14.05   Introduction to the Debate

Alberto Pototschnig | Florence School of Regulation

14.05 – 14.15   A gas storage policy for the EU

Ilaria Conti | Florence School of Regulation

14.15 – 14.25   The experience with national gas storage obligations

Aad Correljé | TU Delft

Panel Discussion: Introductory Remarks, Polls and Comments

Moderator: Leigh Hancher | Florence School of Regulation and Tilburg University

14.25 – 14.50   Introductory remarks from the panellists

Giuseppina Squicciarini | Shell

Benoit Esnault, CRE and CEER

Steve Rose | Eurogas

Catherine Gras | GRTGaz

14.50 – 14.55   Polls

14.55 – 15.20   Comments on the outcome of the pollS and Q&A from the audience
Panellists

15.20 – 15.30   Concluding remarks
Oliver Koch | DG Energy, European Commission 
Leigh Hancher | Florence School of Regulation and Tilburg University
Alberto Pototschnig | Florence School of Regulation

[1] Russia also accounts for 27% of oil imports and 46% of coal imports.

[2] Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions, REPowerEU: Joint European Action for more affordable, secure and sustainable energy, Strasbourg, 8.3.2022, COM(2022) 108 final.

[3] Thirteen Member States – Belgium, Bulgaria, Denmark Finland, France, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Spain and Sweden – have storage obligations in place. Others, like Germany, announced plans to introduce them.

#FSRDebates

Hosts: Prof. Leigh Hancher and Prof. Alberto Pototschnig

The focus of this series is on recent court cases, regulatory decisions, EU legislation, or public consultations to be discussed by a panel of experts.