The Development of the European Union s Energy Policy: A Theoretical Analysis

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1 UNIVERZITA KARLOVA FAKULTA SOCIÁLNÍCH VĚD INSTITUT POLITOLOGICKÝCH STUDIÍ The Development of the European Union s Energy Policy: A Theoretical Analysis Jana Šebošíková Vedoucí práce: PhDr. Irah Kučerová, PhD. MAGISTERSKÁ DIPLOMOVÁ PRÁCE Praha 2008

2 Čestné vyhlásenie Vyhlasujem, že predkladanú diplomovú prácu som spracovala samostatne a vyznačila som v nej všetky použité zdroje informácií. Súčasne súhlasím s tým, aby bola táto práca sprístupnená pre študijné a výskumné účely v súlade s autorským právom v príslušnej knižnici UK a prostredníctvom elektronickej databázy. Statutory declaration I do solemnly and sincerely declare that I wrote this thesis individually using the information sources as stated. I agree that this thesis may be used for study and research purposes in line with the copyright law. V Prahe

3 Bibliografický záznam ŠEBOŠÍKOVÁ, Jana. The Development of European Union Energy Policy: A Theoretical Analysis. Praha: Univerzita Karlova, Fakulta sociálních věd, Institut politologických studií, s. Vedúci diplomovej práce PhDr. Irah Kučerová, PhD. Anotácia Táto diplomová práca sa zaoberá vývojom Európskej energetickej politiky od založenia Európskeho spoločenstva uhlia a ocele po súčasnosť a snaží sa vysvetliť spôsob tvorby tejto politiky vo svetle teórií európskej integrácie. Energetická politika stála na počiatku integračného procesu, avšak až do konca 80-tych rokov sa nedala považovať za Európsku politiku v pravom zmysle slova. Strategický charakter sektoru, rozdiely v jeho štrukturálnom usporiadaní naprieč členskými štátmi a v neposlednom rade odlišné prírodné podmienky spôsobili, že energetika bola dlhý čas považovaná za výlučnú oblasť národného záujmu. Obrat nastal so zaradením energetiky do programu jednotného trhu na konci 80-tych rokov, čo spôsobilo ďalekosiahle zmeny v rozdelení kompetencií medzi členskými štátmi a Európskou komisiou. Teoretická reflexia tohto vývoja poukazuje na posun od medzivládnych prístupov, ktoré vysvetľujú tvorbu energetickej politiky v období pred spustením budovania jednotného trhu s energiami, k prístupom zdôrazňujúcim prepojenie viacerých úrovní rozhodovania a silnejšie postavenie mimovládnych subjektov vo vyjednávaní v súčasnosti. Abstract This thesis concerns the development of European energy policy from the establishment of the European Coal and Steel Community to the present and attempts to explain the policy-making in the area of energy in light of the theories of European integration. Energy policy was at the beginning of the integration process, but, until the end of the 1980 s, it could not be regarded as an actual European policy. The strategic character of the sector, differences in its structural organization across the member states and the 3

4 heterogeneous natural conditions caused energy to be considered an area of exclusive national competence for a long time. The turning point was the inclusion of energy in the single market program at the end of the 1980 s, which triggered far-reaching changes in the distribution of competencies between the member states and the European Commission. A theoretical reflection of this development points to the shift from the intergovernmental approaches, which explain the policy-making in the period before the launch of the internal energy market, to the approaches emphasizing the interconnection of multiple levels of decision-making and the stronger role of non-governmental actors in the negotiations at present. Kľúčové slová Energetická politika, Európska únia, inštitúcie EÚ, vnútorný trh, teórie európskej integrácie, politiky EÚ. Keywords Energy policy, European Union, EU institutions, theories of European integration, EU policies. 4

5 Poďakovanie Týmto by som rada vyjadrila svoju vďačnosť PhDr. Irah Kučerovej, PhD. za jej pomoc, komentáre a odborné vedenie tejto diplomovej práce. Vďaka patrí tiež PhDr. Jánovi Karlasovi, M.A., PhD. za usmernenie vo veci odbornej literatúry a Georgeovi Haysovi II. za jazykovú úpravu. Acknowledgements I wish to thank PhDr. Irah Kučerová, PhD. for her helpful comments and expert guidance of this thesis. I am also grateful to PhDr. Jan Karlas, M.A., PhD. for advice on subject literature and to George Hays II. for language review. 5

6 Contents LIST OF ABBREVIATIONS... 8 INTRODUCTION EUROPEAN UNION ENERGY POLICY The energy situation of the European Union Natural Gas Oil Solid fuels Nuclear Energy Renewable sources of energy Defining EU energy policy Raison d être: economic, security, and environmental aspects Security of supply Competitiveness Environment The Development of EU Energy Policy: from European Coal and Steel Community to Present The European Coal and Steel Community EURATOM The Oil Crises The Repercussions of the Single European Act Maastricht and Amsterdam- the low points After The Constitutional Debate and the Treaty of Lisbon Conclusion THEORETICAL MODELS OF EUROPEAN INTEGRATION EU policies and theories of European integration Neofunctionalism Basic concepts Modifications to neofunctionalist concepts Framework for analysis Realism Basic concepts Realism and integration Framework for analysis Liberal intergovernmental approach Basic concepts Framework for analysis Multi-level governance Basic concepts Framework for analysis

7 2.6. Conclusion THE DEVELOPMENT OF EU ENERGY POLICY IN THEORIES OF EUROPEAN INTEGRATION The ECSC, EURATOM and energy policy- the early years Oil boom and oil shocks- 1960s and 1970s A new start for energy policy: Neofunctionalist logic at work? A liberal intergovernmental explanation Multi-level governance The development of EU energy policy after the year Conclusion CONCLUSION RESUMÉ SUMMARY REFERENCES ANNEX

8 List of Abbreviations CEEC CEER CIS DG EC ECJ ECSC EdF EEA EEC ERGEG ERN ETSO EU EU ETS EURATOM GDP GHG IEA IR ISO LI LNG MLG OPEC RES SEA TEN TEU toe TPA UK UN Central and Eastern European Countries Council of European Energy Regulators Commonwealth of Independent States European Commission Directorate General European Community European Court of Justice European Coal and Steel Community Electricité de France European Economic Area European Economic Community European Regulators Group for Electricity and Gas European Regulatory Networks European Transmission System Operators European Union European Union Emission Trading Scheme European Atomic Energy Community Gross Domestic Product Greenhouse Gases International Energy Agency International Relations Independent System Operator Liberal Intergovernmentalism Liquefied Natural Gas Multi-level Governance Organization of the Petroleum Exporting Countries Renewable Energy Sources Single European Act Transport and Energy Networks Treaty on the European Union Tons of Oil Equivalent Third-Party Access United Kingdom United Nations 8

9 Introduction Energy policy has a long history in a unifying Europe. Energy stood at the beginning of the integration process, and today it is energy again that dominates the European Union (EU) agenda. This paper covers the period in between: the development of the energy policy of the European Union. Energy policy, however, is a rather fuzzy term in the EU. Generally, it is presented as consisting of three interconnected pillars: the security of supply, the environmental pillar and the internal energy market. These pillars further overlap with other European policies, as security of supply is one of the goals of the Trans-European Networks, sustainable energy use forms a part of the environmental policy and the energy market is a continuation of the general single market. Hence, it may be a little difficult to identify the core of EU energy policy. 1 This paper is concerned with the developments in all three pillars of energy policy, plus it maps the development of the formal competence of the EU in the issue area. Nevertheless, the main focus of the paper, especially in the later periods from 1988 on, is the internal energy market. The simple reason is that we are convinced that there cannot be an energy policy without an energy market. The internal energy market is an essential precondition for the convergence of interests in the remaining two pillars as well, which in turn drives EU energy policy. Having kick-started the European integration process, energy policy itself for a long time remained dominated by the member states. In a number of ways, the member states are still very important. But the changes in the European integration structure from the mid 1980 s on have tilted the balance more towards the supranational level even in an area as resistant to integration as energy policy. Changes in the balance between the supranational and the national levels usually do not leave anyone cold in the EU studies discipline. The theoretical reflection of such changes is vital to the understanding of the development of the EU. Only in a theoretical framework, the can facts be meaningfully 1 In this text, the term EU energy policy is used in the sense of a European-level energy policy even in periods prior to the establishment of the EU for reasons of clarity and consistency. 9

10 ordered and the causal relationships made visible. What theoretical framework can explain the development of the European Union s energy policy? That precisely is the main objective of this paper: to map the development of the European Union s energy policy from a theoretical perspective and to understand the pattern of change in the institutional balance. The understanding of the logic which guides the development of EU energy policy, as in other areas of integration, will enable us to better comprehend its current state and future perspectives. The development of energy policy has been characterized by both long periods of stagnation and short periods of progress. Both of these, however, deserve an explanation. The research thus attempts to answer not only why and how the communitarization of EU energy policy occurred, but also what hindered integration in this area. In order to find out about this, and to determine which theoretical framework best explains the development, we ask: What actors, interests and processes dominated during the formative stages of the EU energy policy. The answer to this question will illuminate the way EU energy policy has developed and provide a theoretical reflection of this development. Energy as such has been covered in literature from a number of angles. Studies dealing with energy security have been prolific in times of scarce supplies. The environmental impacts of energy extraction and use have gained attention as ecological challenges become more imminent. Energy policy in the European Union, however, having never been the main area of integration, has attracted little scholarly focus. Aside from the authors dealing primarily with energy policy from economic or technical points of view, the existing literature on the European integration history, the EU policies and the European integration theories does not pay much attention to energy policy. An exception is the single monographic book by Janne Haaland Matláry Energy Policy in the European Union, which is a part of the influential European Union series edited by Neill Nugent, William E. Paterson and Vincent Wright. It was published in 1997, quite apparently as a reaction to the integration effort in the energy sphere at the beginning of the decade. The starting point of this study is the 10

11 question why and how the Commission has become a major actor in energy policy compared with the pre 1985 period. The author analyzes the problem through a theoretical framework derived from Putnam s two-level games played by the member states, only to arrive at the conclusion that this framework does not correspond with the actual pattern of policy-making in the area of energy policy. This is because the institutions of the EU have gained importance in energy policy, especially as agenda-setters and through specific competencies. This is an interesting finding since, as was mentioned above, energy policy has traditionally been regarded as a national prerogative. So, as for theoretical conclusions, instead of intergovernmental approaches, Matláry recommends that the EU energy policy, and EU in general, be studied using a multi-level actor approach in combination with the processual analysis of decision-making. Concerning the future of energy policy, the author concluded in 1997 that the three pillar structure would be retained, but an extension of the Commission s powers in the area was improbable. Since 1997, however, the EU energy policy matured and this has been reflected neither by Matláry, nor by other authors. Another drawback of the work is that it covers only the period from 1985 until about Does the preceding period of energy policy development not deserve an explanation? An overview of the history of energy policy and an analysis of the reasons why energy policy has not emerged from the beginning of the integration process is provided by Stephen George in one of the chapters of his Politics and Policy in the European Union (1996). Due to the scarcity of works that would deal with energy policy at the European level as a whole prior to the mid 1980 s, his work presents a useful source from a factual as well as from a theoretical point of view. In the latter, George draws on the neofunctionalist term of spill-over to explain the progress, or lack thereof, in energy policy development. However, also because of the nature of energy policy, the member governments and their interests remain his main focus, making his case for a neofunctionalist explanation weak. The remaining body of literature on the subject typically concerns only partial aspects of EU energy policy. Among works that reflect the building of 11

12 the internal energy market from a theoretical point of view is a study by Stephen Padgett The Single European Energy Market: The Politics of Realization (1992). Padgett outlines a picture of energy market politics by identifying several layers of constraints to its realization. These include the multiple roles of the Commission as a policy initiator and mediator, the interface between domestic and Community politics, national politics, and transnational sectoral activity. However, the elaborate approach is used only for the analysis of a very short period just after the liberalization process in energy had been launched and does not even cover the entire first round of the process, which took six more years to accomplish. The works of Svein Andersen (2000a, 2000b) and Rainer Eising (2002) react to the first round of the internal energy market building. Both authors visibly move away from the traditional rationalist explanations towards constructivist explanations and stress the importance of normative ideas and learning to explain the adoption of the gas and electricity market liberalization directives, respectively. Again, however, the relevance of these works for this paper is limited to the extent that they cover only a short period of the energy policy development. Scholarly articles that would reflect theoretically the development in the post-2000 period were practically non-existent until the April 2008 issue of the Journal of Public Policy was published. With sectoral governance being the topic of the issue, three articles deal with policy-making in the area of EU energy policy (Eberlein, 2008; Coen- Thatcher, 2008; Moral Soriano, 2008). As the topic may suggest, the multi-level governance approach is used to study the interplay between the domestic and European levels in the sphere of energy policy. Overall, literature on the subject is sparse, and some publications are not available in the Czech Republic. However, the combined resources sufficiently cover the EU energy policy and politics for our purpose of analyzing the policy-making patterns throughout the integration process. The development of energy policy is analyzed in four periods: in the first period approximately between the establishment of the European Coal and Steel Community (ECSC) and the mid 1960 s, which was characterized by 12

13 the predominance of coal in the energy mixes of the member states. The second period covers the rise of oil and the response of the member states to the oil crises. The third period saw the start of the internal market in energy with the first round of energy liberalization directives. And finally, the fourth period concerns the energy policy agenda after the year In each of these periods, the main actors that influenced the policy changes in the energy sector, as well as their interests, will be identified; and the processes through which these changes occurred will be determined. This should reveal which European integration theory the development in the given period corresponds with. Frameworks derived from four European integration theories will be applied to the EU energy policy development: neofunctionalism, the liberal intergovernmental approach, multi-level governance and realism. Realism, although not an integration theory originally, is included in the analysis because of the nature of energy policy, which is intuitively thought to be dominated by the national governments and as being a strategic good. The paper is restricted to the traditional rationalist theories, not confronting the main theoretical debate of the present, since it is not intended to contribute to the criticism or polishing of any particular theoretical approach. Again, the objective of this paper is simply to find a model which corresponds with the policy-making in the energy sphere in the EU, no more, no less. For this purpose, the paper is divided into three chapters. In the first chapter, the energy policy of the European Union is introduced, starting with an overview of the primary energy sources used in the EU. The boundaries of the energy policy are outlined in its second section, followed by arguments in support of the existence of an energy policy at the European level. The greater part of the chapter, however, is devoted to a detailed account of the EU energy policy development from the beginnings of the ECSC up until the present. The second chapter forms the theoretical part of the paper, in which the four theories are presented with the view of finding a theoretical framework that could be applied to the development of energy policy. Lastly, in the third chapter, the two are combined in an analysis of the four developmental periods. 13

14 1. European Union energy policy Several fundamental questions arise when thinking about an EU energy policy. Is there an EU energy policy at all? As self-confident as the headline of this paper may sound, it is a question to which different people give different answers. And how would those, who think that there is an energy policy in the EU, define it? The answers might be, yet again, diverse. Therefore, the prime goal of this chapter is to define the subject of our theoretical analysis- the European Union s energy policy. This chapter, in its first section, presents information on the overall energy situation of the EU and each of the most common fuel types used in the EU, that is, coal, oil, natural gas, nuclear energy, and renewable energy sources. In order to provide a more accurate picture of the EU s energy situation, we also briefly descend to the member state level, which highlights the heterogeneity of energy challenges across the EU. The second and third subchapters map the debate regarding the existence and boundaries of the present European energy policy, and consider the arguments for and against a common European energy policy, respectively. Finally, the last section will then delve in detail into the history of the EU s energy policy, the development of its legal framework, and its political and economic connotations The energy situation of the European Union Generally, the energy situation of the EU can be assessed by looking at three different aspects- economy, environment, and security of supply. The EU is at the forefront of global efforts to make the use of energy as efficient and clean as possible. However, due to the lack of indigenous sources, a high level of import dependence is a reason for concern. The gross energy consumption in the EU equals to about 16% out of the world s consumption. For comparison, the USA consumes about 21% of the world s energy, which is by far the most for a single country. 2 2 European Commission, Directorate-General for Energy and Transport: Energy & Transport in Figures Part 2: Energy, 10 April 2007, 14

15 The size of economy, however, matters. Although China consumes comparable amount of energy to the EU, its economic output is smaller. This ratio between energy consumption and GDP is called aggregate energy intensity (energy consumed per unit of GDP). 3 While in countries such as China, India, and Russia energy intensities reach well over 0.9 toe/gdp (in 2000 $ s) 4, the European Union, United States and Japan use less than 0.22 toe of energy to produce a unit of GDP. A comparison of energy consumption per capita, however, shows a different picture. The U.S. unquestionably leads the ranking (7.91 toe/capita), followed by Russia, Japan, and the EU (3.78 toe/capita). Brazil, China, and India stand at the other side of the spectrum consuming less than 1.24 toe of energy per capita. 5 There is a very strong link between the use of energy, specifically fossil fuels, and the carbon intensity of an economy. 6 The energy intensive economy of Russia is also by far the most carbon intensive economy (4.65 kgco 2 /GDP in 2000 $ s). For comparison, the least carbon intensive economy, Japan, produces about 0.25 kg of CO 2 per unit of GDP. The EU ranks second after Japan with 0.46 kgco 2 /GDP in 2000 $ s and the USA ranks fourth with 0.54 kgco 2 /GDP in 2000 $ s, still under the world average. 7 Again, however, a per capita comparison shows different patterns of carbon emissions. Conversely to the previous data, China produces less (11/19/2007) 3 The indicator of energy intensity, however, has its limitations because it does not take into account the geographic differences between countries, and neither can be used to assess the environmental impact of energy use. Large countries with cold climates must consume more energy for heating and transport than small ones with mild climates, for example, and the total of energy use does not tell us whether the energy came from renewable sources or from fossil sources of energy. 4 Aggregate energy consumprtion in tonnes of oil equivalent per GDP output in 2000 dollars. 5 Data for EU-27 in Commission staff working document- EU Energy Policy data, SEC(2007) 12, 10 January 2007, (22/02/2008), p.8 6 The carbon intensity of the economy can largely be dissected into two basic elements: (1) energy intensity, defined as the amount of energy consumed per dollar of economic activity; and (2) carbon intensity of energy supply, defined as the amount of carbon emitted per unit of energy. Energy Intensity x Carbon Intensity of Energy Supply = Carbon Intensity of the Economy. Trends in U.S. Carbon Intensity and Total Greenhouse Gas Intensity, December 2004, (27/03/2008) 7 Data for EU-27 in Commission staff working document- EU Energy Policy data, SEC(2007) 12, p. 6 15

16 CO 2 per capita (4.07 metric tonnes) than Europe (7.93 metric tones/capita), while the U.S. produce more than 20 metric tonnes of CO 2 per person. 8 Nevertheless, it is the European Union that has so far shown the most leadership in regards to climate change. The EU has not only signed up to the Kyoto protocol goals, but has taken a unilateral step towards reducing greenhouse gas emissions by establishing the Emissions Trading Scheme in Most recently, at the UN Climate Change Conference in Bali in 2007, the EU pushed for more international action in tackling climate change, and has pledged to cut emissions by 20% by 2020 unilaterally, committing to cut as much as 30% if other industrial countries join the initiative. Altering the energy mix in favor of renewable energy sources is one of the most important means towards achieving these goals. At present, the energy mix of the EU is clearly dominated by fossil fuels (see Graph 1). With 38%, oil provides the largest share of energy, followed by natural gas (24%), and solid fuels (18%). Nuclear energy and renewable energy sources cover 14% and 6% of EU s energy needs, respectively. 9 In 2005, 52.9% of the energy needs of the EU-25 were satisfied by imports. 10 With the bulk of indigenous oil and gas fields almost depleted and energy consumption rising, the energy dependency of the EU is projected to reach two thirds of total energy consumption by Nevertheless, there are profound differences among the primary energy sources in the levels of dependence, economic value, and their environmental effects. In the next sections, we shall briefly look at the individual sources of energy separately to gain a better understanding of where the EU stands when it comes to energy data. International Energy Annual. Table H.1cco2 World Per Capita Carbon Dioxide Emissions from the Consumption and Flaring of Fossil Fuels, posted on 1/10/2007, Energy Information Administration, 9 EU- 27 in Commission staff working document- EU Energy Policy data, SEC(2007) 12, p Eurostat (2007), p Mantzos, L. Capros, P. (2006) European Energy and Transport. Trends to update Luxembourg: Office for Official Publications of the European Communities (also available online at p. 8 16

17 Natural Gas About a fifth of the EU s energy consumption is covered by natural gas, 63% of which is imported into the EU-27 (see Graph 2). Almost a third of the total gas consumption comes from the Russian Federation, and about 17% is supplied by Norway. The third biggest gas supplier to the EU is Algeria with its share at about 13%. 12 The rest originates in Nigeria, Qatar, and other countries that ship natural gas to the EU via Liquefied Natural Gas (LNG) ports. Reliance on the imports of gas is expected to increase to 84% by 2030, 13 as demand for natural gas is set to expand considerably in the future due to its high efficiency and low emissions. Although the problems of the security of supply pertain to the entire EU, there are differences in the supply risks along both the East-West and North- South axis of Europe. As far as natural gas is concerned, there is a very clear cut across Europe with its eastern part heavily dependent on Russian and Central Asian gas. On the other hand, southern European countries are supplied mostly from Africa through the Green Stream pipeline system. Finally, there are countries in the North-west of Europe- Ireland, the UK, Sweden, the Netherlands, and Belgium- which rely either on domestic production or import natural gas from Norway. It is important to keep these different patterns of gas supply across Europe in mind when we later discuss the quest for a Europe-wide energy policy. As mentioned above, the attractiveness of natural gas lies in its economic and environmental advantages compared with other primary sources of energy. Gas is currently cheaper than oil. 14 Also, with the liberalization of gas markets in continental Europe, the prices of oil and natural gas may further decouple, as the example of the UK shows, thus isolating the gas markets from speculative oil spikes. 15 As for environmental aspects, particle and greenhouse gas (GHG) emissions from the use of natural gas are multiple 12 EU- 27 in Commission staff working document- EU Energy Policy data, SEC(2007) 12, p Communication from the Commission to the European Council and the European Parliament- An Energy Policy for Europe, COM(2007) 1, 10 January 2007, p For more information on gas and oil prices and their development visit: BP Statistical Review of World Energy, June 2007, (08/01/2008) 15 Oil and gas prices go their own ways. Petroleum Economist, October

18 times lower than those of any other fossil fuel, making it a cleaner and more efficient source of energy Oil Indigenous oil production in the EU accounts for about 18% of total consumption; the rest is imported (see Graph 3). Russia supplies more than a quarter of the total oil consumed in the EU-27. Norway supplies about 13%, followed by Saudi Arabia (9%), Libya (8%), with Iran, Algeria, Kazakhstan, Nigeria, Iraq, and other countries contributing with shares of five per cent or less. 17 By 2030, the EU will import 93% of its gas, up from 82%. 18 However, there are member states that are already completely dependent on imports of oil. Lithuania, Slovakia, Bulgaria, Hungary, Latvia, Poland, Romania, and the Czech Republic import over 90% of their oil from, quite predictably, Russia and the Commonwealth of Independent States (CIS). Finland s dependence reaches 81%. African and Middle Eastern oil reserves supply mostly southern member states- Portugal, Italy, Spain, Greece, and Cyprus. European oil flows to Denmark, Ireland, the UK, and Sweden. With only a few exceptions, oil supply follows the gas supply pattern outlined above and it only emphasizes the differences inside of the EU that underlie the divisions over energy policy. Although the level of dependence on imported oil is high and the projections look gloomy, the risk of supply disruption is smaller than with natural gas. First of all, the imports are more diversified by origin, which is crucial for the security of supply. Further, a great deal of oil is transported by sea in tankers. While natural gas can also be liquefied and shipped by sea, the process is expensive and most producers rely on the existing gas pipeline system. A third element greatly adding to the security of the oil supply is the crisis mechanism under the International Energy Agency (IEA), mimicked by the EU, which mandates member countries to hold a 90-day supply reserve and coordinates the responses to price shocks or supply disruptions. This is 16 For the comparison of emissions of different fossil fuels see: Litera, B. - et al. (2006) Energie pro Evropu. Energetická spolupráce Ruska a zemí postsovětského prostoru s Evropskou unií. Praha: Eurolex Bohemia, p EU- 27 in Commission staff working document- EU Energy Policy data, SEC(2007) 12, p Communication from the Commission to the European Council and the European Parliament- An Energy Policy for Europe, COM(2007) 1, 10 January 2007, p. 3 18

19 not to say, however, that the security of the oil supply is guaranteed. Aside from the fact that moderate assessments talk of only about 30 years of oil supplies left, the competition for oil is becoming more severe with especially China s and India s economic rise. The economic impact of the resulting high oil prices is also a challenge to the EU. The price of oil crossed the magic $ 100/ barrel on the second day of The only reason the Eurozone has so far avoided a surge in inflation was the advantageous development of the dollar/ euro exchange rate, but that may change once the dollar starts rising again. Finally, the EU places great emphasis on the environmental dimension of the use of oil, which is a major source of greenhouse gases. Therefore, the EU s policy in this regard is to limit the use of oil by introducing energy efficiency legislation. Since most oil is used in transport, voluntary agreements with the automobile industry on limiting carbon emissions have been the preferred instrument. Recently, legislation has been introduced setting up mandatory limits and fines for not meeting the limits 19, but its success, if approved at all, is questionable given the tough resistance of the powerful automobile lobby Solid fuels Among solid fuels, 20 hard coal is most commonly used in the EU, 54% of which is domestically produced. Coal is the only fossil fuel of which there are sufficient reserves in Europe. Coal imports are well diversified, with the largest supplier, South Africa, having a 13% share. Other suppliers include the Russian Federation, Australia, Colombia, the USA, and others (see Graph 4). 21 The supply of coal is considered to be rather secure. Neither do the economic aspects of coal as an energy source raise concerns. The price of imported coal has been relatively stable or falling for the last decade, although there was an increase in 2003 to around 19 Mahony, H.: Commission in turmoil over car emission proposals. EUobserver, 20 December 2007, 20 Solid fuels include hard coal, lignite, and peat. 21 EU- 27 in Commission staff working document- EU Energy Policy data, SEC(2007) 12, p

20 $60/tonne. 22 The largest consumers of coal are the Czech Republic, Germany, Poland, Spain, and the UK. The relatively stable cost and its widespread availability make coal a very attractive fuel worth keeping in the member states energy mix because it is considered to be an energy security backup, and in spite of the low profitability of the mining industry, it is also a way of sustaining employment in the sector. While sustaining employment is certainly a noble goal that prevents the mining regions from falling into economic and social slump, it directly clashes with the heralded Lisbon goal of competitiveness and the environmental concerns with regards to climate change. Notwithstanding the clean coal and carbon capture technologies, which are still commercially impracticable on a large scale, coal is among the most polluting sources of energy. The march against climate change, therefore, significantly affects the future of coal. The existing EU legislation puts stringent limits on the emissions from new and existing coal-fired power plants and requires large investment into greener technologies, the cost of which may ultimately drive the least effective plants out of business. 23 However, as natural gas prices increase, even buying emission permits may become a viable option for solid fuels plants. Moreover, it is forecasted that after 2020, retired nuclear plants will be replaced largely by coal. 24 This casts a slight shadow of doubt on the EU s commitment to cutting CO 2 emissions after the deadline for the 20% goal Nuclear Energy The use of nuclear energy is probably the most contested matter in the present day debates over energy policy in the EU. While in some member states, such as Belgium, France, Lithuania, or Slovakia, nuclear plants supply the majority of electricity, others, most notably Austria, have vowed to exclude nuclear power from their energy mix. Overall, nuclear energy constitutes about a third of the electricity mix in the EU The share of 22 EU- 27 in Commission staff working document- EU Energy Policy data, SEC(2007) 12, p Directive of the European Parliament and of the Council on the limitation of emissions of certain pollutants into the air from large combustion plants, 2001/80/EC, 23 October 2001, 24 Mantzos, L. Capros, P. (2006), p EU- 27 in Commission staff working document- EU Energy Policy data, SEC(2007) 12, p

21 nuclear power in total energy consumption is set to remain close to 14% up to 2010, and it is expected to decrease to 11% by The drop is the result of the planned phase out of nuclear installations in Belgium, Germany, the Netherlands, Spain, and Sweden who have decided to leave the nuclear club under the pressure of arguments against nuclear energy. These include, first and foremost, the negative public opinion, 27 which still encloses the fear of a nuclear accident. Further, there are serious concerns about the transport and storage of radioactive waste and the costs of the decommissioning of facilities. On the other hand, there are obvious advantages to nuclear energy, such as the security of supply and the relatively stable cost of the energy produced, while it is also a proven carbon-free technology. All this has contributed to the recent nuclear renaissance across the EU, with several member states rethinking their phase-out plans and some considering the building of new plants. 28 Also the Commission has been sending positive signals towards nuclear energy by, for example, establishing a new research platform for nuclear energy, but formally the bloc keeps the issue more or less taboo. The only channel for an EU level dialogue on the use of nuclear power as an energy source is the newly established Nuclear Energy Forum, launched in November 2007, which will meet twice a year to discuss the controversial energy source Renewable sources of energy Renewable sources of energy (RES) represent, at least in theory, a panacea to the EU s energy problems: biomass, hydro power, wind power, and solar power eliminate the risk of import dependence, do not run out, and emit significantly less GHG. Their use in the overall energy mix of the EU-27, however, reached hardly 6.4% in 2004, and projections estimate a very slow 26 Mantzos, L. Capros, P. (2006), p % of Europeans think that the risks posed by nuclear energy are greater than the advantages it offers. Goldirova, R.: Brussels makes the case for nuclear energy. EUobserver, 26 November 2007, 28 After a 15 year long stalemate, new projects for nuclear plants are under way in Finland, Bulgaria, France, Romania, and possibly also in Slovakia, Lithuania, and the UK. Hall, M.: EU Leaders Back European Nuclear Revival. Global Insight Daily Analysis, 2 October

22 growth with the present policies in place. 29 This would leave the EU missing not only its goal from 1997 to use 12% of energy from RES by 2010, but also the most recent target of 20% by 2020 affirmed at the European Council in March Out of the current 6.4%, hydro power contributes 1.5 % to the total energy mix in the EU, biomass and waste contribute 4.2%, geothermal and wind power 0.3% each, and solar power 0.04%. 30 The highest growth rates are reached by the booming wind power installations, both onshore and offshore as the amount of available land diminishes. Also the contribution of biomass is rising considerably. Conversely, hydro power has very little additional growth potential. By sector, the most RES are used for power generation, with heating and transport lagging behind. RES potential, however, is not spread evenly across the EU. Naturally, the southern European member states are better set to use photovoltaic or solar thermal energy than Finland, for example. Similarly, the potential for the use of biomass, wind power, and geothermal energy differs from state to state. With this in mind, the Commission proposed that the national contributions towards the 20% RES target differentiate, taking the point of departure, potential, and wealth of the member state into account Defining EU energy policy As it was hinted at in the previous section, the EU does wield some influence in the field of energy by means of formal competences and various new initiatives. However, whether these are part of a consistent energy policy, or just other established policies extended to cover their related energy issues, is disputable. The European Commission maintains that, although lacking a formal treaty base, there is indeed an EU energy policy, which has been developing for five decades in a stop-and-go fashion into the present three pillar structure- the internal energy market, environment and security of supply. While the word common is usually used cautiously in regards to energy 29 Estimated ratio of RES in EU-27 energy mix is 8 % in 2010, 10 % in 2020, and 12 % in Mantzos, L. Capros, P. (2006) 30 Commission staff working document- EU Energy Policy data, SEC(2007) 12, p

23 policy, the Commission has always aspired to bring energy under a single heading among the Community policies. On the other hand, most national politicians would probably agree with the Latvian President V. Zatlers who asserts that there is no common EU energy policy, though in the same breath acknowledges its necessity. 31 In a similar tone, G. Gloser, the German Minister of State for Europe, contends that Although energy policy does not fall into the EU area of competence, the EU has pursued important energy policy initiatives in recent years. 32 Finally, the Czech Prime Minister Mirek Topolánek plainly declared that: There is no energy policy of the European Union which the EU would guarantee. 33 The academics are divided over the existence of a European energy policy. While M. Jovanović in 1997 insisted that EU policy in the field of energy is insignificant, 34 the editors of the recognized series Policy-making in the European Union included an entire chapter on energy policy in the 1996 edition. 35 So did S. George in his third edition of Politics and Policy in the European Union, although his view of energy policy is one of a spectacular failure. 36 A more detailed overview of academic work on energy policy in the EU is provided in the introduction. This is only to illustrate the range of outlooks on a seemingly simple question of the existence or non-existence of a European energy policy. In our view, common is by no means an accurate term to describe the present state of the policy. Nonetheless, the extent of the EU s activities in the field of energy justifies that it be among the policies with shared competencies. 31 No common EU energy policy exists- Latvian president in Vilnius. Baltic Business Daily, 19 November Obgleich Energiepolitik nicht in den Zuständigkeitsbereich der EU falle, habe die EU in den letzten Jahren wichtige energiepolitische Initiativen vorangetrieben. In Energy policy for Europe- a priority of the German Presidency. EurActiv.com, 4 January 2007, 33 Neexistuje energetická politika Evropské unie, kterou by EU garantovala. The speech of the Prime Minister of the Czech Republic Mirek Topolánek at the international conference 2 nd Energy Forum, 5 November 2007, Prague (transcript available at 34 Jovanović, M.N. (1997) European Economic Integration: Limits and Prospects. London, New York: Routledge, p. xvii 35 Wallace, H. - Wallace, W. (eds.) (1996) Policy-making in the European Union. Oxford: Oxford University Press. 36 George, S. (1996) Politics and Policy in the European Union. Oxford: Oxford University Press, p

24 The boundaries of this policy are still fluid in the sense that the push and pull between the Community and member states level is still vibrant, as can be seen during negotiations on different controversial issues. There are several rather unquestioned components of energy policy, such as the competence of the EU in Transport and Energy Networks (TEN), the residuum of the failed attempt to include a separate energy chapter into the Maastricht Treaty, which will be discussed in greater detail in the next section. This competence is vital to developing interconnections between the member states, as well as to the diversification of supply. The security of supply pillar is further underpinned by the flexibility clause in Article 100 of the Treaty Establishing the European Community, which enabled oil stocks to be mandated. Further, there are competencies under the environmental pillar of the EU energy policy, which are the result of the extension and integration of energy issues into environmental policy. The effort against climate change, through the promotion of RES and energy efficiency, belong to the core objectives of EU energy policy. Research into new and renewable technologies is also an area where the pooling of resources is beneficial and is also a largely undisputed competence of the EU. Vaguely defined is the role of the EU in external energy policy, 37 where the tradition of separate deal-making with energy producers prevails among the member states, 38 although the protracted episode about Polish meat exports and the blocked EU-Russia Partnership and Cooperation Agreement did produce a sense of (somewhat reluctant) unity. However, this should be seen as a result of a Polish veto rather than a display of solidarity within the EU. Finally, a very important component of energy policy, one that actually initiated the process of energy policy formation, is the liberalization of gas and electricity markets, as a belated part of the grand market liberalization of the 1980 s and onwards. Although most member states agree with this 37 A Joint Paper by Javier Solana, EU s Representative for Common Foreign and Security Policy (CFSP), and the Commission identifies the possible areas of cooperation for the member states in external energy relations. An external policy to serve Europe s energy interests. Paper from the Commission/SG/HR for the European Council, June 2006, (16/01/2008) 38 The European Commission is often the last to find out about an energy agreement [between an EU Member State and an energy supplier]. The speech of Mr. Keith Smith (Center for Strategic and International Studies) at the international conference 2 nd Energy Forum, 5 November 2007, Prague (transcript not available) 24

25 objective in principle, they have vastly different visions of its fulfillment. Although not equally developed in depth, these components could be considered the core of EU energy policy. On the other hand, there are issues, which are controversial, and only the outcome of the ongoing negotiations will set the boundaries of EU action in these areas. The hottest issues include nuclear energy, the liberalization of energy markets and the associated problems of the regulating role of the EU bodies and the position of national energy monopolies. Further, there is the issue of the security of supply and the external energy policy priorities, as well as the general discrepancies among the different national regulatory systems, which every member state seeks to maintain and possibly extend to others. France s vision of a common EU energy policy integrates nuclear power as a firm component, together with more RES and increased cross-border power trade, which is logical in light of its nuclear power export potential. It also favors an EU-wide form of white certificates to label energy efficient appliances, since the system has been launched in France already. 39 As for electricity and gas market liberalization, France is against the Commission s proposal for ownership unbundling, which is designed to ensure the independence of production and distribution of energy, along with Austria, Bulgaria, Cyprus, Germany, Greece, Latvia, Luxembourg and Slovakia. The same group of countries also refuses an alternative solution to unbundling proposed by the Commission- an independent system operator (ISO). 40 The UK has for a long time resisted any mention of an energy policy at the Community level for essentially two reasons. First, with the discovery of North Sea oil and gas fields, the UK was by no means ready to yield any part of control over energy policy to Brussels. Only when the output from those fields declined sharply did Britain moderate its stance. 41 The second reason is the general British reluctance to transfer further regulating powers on to the EU. This position is reflected in the UK s emphasis on the competitiveness 39 France sets out its views on a common EU energy policy. EU Energy, 27 January Goldirova, R.: EU energy liberalization plans run into opposition. EUobserver, 3 December 2007, 41 EU: A common energy policy? Economist Intelligence Unit- Business Europe, 1 January

26 and openness of European energy markets as opposed to new regulatory barriers, 42 even more so since the British energy markets have long been liberalized. As for nuclear power, the UK government has recently approved the building of a new plant. 43 Germany s position towards EU energy policy reflects both pro-european drive, as demonstrated by its putting the energy policy on top of its presidency agenda in 2007, as well as the interests of large domestic energy groups. The latter translates into Germany s reluctant approach towards market liberalization, especially ownership unbundling proposed by the Commission. The relationship between Germany and Russia, which resulted in the controversial Northern European gas pipeline (Nord Stream), and a strong disagreement on the side of some Central and Eastern European member states, deserves special attention. The greatest concern of these member states is the security of supply. Greater diversification of supplies and more interconnections are priorities for most countries in the region, as they are highly dependent on a single supplier. Interconnection of the Baltic and EU grids is a priority for the Baltic States, whose grids are a sort of an energy island. 44 As can be seen from the above, the scope of interests related to the EU energy policy is wide, and a clash is not uncommon. Political will is a necessary condition for a common energy policy to emerge, but it is not sufficient. 45 The convergence of interests is an unavoidable step, for which the most important precondition is the emergence of a single energy market Raison d être: economic, security, and environmental aspects Security of supply, competitiveness of the EU economy and environmental sustainability are the most often cited arguments in favor of a greater role of the EU in energy policy. The complexity of the environment in which 42 Milne, R.: Blair urges unity on nuclear. Utility Week. 34(12), 11 April Hall, M.: EU Leaders Back European Nuclear Revival. Global Insight Daily Analysis, 2 October The first electricity connection between Estonia and Finland (Estlink) was established only in Exploring the Future of Baltic Energy. The Baltic Times, 17 October EU: A common energy policy? Economist Intelligence Unit- Business Europe, 1 January

27 Member states exercise their energy policies has greatly increased since the days of the ECSC and as J.M. Barroso put it in 2006: We must have an approach to match this new reality- the EU can no longer afford 25 different and uncoordinated energy policies Security of supply The issue of the security of supply is typically raised with regard to the dependence of the EU on imports of energy. This is, however, only one dimension of what security of supply actually means. Other dimensions include the development of supply infrastructure, its interoperability and interconnectedness so as to prevent large-scale blackouts and to promote solidarity among member states in the event of a crisis. Directly linked to this dimension is the issue of sufficient and sustainable investment into the supply infrastructure. The energy sector, in the post-communist countries especially, tends to be permanently underinvested, as investments in the electricity and pipeline infrastructure are costly and the return on capital is counted sometimes in decades. This is why we see investment in energy infrastructure as a problem of the security of the energy supply and not as a purely economic matter. Further, market stability and the long term availability of energy sources are also preconditions for a stable and secure energy supply. Here the availability is also crucial for market stability because commodity markets, especially those with oil, are extremely sensitive to any fluctuation in the output. All of these dimensions of the security of supply could be more easily achieved on an EU level than 27 national levels because, for one thing, a common market in capital and energy should enable a more effective pooling of resources to cover the investment needs. Secondly, concerted reactions of the EU-27 can have a significant impact on the global markets; and thirdly, infrastructure interconnected on a European scale definitely carries smaller risks of shortages or blackouts than 27 more or less isolated systems. As far as the international dimension is concerned, an external energy policy at the EU level might bring about important benefits to the member states. First of all, it would provide the EU with greater leverage vis-à-vis 46 Fearful EU aims to take energy policy from governments. The Times (UK), 9 March

28 large suppliers like the Russian Federation. The EU-Russia dialogue could represent such leverage as long as the EU remains unified in its stance towards Russia. So far, the EU has a mixed record on this. Similarly, taking into account the soaring energy consumption of emerging powers- China and India, a collective approach would greatly enhance the position of the EU in the competition for energy resources. A large and unified market further attracts infrastructure development, so vital for the security of energy supply, which in turn reduces the risk of supply disruption and facilitates the response in the case of a crisis. Last, but not least, the concept of the security of supply also includes reasonable prices for energy. These depend on the situation of energy markets and their stability, which the EU, as a large global player, might be in position to influence Competitiveness The liberalization of the energy markets is designed to bring about greater competition in the sector and thus increase the competitiveness of the European economy. Competition, it is generally assumed, has the effect of lowering prices (although this has not proved true in the EU energy sector so far, only in the UK), 47 spurring innovation and boosting efficiency. The EU has already accomplished two rounds of liberalization since the 1990 s, with all consumers being able to choose their electricity and gas supplier from anywhere in the EU. The raison d être behind the third round, scheduled to be launched in 2008, is to tackle the remaining structural barrier which hinders the full competition the vertical integration of energy production and distribution. Full ownership unbundling is expected to bring significant price savings resulting from greater competition among both the energy producers and distributors, which is why most industries with the exception of energy welcome this proposal. Aside from lower energy prices, more competition is to bring more investment in building additional energy infrastructure, although the energy lobby insists that the opposite is true Europe: Gearing up for energy liberalisation. Economist Intelligence Unit- Business Europe, 29 October As a matter of fact, over the years , vertically integrated companies in the EU have invested significantly less in new interconnectors than unbundled ones. (17 % against 33 %). 28

29 Since this would also facilitate the access of new companies to the market, the incumbents do not exactly embrace the latest proposals. Finally, as mentioned above, infrastructure investment would also enhance the security of energy supply in the EU. With regard to the existing volumes of cross-border energy trade and the anticipated benefits of a single market in energy (economies of scale, the security of supply, the reduced cost of research), it is commonsense that the market regulation should rest with the EU- and that an EU energy policy be developed Environment Environmental problems pose a very intricate challenge to policy-making. First, they are very complex- everything is connected to everything else. A high level of expertise is required to deal with these problems effectively, rather than displace them over time and space, or worse, aggravate the problems. 49 Secondly, environmental problems do not stop at national borders. Issues such as acid rain, air and water pollution, climate change, etc. require regional, or even global, responses. The EU is placed ideally to deal with some of these problems, as was already recognized by the inclusion of environment into the EU portfolio of competencies by the Single European Act. Environmental problems related to the use of energy are no exception to this. Carbon dioxide emissions from energy make up 80% of the total EU GHG emissions. 50 Therefore, combating the global climate change was made the core issue of the EU energy policy. Increasing energy efficiency and the percentage of RES in the EU s energy mix are the means to achieve not only the reduction of GHG, but also an increase in competitiveness (less energy input per unit of GDP) and security of supply (the diversification of the energy mix). Regulatory Watch: Energy- Toward an integrated energy market. Economist Intelligence Unit- Business Europe, 1 October Brown, M.L. (2000) Scientific Uncertainty and Learning in European Union. Environmental Policymaking. Policy Studies Journal. 28(3): Communication from the Commission to the European Council and the European Parliament- An Energy Policy for Europe, COM(2007) 1, p. 5 29

30 1.4. The Development of EU Energy Policy: from European Coal and Steel Community to Present The European Coal and Steel Community The history of European energy policy dates all the way to the very beginnings of the European integration process- to the European Coal and Steel Community (ECSC). 51 Back then, energy meant almost exclusively coal, and so the logic was that by creating a common market in coal, a common coal (read: energy) policy would emerge as its inseparable component. 52 However, what really resulted from this new and interesting international experiment was not an energy policy. Instead, the integration of entire economies was launched which, over time, lead to what we know today as the internal market. How and why the ECSC lead to the internal market is well-researched and explained. The classic explanations draw on the neofunctionalist theory and its concept of spillover. [The energy sector] had a good potential for spillover into other sectors, 53 and the founding fathers, as Monnet and Schuman are sometimes referred to, intended to intertwine the economies of France and Germany in an effort to achieve prosperity and political stability. 54 Less well researched, however, is the impact of the spillover effect on the original area of integration- energy. The ECSC was to pursue the goal of creating a common market in coal and steel. However, at that time, there were at least two differing conceptions how to do this. The first was represented by Jean Monnet, who, being a planner in core, envisaged a planned process of integrating the national markets and their subsequent control by the ECSC s High Authority. This was indeed a model that would have required the emergence of a consistent energy policy. The second concept was that of a free market to be created by removing the barriers to free trade rather than by planning. This approach, 51 Egenhofer, C. (2001) European Energy Policy. British Energy: (06/01/2008) 52 George, S. (1996), p George, S. (1996), p Urwin, D. W. (2003) The European Community: From 1945 to In Cini, M. (ed.) European Union Politics. New York: Oxford University Press, p

31 advanced especially by Germany, proved to be acceptable to the majority of member states and so the creation of a common policy was driven to the sidelines, at least for the time being. 55 The High Authority focused its work on the dismantling of the existing cartels in the coal production sector. Although this was done by means of price control, it did not jeopardize the underlying free-market orientation of the ECSC and thus won the support of the German government, which, along with the French, preferred cheap energy for their booming industries to the preservation of the coal cartels. 56 The preference for cheap imports was also the reason why in 1959 the High Authority was denied crisis powers under the ECSC Treaty 57 when the coal stocks had grown too large and threatened the functioning of the market. 58 The last attempt of the High Authority to extend its powers in energy policy based on coal was the Protocol Agreement on Energy Policy prepared in 1964 by the Inter-Executive Working Party on Energy, which consisted of the executive organs of all three communities. The agreement was seen by the High Authority as an equivalent to the Common Agricultural Policy in the field of energy. Nevertheless, even though it was accepted by the Council of Ministers, it never went past the coordination of national subsidies to coal. 59 After the merger of the three communities into the European Community in 1967, there was no further progress on energy policy based on coal, as nuclear energy and cheap imported oil already carried the day. 60 Finally, the ECSC Treaty was left to expire in EURATOM EURATOM is regarded as the second pillar of the original legal foundation of the European energy policy, although national nuclear energy 55 Matláry, J.H. (1997) Energy Policy in the European Union. New York: St. Martin s Press, p George, S. (1996), p The ECSC could intervene in the market in times of manifest crisis, by which originally meant scarcity, through the price intervention (Article 61), production quotas (Article 58) and international trade (Article 74). Molle, W. (2006) The Economics of European Integration: theory, practice, policy. Aldershot: Ashgate Publishing, p George, S. (1996), p George, S. (1996), p George, S. (1996), p

32 policies have always been only marginally affected by the competencies derived from the EURATOM Treaty. Monnet saw the EURATOM scheme as a new start for integration, in which planning would really be inevitable this time. 61 Around the same time, however, the proposal for a European Economic Community began to take shape, so the two were linked in an attempt to increase their chances of adoption. Thus, EURATOM became a part of a bargain between Germany and France, whereby the first sought a free common market for its industrial output and the latter hoped to keep in check yet another strategic sector of Germany while pooling resources for nuclear research. But while the EEC project prospered, EURATOM struggled to justify its role as Germany and Italy had launched their own nuclear programs in order to catch up with France who had a several years lead in research. Due to this imbalance, EURATOM was stillborn 62 and failed to serve both as an impetus for further spillover effect as well as a basis for a European energy policy based on nuclear energy. Far from leading to a common energy policy, EURATOM may actually have hindered the development of one. 63 EURATOM in effect competed with the ECSC in its pursuit of energy related objectives and, along with the subsequent attempts of the EEC in the field of oil supply, contributed to the fragmentation thereof. Moreover, with nuclear energy and coal being the main focus of the contemporary policies in the energy field, the rise of oil as an energy source was largely overlooked The Oil Crises The 1960 s was a decade one of booming oil use. Between 1962 and 1972 oil consumption in Western Europe rose from 37.5% to 59.6% of total energy consumption, with the bulk of imports coming from OPEC(The Organization of the Petroleum Exporting Countries). 65 This was mainly due to the price of oil which had dropped as a result of progress in oil extraction technology, large discoveries in the Middle East, and the strong position of large oil 61 George, S. (1996), p Deubner, Ch. (1979) The expansion of West German Capital and the Founding of EURATOM. International Organization. 33(2): , p George, S. (1996), p Matláry, J.H. (1997), p George, S. (1996), p

33 companies in the European market. 66 Typically, companies showed a high degree of vertical integration which allowed them to control as much as 65% of the total European refinery capacity in the 1950s. Shell alone controlled about 20% of this capacity in Western Europe at the height of its influence in the 1960 s. 67 Although the EC member states did not seem to be overly worried by the rise in oil dependency, the Commission was. In 1968, the report First orientation to a Common Energy Policy was published, in which a free market for energy products and policy coordination were advocated. Quite conspicuously, the proposal came after a short turbulence in the Middle East caused by the Six-Day War between Israel and its Arab neighbors in 1967 and the gradual expansion of OPEC in terms of membership and its consolidation of control over domestic oil industries throughout the 1960 s. The proposal was not adopted by the Council due to the influence Shell and its sisters had on their respective governments. 68 However, the Commission was able to push through a directive on the minimum stocks of oil as supply problems started to become more salient. 69 In response to the already visible problems in the markets, the Commission issued another proposal shortly before the 1973/74 oil crisis, yet again, unsuccessfully. Although certain coordinating crisis measures had been adopted, 70 the energy crisis hit a Community that was totally unprepared to make a unified response. 71 Instead, the divergent national responses virtually disintegrated the existing energy market as the governments rushed to conclude bilateral deals with oil producing countries. 72 The Commission responded to the energy crisis by presenting proposals on crisis measures directly to the European Council. In 1974 the Council 66 Also referred to as the seven sisters, the companies were: Exxon, Texaco, Gulf Oil, Mobil Oil, Chevron, Shell and British Petroleum. 67 Molle, W. (2006), p George, S. (1996), p Council directive imposing an obligation on Member States of the EEC to maintain minimum stocks of crude oil and/or petroleum products, 68/414/EEC, 20 December 1968, 70 Council directive on measures to mitigate the effects of difficulties in the supply of crude oil and petroleum products, 73/238/EEC, 24 July 1973, 71 George, S. (1996), p Molle, W. (2006), p

34 adopted an energy program, 73 which later served as the basis for discussions on energy matters such as the reduction of dependency upon petroleum. It was updated twice, in 1980 and Any significant steps towards closer coordination were, however, quickly buried by the British, owing to the influence of the oil companies on the British government along with its jealous protection of its North Sea oil. Germany, in return, refused to pass the setting up of the European Regional Development Fund, to which the British responded by blocking any discussion of a common energy policy completely for the next several years. 75 In 1977 the UK vetoed a proposal on crisis measures and another for the reduction in refinery capacity in the EC. The following year it rejected the establishment of a Community fund for the exploration of oil, although the British would have benefited heavily from it. The Community was not to have even the least bit of control over the North Sea oil. 76 A Community-wide approach was also made impossible after France, as the only EC member state, decided to stay out of the International Energy Agency (IEA), a counterbalance to OPEC initiated by the United States. With anti-americanism at its height at the time, France successfully resisted all attempts by the Commission to conceal the split of the European Community by making parallel proposals to the IEA. 77 On the whole, the EC was able to decrease its import dependency after the oil shocks through the extraction of North Sea oil, the expansion of nuclear power and a leap in energy efficiency. Energy policies in the EC, however, remained fragmented, and another petroleum shock in 1979, along with the economic downturn that followed, only reinforced the tendency towards national energy strategies. The subsequent period of low oil prices in the 1980 s pushed the issue of a common energy policy to the side and the Commission restricted itself to setting objectives around which the national 73 Council Resolution of 17 September 1974 concerning a new energy policy strategy for the Community, Official Journal C 153, 9 July 1975, 74 The European Union Encyclopedia and Directory (1999) London: Europa Publications, Ltd., 3 rd edition, p. 48, entry: energy policy 75 George, S. (1996), p George, S. (1996), p George, S. (1996), p

35 strategies could converge 78 Community energy policy. 79 and complaining about the slow progress of a The Repercussions of the Single European Act The late 1980 s saw a revolution in European affairs, with the Single European Act resurrecting the integration process, strengthening the supranational authority in a number of policy areas and making greater use of the qualified majority voting. The drive of the internal market lent the impetus for change to the energy sector as well. Although the liberalization of energy was not part of the 1985 White Paper on the internal market, and according to Andersen it was even deliberately kept out of the first internal market package, he also argues that it was never the Commission s intention to make [the energy sector] a permanent exception. 80 A further component of energy policy that also developed in this period, the environmental pillar, is linked to the increased salience of environmental issues. With the momentum created by the Single European Act, the energy policy of the EU was transformed from the bottom, and two of its three present pillars were founded this way. The third one, the external dimension and the security of supply pillar of the EU s energy policy, developed gradually as a continuation of previous efforts linked to the security of oil supply and as a reaction to the geopolitical changes in the former Eastern bloc at the beginning of the 1990 s. 81 Security of supply has been an ever present concern of the EU as well as of the member states, even in the periods of lower oil prices. In the 1990 s, for example, both of the Commission s Green Papers identified the security of the energy supply as one of the main goals of EU energy policy Padgett, S. (1992) The Single European Energy Market: The Politics of Realization. Journal of Common Market Studies. 30(1): 53-75, p Communication from the Commission to the Council: The development of an energy strategy for the Community, COM(81) 540, 23 September 1981, 80 Andersen, S.S. (2000a) European Integration and the Changing Paradigm of Energy Policy. The case of natural gas liberalization. ARENA Working Papers. WP 13/2000, 81 Andersen, S.S. (2000a), also Daintith, T. (1987) The Legal Integration of Energy Markets. Berlin: Walter de Gruyter. 82 Matláry, J.H. (1997), p. 9 35

36 The internal energy market The incorporation of the energy sector into the internal market program was not without difficulties, and was therefore delayed by several years. As Padgett notes, the main obstacle was the specific nature of the energy sector where the security of supply concerns have always prevailed over efficiency, which resulted in the heavily nationalized and monopolized energy sectors. The vertical integration between production, transmission and distribution also places severe limitations on the scope of competition. Lastly, the public service character of the energy sector was used to exempt the industry from the wave of liberalization. 83 A factor enabling the reorientation of energy policy from security of supply issues towards the market were the relatively stable and low oil prices during most of the 1980 s. The 1986 revision of the energy policy program contained only feeble, although explicit, recommendations with regards to the internal energy market. 84 As far as electricity and gas were concerned, the Commission recommended more internal trade and a common pricing system, though no liberalization was envisaged yet. 85 The oil and coal markets were regarded as competitive and integrated enough. Mostly, the program concentrated on ways of cutting dependency on imported oil, such as the increased use of coal and nuclear energy, improved energy efficiency and the exploration of alternative energy sources. There is, however, disagreement in the literature about how significant this program was. Conversely to the previous statements, Padgett, for example, claims that the 1986 revision already heralded the new market-oriented approach. 86 An undisputed breakthrough came two years later with the approval of the Commission document The Internal Energy Market. 87 The main principles of the general internal market, competition and market integration, were transposed to the energy sector, in which especially the electricity and gas 83 Padgett, S. (1992), p Council Resolution of 16 September 1986 concerning new Community energy policy objectives for 1995 and convergence of the policies of the Member States, Official Journal C 241, 25 September 1986, 85 Egenhofer, C. (2001) 86 Padgett, S. (1992), p Commission Working Document- The Internal Energy Market, COM(88) 238, 27 April 1988, 36

37 industries were still highly fragmented along national lines and heavily monopolized. The paper outlined the following steps towards an energy market: - the implementation of the general single market provisions in the energy sector, such as the harmonization of taxation and technical standards, and public procurement; - a more rigorous application of the existing EC law on competition and state aid; - the harmonization of safety and environmental standards; - increased pricing transparency and the integration of energy infrastructures by means of specific energy directives. 88 What followed was a quick sequence of proposals by the Commission. In 1989, the Directorate-General for Energy submitted four draft directives to the Council. The draft Directive on the transparency of gas and electricity prices 89 met with little opposition in the Council. Its aim was to promote competition through the clarification and communication of the pricing structures of energy, but was weakened by several loopholes, such as the exemption of some large-scale contracts and the failure to demand the transparency of energy costs, which is how state-aid to the sector is often hidden. 90 Causing little controversy, the directive was approved by the Council in 1990 and became operative in the middle of A draft Regulation on the notification of investment projects in the petroleum, natural gas and electricity sectors 92 sought to coordinate energy investment in the EC, but with the exception of Portugal, all the member 88 Padgett, S. (1992) p. 57; Eikeland, P.O. (2004) The Long and Winding Road to the Internal Energy Market- Consistencies and inconsistencies in EU policy. FNI Report 8/2004, Fridtjof Nansen Institute: (23/02/2008) 89 Draft Council directive concerning a Community procedure to improve the transparency of gas and electricity prices charged to industrial end-users, COM(89) 332, 5 July 1989, 90 Padgett, S. (1992), p Council directive concerning a Community procedure to improve the transparency of gas and electricity prices charged to industrial end-users, 90/377/EEC, 29 June 1990, 92 Draft Council regulation amending regulation No. 1056/72 on notifying the Commission of investment projects of interests to the Community in the petroleum, natural gas and electricity sectors, COM(89) 335, 5 July 1989, 37

38 states criticized it as being overly bureaucratic 93 and as interfering with private investment decisions. 94 Thus, this proposal was rejected by the Council. The key reforms of the energy sector were commenced by the introduction of two proposals for liberalizing the gas and electricity markets based on Article 100a of the SEA. 95 These proposals were spearheaded by the Directorate-General for Competition, which had previously established the Community powers within another contested sector, telecommunications, and used the favorable ruling of the European Court of Justice (ECJ) in the energy sector as well. 96 At the first stage, the concept of the third-party access (or common carriage) was introduced, which meant that distributors and large industrial consumers would no longer be bound to their national supplier, but would be able to contract deliveries from other generators by giving them statutory access to the transmission network. 97 However, the proposals were rather tentative and did not address third-party access (TPA) directly. 98 Thus, despite the opposition of energy utilities and some member states to TPA, the electricity transit directive was passed in October 1990, 99 followed by the gas transit directive in May The full extent of hostility towards energy sector liberalization was unveiled later with the ensuing legislation. The proposals prepared by working groups consisting of experts and member state representatives demanded the abolishment of all exclusive rights in electricity generation and construction of transmission lines, and the end of restrictions on the 93 Padgett, S. (1992), p Eising, R. (2002) Policy Learning in Embedded Negotiations: Explaining EU Electricity Liberalization. International Organization. 56(1): , p Proposal for a Council directive on the transit of natural gas through the major systems, COM(89) 334-2, 5 July 1989, Proposal for a Council directive on the transit of electricity through transmission grids, COM(89) 336-2, 5 July 1989, 96 The French government attacked the deregulation of the telecommunications sector in the ECJ, but the court ruled that DG Competition under Commissioner Peter Sutherland was acting within its powers under Article 100a of the SEA. George, S. (1996), p Eising, R. (2002), p Padgett, S. (1992), p Council directive on the transit of electricity through transmission grids, 90/547/EEC, 29 October 1990, Council directive of on the transit of natural gas through grids, 91/296/EEC, 31 May 1991, 38

39 purchase of electricity and gas from other member states. 101 Further, the TPA principle was reinforced, and management unbundling of the production and transmission of gas and electricity was proposed. These proposals were presented to the Energy Council in January 1992 where they met with widespread opposition from the member states. The electricity directive was controversial mainly on the grounds of crossborder trade and the TPA. While France supported more cross-border trade with the view of exporting its excess capacity, Germany feared the inflow of cheap French electricity. Germany and France stood on opposite sides also in regards to the TPA principle. While Germany slowly came to endorse it, France defended its nationalized regime with Electricité de France (EdF) on top. Only the UK and Ireland supported the TPA from the beginning. Firstly, they were isolated from the continental grids, and secondly, their energy sectors had been or were being liberalized already. 102 With the fear of a long fight, the Commission included some elements of the European Parliament s position in its amended proposal, but the disagreements continued. To defend its sector structure, France suggested an alternative to the TPA principle- the Single Buyer model, in which a single firm would control all imports. After more intense negotiations and further changes to the Commission s proposal, at the end of 1995 it seemed that an agreement could be reached as the proliberalization camp (the UK, Denmark, and the newly acceded Sweden and Finland) was willing to compromise. However, a deal was reached only after bilateral consultations between the French President and the German Chancellor in mid The electricity directive was finally adopted in late The gas directive encountered even greater obstacles on its way to adoption in The initial proposal caused deadlock in the Council and is one of the few cases when the Council sent the proposal back without proper 101 Proposal for a Council directive concerning common rules for the internal market in electricity, COM(91) 548-1, 22 January 1992, Proposal for a Council directive concerning common rules for the internal market in natural gas, COM(91) 548-2, 22 January 1992, Eising, R. (2002), p Eising, R. (2002), p Directive of the European Parliament and of the Council concerning common rules for the internal market in electricity, 96/92/EC, 19 December 1996, 39

40 committee discussion 105 and refused to handle it according to the standard two-hearing, qualified majority procedure. 106 Eleven out of twelve member states (the UK was the only state in favor) rejected the proposal and so did the industry. The proposal eventually failed in Over the following years, the Commission negotiated an alternative, watered-down version of the original proposal. At the same time, some of the member states saw their positions change and adjust to what seemed an irreversible trend of liberalization. For example, the Netherlands, after resisting for several years, changed its strategy in 1995 and was among the first to start a reform under domestic control. Nevertheless, France s reform was entrenched by the public service obligation of the gas sector, and the dominant position of Ruhrgas prevented rapid changes in Germany, until new entrants to the gas market instigated its opening. 107 In 1997, the directive was picked up again and finally passed in June 1998, entering into force in August of the same year. 108 Although some concepts and formulations of the electricity and gas directives changed, the general perspective did not. The TPA principle remained in place, but the states were enabled to choose between regulated or negotiated access (Single Buyer). As for management unbundling, the final directives required only simple separation of accounts between production and network operation. In the medium term, however, the lax provisions proved insufficient to create a functioning internal energy market. Meanwhile, the Commission also turned its attention towards oil, specifically on the upstream segment where the licensing of prospecting, exploration and production were under substantial state control in some states. The directive was aimed at removing the special privileges to state controlled companies. 109 Again, the UK acted as the Commission s principal 105 Andersen, S.S. (2000b) EU Energy Policy: Interest Interaction and Supranational Authority. ARENA Working Papers, WP 05/2000, Andersen, S.S. (2000a) 107 Andersen, S.S. (2000a) 108 Directive of the European Parliament and of the Council concerning common rules for the internal market in natural gas, 98/30/EC, 22 June 1998, Directive of the European Parliament and of the Council on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons, 94/22/EC, 30 May 1994, 40

41 ally, while Denmark and Norway (through the EEA) were successful in deferring the adoption until mid 1994 when it was passed. 110 After the strenuous process of passing the electricity and gas directives, the second stage of liberalization in these sectors was delayed and will be dealt with in a separate section. Environment The salience of environmental issues in the EC has been on the rise since the early 1970 s and culminated with the inclusion of a chapter on environmental policy in the SEA. As it quickly became clear, environmental policy is an inherently horizontal policy area and a general concern to be taken into account in other policy areas. 111 Given the close relation between energy use and environmental damage, environmental policy was one of the important forces behind the formation of a European energy policy, as climate change surged to the top of the political agenda. In the 1990 s carbon tax became the focus of attention. It was proposed by the Commission in 1992 with the view of winning the support of the participants at the 1992 UN Conference on Environment and Development held in Rio de Janeiro. 112 However, the international community was reluctant to accept such a radical step, and in the end the industrial interest in cheap energy prevailed even in the EC. The proposal was revived and amended again in 1995, but failed and was withdrawn eventually with other obsolete Commission proposals in The climate change agenda, however, did not wither with the proposal, quite the opposite as will be seen in subsequent sections. Security of supply and the external dimension Although we have already mentioned that security of supply concerns played a key role in the development of EU energy policy in its initial stages, major international events of the late 1980 s and early 1990 s gave it a new direction. These major crises were the Gulf War ( ) and the disintegration of the Eastern bloc. From the oil shocks of the seventies the 110 Andersen, S.S. (2000b) 111 Andersen, S.S. (2000b) 112 Proposal for a Council directive introducing a tax in carbon dioxide emissions and energy, COM(92) 226, 2 June 1992, 41

42 Community learned that a volatile situation in the Middle East is always a threat to the continuity of the oil supply to Europe. The Gulf War was a reminder that, even with the liberalization of the energy sector under way, energy is still a strategic commodity. The Commission traditionally reacted by submitting proposals to coordinate a Community response in a supply crisis, but was rebuffed in 1990, and again in A different approach was chosen to deal with the risk of supply disruptions posed by the unpredictable developments east of the EC. In June 1990, the Dutch prime minister presented the Lubbers Plan to the European Council in Dublin, aimed at establishing relations with the Central and Eastern European countries (CEEC) in order to secure stable energy supplies for the EC. The Commission assumed this initiative and within a year organized a conference that concluded with the signature of the European Energy Charter in December 1991 by 51 states and the EC. 114 The Charter was followed up by the legally binding Energy Charter Treaty, which broadly covers four areas: 1. the protection of foreign investments, 2. the application of WTO rules on trade with energy materials and the provision of reliable cross-border transit of energy, 3. dispute resolution mechanisms, and 4. the promotion of energy efficiency (in a separate Energy Charter Protocol on energy efficiency). 115 The Treaty and the Protocol were signed in December 1994, but ratification by several countries is still pending, most notably by the Russian Federation, which is one of the reasons behind quite a few trips of European officials to Russia. Overall, however, the importance of the Energy Charter Treaty should not be overestimated. In view of the development of EU energy policy, the Energy Charter did not help extend competence of the Commission into energy policy as much as the drive of the environment and the internal market did. On the other hand, the way the Commission filled the policy vacuum towards the CEEC was unprecedented and certainly provided 113 Proposal for a Council directive providing for appropriate measures to be taken in the event of difficulties in the supply of crude oil and petroleum products to the Community, COM(90) 514-2, 24 October 1990 and COM(92) 145, 27 April 1992, Europa: Summaries of legislation: European Energy Charter, Energy Charter, 42

43 grounds for the ensuing cooperation in different areas with the CEEC and the eventual integration of the Central European Countries into the EU Maastricht and Amsterdam- the low points Although much of what has already been talked about with regards to the development of the EU s energy policy in the early 1990 s overlaps with the negotiations leading up to the Treaty on the European Union (TEU), the institutional aspect of the development has so far been rather neglected. This subsection deals with the failed attempts of the Commission to include a chapter on energy policy in the treaties of Maastricht and Amsterdam. The TEU went beyond its original economic objectives in several aspects as a result of external events (the disintegration of the Eastern bloc) and the internal need for further reforms in expanded policy areas. Nevertheless, only limited reference was made to energy in the TEU. In Article 3t (the last point), the TEU includes measures in the spheres of energy, civil protection and tourism in the Community activities. Further, the development of energy infrastructures is mentioned within the trans-european networks (Art.129b). Proposals concerning member states choice of energy mix are exempted from the qualified majority procedure normally provided for in the environment policy (Art. 130s-2). 116 This is what remained from the Commission s 1991 proposal for a separate chapter on energy policy. The chapter proposal originally identified five goals of a common energy policy: security of supply, stability of energy markets, the internal energy market, the adoption of crisis measures for all energy sources, and energy efficiency including the development of RES. 117 At the Maastricht summit, however, the entire chapter was rejected, although some governments (Belgium and Italy) had signaled their approval, and although Jacques Delors, the president of the Commission, regarded energy as a prime area of integration, Germany, the UK, and the Netherlands feared that the EU might develop a supranational role with such a competence. 118 The Treaty, nonetheless, allowed for a legal 116 Treaty on European Union, Official Journal C 191, 29 July 1992, Viewpoint: Common EC energy policy more urgent than ever? EC Energy Monthly, 14 February Matláry, J.H. (1997), p

44 foot in the door 119 by promising to examine the question of adding a separate title for energy before the revision of the TEU. 120 In 1995, ahead of the intergovernmental conference to revise the TEU, the Commission published a White Paper on energy policy in which it reiterated the basic goals of the proposed energy policy- a functioning internal energy market, security of supply and the management of import dependence, and environmental sustainability. 121 This time, though, the proposals were much more cautious, and the Commission progressed slowly, avoiding the issue of its future role and focusing on the policy needs instead in order to obtain consensus. 122 The Commission only mentioned the lack of clear competences on the Community level. The problem of competences was also addressed by a study commissioned by the EP in The study concluded that the ECSC and EURATOM treaties, which have been little affected by the contemporary institutional changes, should be merged and incorporated in a new energy chapter under the revised Maastricht Treaty. 123 Thus, the new chapter would have addressed both the problem of legal fragmentation of energy policies at the European level, as well as the inconsistency of measures stemming from the lack of clear energy policy objectives. The final product of negotiations, the Treaty of Amsterdam, however, not only refrained from including a chapter on energy policy, but left the issue without any changes at all. The reason can be found in the attitudes of the member states. Some of them, such as Belgium, Italy, Spain, Portugal, Greece and Ireland, saw possible benefits from a common energy policy in the form of Community funding, for instance. But again, Germany, the UK and the Netherlands feared an increased supranational role of the Commission within a vaguely defined energy policy and the possibility of the 119 Egenhofer, C. (2001) 120 Declaration on civil protection, energy and tourism, Treaty on European Union, Official Journal C 191, 29 July 1992, White Paper: An Energy Policy for the European Union, COM(95) 682, 12 December 1995, Matláry, J.H. (1997), p Institutional reform: An energy chapter born of the merger of three treaties. Europe Energy, 8 September

45 Commission discriminating fossil fuels against RES. 124 The latter group thus blocked the inclusion of an energy chapter into the treaties. In turn, the Commission had little choice but to progress on the basis of the smallest common denominator and try to coordinate the national policies After 2000 After the failure to include an energy chapter in the treaties, and the struggles to pass the first stage liberalization directives, the activity of the Commission in the field of energy wilted for several years. A new round of discussion about a long term EU energy strategy was launched in 2000 by the Green Paper Towards a European strategy for the security of energy supply. 125 The paper returned to the three pillar structure of energy policy and proposed steps to be taken to tackle the triple challenges of security of supply, competitiveness and environmental sustainability. These subsequently translated into a legislative offensive, when proposals in all three pillars were presented in the period between 2001 and By 2005, however, is seemed that the momentum created by the new round of legislative activity in the field of energy was fading. But the global salience of energy issues put energy policy once again in the limelight, as petroleum prices almost doubled between 2002 and Also, the internal crisis of the EU instigated by the French and Dutch no to the referenda on the Constitutional Treaty prompted the leaders to seek a new impetus for further integration, which was to come, quite paradoxically, from the integration-resilient energy sector. The Hampton Court summit in November 2005 issued a declaration in which it called for a coherent European approach to energy. The Commission reacted by presenting a Green Paper in March 2006, demanding nothing less than a common energy policy. 127 In a follow up, the Commission embarked on yet another legislative offensive by presenting an energy package in January 2007, which goes further in its proposals than any other previous package in all three areas of 124 Matláry, J.H. (1997), p Green Paper: Towards a European strategy for the security of supply, COM(2000) 769, 29 November 2000, World Crude Oil Prices. Energy Information Administration. (17/02/2008) 127 Green Paper: A European Strategy for Sustainable, Competitive and Secure Energy, COM (2006) 105, 8 March 2006, 45

46 energy policy. 128 A more detailed account of the developments in the three pillars of energy policy in the period from 2000 until present is given below. The internal market The electricity and gas directives of 1996 and 1998, respectively, having set the framework for liberalization, nonetheless left up their implementation to a great extent to the member states. Even at that time it was clear that the internal market in energy was far from completed, for fragmentation along national lines persisted, as did the lack of real competition due to the dominant position of big national companies. The second stage of liberalization was launched on the request of the European Council in Lisbon in 2000 by a proposal which updated the above mentioned directives. 129 The main points of the proposal were the gradual full market opening, stricter rules on unbundling of vertically integrated utilities and the creation of an independent regulatory authority to oversee the electricity and gas markets. It was stated explicitly that no ownership unbundling was required, which definitely helped pass the directives, but a final agreement nevertheless came only after France and Germany managed to secure delays and differentiation in the legal unbundling of the distribution networks. 130 The second liberalization package was finally adopted in June The markets with gas and electricity were set to open from July 2004 for commercial consumers and from July 2007 for households as well. 131 At least that was the plan. By July 2004, only two member states (the Netherlands and Slovenia) implemented the directives in full and only a further three (Denmark, Hungary and Lithuania) actually transposed the directives into national 128 Communication from the Commission to the European Council and the European Parliament- an energy policy for Europe, COM (2007) Communication from the Commission to the Council and the European Parliament: Completing the internal energy market, COM(2001) 125-1, 13 March 2001, EU- Energy: Full liberalisation at last. Economist Intelligence Unit- Business Europe, 11 December Directive of the European Parliament and of the Council concerning common rules for the internal market in electricity and repealing Directive 96/92/EC, 2003/54/EC, 26 June 2003, Directive of the European Parliament and of the Council concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC, 2003/55/EC, 26 June 2003, 46

47 law. 132 Studies by the Commission in late 2006 confirmed that the member states were dragging their feet on implementing the liberalization directives and found severe market distortions ranging from market concentration, through barriers to new entrants due to the vertical integration of the incumbents, to lack of market transparency and cross-border competition, suggesting that the provisions of the 2003 directives may be inadequate and full structural, i.e. ownership, unbundling may be necessary. 133 The proposals for ownership unbundling were tabled as a part of the energy package presented in January 2007 and converted into concrete legislative proposals in September, which also marks the beginning of the third stage of liberalization. Amid accusations of economic patriotism following the acts of the Spanish and French governments in order to fend off a foreign bid for their energy champions, the member states divided over the issue with the UK, the Nordic states, the Netherlands, Belgium, Spain, and Romania supporting the measure and the rest, with France and Germany at the vanguard, fighting against ownership unbundling. Although ownership unbundling clearly remains the Commission s preferred solution, in an anticipation of a hostile response, an alternative was also proposed in the form of an independent system operator (ISO), under which the energy giants would be able to retain the ownership of networks but would not be responsible for their operation, maintenance or investment decisions. 134 Besides ownership unbundling, there are two further controversial aspects of the current package. First is the proposal for an Agency for the Cooperation of Energy Regulators, which is actually an already diluted version of the original idea to establish a single European Energy Regulator. Second is a reciprocity provision, swiftly labeled Gazprom clause by the press, which requires that the same rules of unbundling are applied to third countries companies wishing to invest in the liberalized European market. Under the proposed clause, any company from a third country will have to 132 EU: Energy- Liberalisation behind schedule. Economist Intelligence Unit- Business Europe, 1 July Regulatory watch: Energy- Commission threatens antitrust crackdown. Economist Intelligence Unit- Business Europe, 16 February Tough diagnosis, compromised remedies. Power in Europe, 15 January

48 demonstrably and unequivocally comply with the same unbundling requirements as EU companies, according to the Commission's proposal. 135 Environment The focal point of the environmental pillar of energy policy, climate change, remained in place, although the strategies changed. The process included the move towards higher and binding targets for RES and energy efficiency, but also, perhaps most importantly, the enactment of a scheme to tackle GHG emissions in the EU. While in the 1990 s the deliberations regarding climate change centered on a carbon tax as the main instrument to both support the development of renewable energy and curb carbon emissions, the final years of the millennium brought about a U-turn in both. As far as emissions are concerned, in 1997 the Commission first proposed an energy tax designed to help fight global warming by raising the minimum tax levels for fossil fuels. 136 The obvious continuity with the carbon tax, however, caused that neither industries nor member states were eager to bear the burden of the directive. The process of adoption lasted for six years, and the final product of negotiations was like Swiss cheese, full of holes, 137 as several member states were given specific exemptions and energy-intensive industries even managed to avoid taxation completely under certain conditions. 138 A pronounced change of strategy, however, came with the introduction of emissions trading into the climate change debates in 1998 and the publication of a Green Paper on emissions trading in By 2001, a proposal for the scheme was on the table, and by 2003, it was adopted, with the EU Emission Trading Scheme (EU ETS) starting its operations in While the scheme is a cornerstone of the environmental pillar of energy policy and it would be 135 Gazprom clause issues Russia ultimatum for energy cooperation. EurActiv.com, 20 September 2007, Proposal for a Council Directive restructuring the Community framework for the taxation of energy products, COM(97) 30, 12 March 1997, Commissioner Frits Bolkestein cited in EU: Energy- Energy tax directive adopted. Economist Intelligence Unit- Business Europe, 12 November EU- Energy: At last, a deal on energy taxes. Economist Intelligence Unit- Business Europe, 2 April Green Paper on greenhouse gas emissions treading within the European Union, COM(2000) 87, 8 March 2000, 48

49 vital to track down this policy development, the scope of this paper, nevertheless, does not allow for the inclusion of such a broad policy issue. 140 Targets for the share of RES in total energy consumption have a tradition in the EU, going back to at least 1997 when the 12% target was set to be achieved by Moreover, in 2001, the green electricity directive set a target of 21% of total electricity consumption in the EU to be produced from renewable sources. 141 Biofuels are not lagging behind, and the target for 2010 is 5.75% of total fuel consumption. 142 The closer the deadline year, however, the clearer it shows that none of the above targets will be met. The next step, therefore, is to make the targets mandatory. The energy package approved by the European Council in March 2007 introduced ambitious targets for RES consumption (20%), energy efficiency improvement (20%) and GHG reduction (20%) by The so called package, which also includes a 10% target for the use of biofuels, was translated into legislative proposals to be discussed throughout The package of proposals represents the greatest single overhaul of the environmental pillar of energy policy, as it brings together in a coherent and (potentially) binding way measures to counter climate change. The negotiations about its final version, however, are likely to be tough. Member states have already voiced concerns about their ability to attain their respective targets without jeopardizing their competitiveness For a comprehensive overview of the provisions of EU ETS see Kruger, J.A. - Pizer, W.A. (2004) Greenhouse Gas Trading in Europe. Environment. 46(8): For a legal and business impact analysis see Kelly, G.H. (2006) An Evaluation of the European Union s Emissions Trading Scheme in Practice. European Environmental Law Review. 15(6): For a theoretical analysis see Wettestad, J. (2005) The Making of the 2003 EU Emissions Trading Directive: An Ultra-Quick Process due to Entrepreneurial Proficiency? Global Environmental Politics. 5(1): Directive of the European Parliament and of the Council on the promotion of electricity produced from renewable energy sources in the internal electricity market, 2001/77/EC, 27 September 2001, Directive of the European Parliament and of the Council on the promotion of the use of biofuels or other renewable fuels for transport, 2003/30/EC, 8 May 2003, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: by Europe s climate change opportunity. COM(2008) 30, 23 January 2008, Wrap-up: reactions to EU climate and energy package. EurActiv.com, 24 January 2008, 49

50 Security of supply and the external dimension Throughout the 1990 s the share of natural gas in the overall energy consumption of the EU rose, so it was not surprising when the Commission sought to coordinate the member states policies with regards to the security of gas supply. Back in the mid s, mentions of crisis measures, such as the keeping of gas stocks, met a hostile reaction by the gas industry, and were dropped. In 2002, a directive was proposed again that would enhance the EU s role in the management of oil and gas stocks. 145 It was cut to shreds, however, in the discussions in the EP and the Council. 146 The issue turned out to be a real showdown between the Commission and the EP, in which the Commission had to step back. The final directive on the security of natural gas supply adopted in April 2004 was only a very feeble shadow of the envisioned thorough reform, leaving gas stocks voluntary and without any reference to a regulating role for the EU. 147 Since then, the Commission has avoided the issue and even resisted using the 2006 gas dispute between Russia and Ukraine to justify a new set of proposals. A major undertaking in the international arena was the signature of the Energy Community Treaty (not to be confused with the European Energy Charter Treaty) in October 2005, which concluded three years of EU initiatives to extend the principles of the Union s internal energy market to South-Eastern Europe. Its significance lies in the fact that it requires the parties to adopt EU gas and electricity market legislation in full, creating a market framework capable of attracting investment, and thus greatly adding to the security of supply in the Balkan region, as well as that of the EU as a whole Proposal for a Council Directive repealing Council Directives 68/414/EEC and 98/93/EC imposing an obligation on Member States of the EEC to maintain minimum stocks of crude oil and/or petroleum products, and Council Directive 73/238/EEC on measures to mitigate the effects of difficulties in the supply of crude oil and petroleum products, COM(2002) 488-4, 11 September 2002, Energy- Parliament cuts Commission proposals on hydrocarbons to shreds. European Report, 13 September Council adopts directive on security of gas supply. Europe Information, 1 May List of parties as well as other information can be found at 50

51 The Constitutional Debate and the Treaty of Lisbon The fact that a separate chapter on energy policy was part of the Treaty establishing a Constitution for Europe confirms the prominence of energy issues over the past several years. The chapter did not change much as to the content of the policy, but laid down an important basis for the development of a coherent policy, not least by stating the core objectives which matched the three pillars presented above. 149 Moreover, it gave the Commission a legal basis to submit proposals directly under the heading of energy policy, instead of covering them up with the internal market or the environment. So far, however, the process of including the energy chapter in the Treaty has neither been sufficiently reported nor explained in the existing literature. While there are records of debates about joining EURATOM to the proposed Treaty and repealing its obsolete provisions, which never happened because of some member states opposition, 150 the actual energy chapter does not seem to have been a very contentious issue. Nonetheless, the Constitutional Treaty as a whole was contentious, which ultimately led to its failure. The Treaty of Lisbon retains the inclusion of energy policy in the shared competencies of the EU and the separate chapter, extending the goals of the policy by the interconnection of trans-european energy networks. All other provisions, the right of the member states to determine their energy mix and the unanimous adoption of fiscal measures in the area, remained unchanged. 151 The article concerning the difficulties in the supply of certain products got a new spirit of solidarity dimension in the area of energy Conclusion The aim of this chapter was to define EU energy policy. In the first section, the energy situation of the EU was analyzed, yielding the following conclusions: 1. the overall structure of consumption in the EU, which leans heavily towards fossil fuels, does not match the available domestic resources. 149 Treaty establishing a Constitution for Europe, Official Journal 2004/C 31/ 01, 16 December 2004, Axelrod, R. (2006) The European Commission and Member States: Conflict over Nuclear Safety. Perspectives. 26: Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, Official Journal C 306, 17 December 2007, 51

52 In order to achieve secure, competitive, and environmentally sustainable economies, member states are compelled to cooperate in the field of energy. 2. The patterns of energy supply and consumption differ from state to state. The heterogeneity of energy challenges exacerbates the quandaries in reaching a consensus about an EU energy policy. To a certain extent, these findings then explain the erratic boundaries of the present energy policy, defined in the second section. Based on treaty provisions, the EU s energy policy comprises action in the spheres of environment, with a special focus on climate change, the development of TEN, and research. The ECSC is no longer a part of the legislative framework for energy policy, since the treaty expired in 2002, and EURATOM has not generated enough supranational activity to induce any form of EU nuclear policy. Less clear is the role of the EU in external energy policy and the internal energy market, where the member states are reluctant to give the EU a stronger role. Finally, the EU is practically excluded from decisions about the states energy mixes, especially with regard to nuclear energy. The third section dealt with the arguments in favor of a common policy, as we believe that the nature of energy as a base for any sustainable economic development requires a common action on the side of the EU. Lastly, the development of the EU energy policy was examined with a special emphasis on the developments since the beginning of the liberalization process in the 1980 s in the fourth section. On the whole, the development can be summarized as follows. The first phase, from the beginnings of the ECSC and EURATOM until the oil crises, was characterized by a constant strive on the side of the High Authority and later the Commission to establish a policy based on coal, with little success. The crises diverted attention from coal to oil and the establishment of Community measures to ensure the security of the oil supply was at the center of attention. Further development of energy policy was hindered by the above mentioned heterogeneity among the member states and the general eurosclerosis of that period. A turn came with the SEA, when the present three pillar structure of energy policy began to take shape, although none of 52

53 the treaties then in place reflected this development. A thorough reform of EU energy policy may result from the present wave of proposals, but that remains to be seen. 53

54 2. Theoretical models of European integration With this chapter we enter the theoretical part of this paper, which will outline the frameworks for the analysis of the EU energy policy development. Before that, however, it is necessary to first set the analysis itself into the broader context of the research regarding the EU s policies. Although theorists seem to pay most attention to the big questions, that is, the general pattern of European integration and the functioning of the EU, works centering on policy-making in a particular policy area are not uncommon. Therefore, the first subchapter briefly deals with works that analyze the process of the communitarization of monetary and social policies, which have inspired and served as a kind of a model for this paper. In the following subchapters, four theories will be presented, namely realism, neofunctionalism, liberal intergovernmentalism, and the multilevel governance approach. While we are aware of the multiplicity of approaches to the study of European integration, the choice of theories is rather limited because the requisite of a cohesive analytical framework and the restricted scope confines this paper to the rationalist theories, which share at least a basic set of assumptions. Each of them will be discussed with the view of finding a framework which would, on one hand, highlight the different assumptions about the integration process and the EU, but at the same time be unified enough as to provide comparable categories for the subsequent analysis. Nevertheless, we stop short of developing a combined model because the objective of this paper is to test the theories against the actual development of energy policy, not to adopt them in order to find a fitting model EU policies and theories of European integration European monetary integration and the EU s social policy are two areas which have attracted a lot of scholarly attention and their development is to some extent analogous to that of energy policy. For this reason they serve well as a lead-in to the theoretical reflection of energy policy development. Monetary policy is in some aspects similar to energy policy, especially in the political sensitivity of the issue area, which has caused the process of 54

55 integration of both to be slow and inconsistent. Also, very important for monetary policy development was the external dimension when the member states inferred that a single currency is a matter of necessity in the face of increasingly global competition. In this respect, an analogy could be drawn between monetary and energy policies as to the importance of the external aspect as well. As far as social policy is concerned, the fervor with which the member states have protected their national policies is also very reminiscent of energy policy. The development of Economic and Monetary Union (EMU) has been explained from some very diverse positions. For example, J.Welsh draws on the rational institutionalist theory to explain the reasoning behind common monetary institutions: states with shared interests use institutions to realize joint gains and to minimize the possibility of defection. 152 At the same time, however, he notes that this has little to say about how these shared interests, in other words preferences, are created. Looking at the development of the preferences of the major states in regards to the design of common monetary institutions, he concluded that rather than preference convergence due to idea diffusion, as suggested by the constructivist theories, the domestic politics explanation provides a more accurate answer. According to the latter, political preferences reflect the wishes of powerful societal groups, which is an explanation that strongly resembles the liberal intergovernmental view of preference formation. A different observation regarding the origins of the EMU was made by Joseph Grieco, who argued that security was the prime motivation on the side of France and other smaller states to create a monetary union with Germany. 153 With the so called voice opportunity hypothesis, which he devised for the purpose of explaining the EMU, neorealism was reintroduced into the European policy studies in a novel way: while the states main interest, J. Grieco claimed, was still security, and relative gains still drove 152 Walsh, J.I. (2001) National preference and International Institutions: Evidence from European Monetary Integration. International Studies Quarterly. 45(1): 59-80, p Grieco, J. (1995) The Maastricht Treaty, Economic and Monetary Union, and the Neorealist Research Programme. Review of International Studies. 21(1): The hypothesis gained ground and was adopted by other scholars as well. See Wyplosz, Ch. (1997) EMU: Why and How It Might Happen. The Journal of Economic Perspectives. 11(4):

56 the dynamics of international relations, tying up the giant through common institutions became just as viable an option as balancing. However, by so doing the balance of power principle was completely reversed. Social policy, started at the EU level with the Social Charter in 1989, on the other hand, received little attention from realist positions and instead was presented as a likely candidate for spillover effect, implying neofunctional concepts at work. 154 In his article on this topic, M. Huelshoff argues that functional linkage was provided by the fears of social dumping as a result of the single market, while political and cultivated spillover also occurred referring to the lobbying of the trade unions and the subsequent Commission activities in the social policy field. On the other hand, Jensen, in his article on the same topic, hesitated to label social policy as a result of functional spillover, while he continued to see the development of the social dimension as a result of political and cultivated spillover effects. 155 Aside from showing how the development of some EU policies has been explained, this petite introduction into EU policy research also introduced terms and concepts that need to be defined with precision before used to analyze energy policy. After all, the previous paragraph clearly shows that even the application of rather consensual terms such as functional spillover can vary. The subsequent subchapters offer such delineation Neofunctionalism It has been a long time since neofunctionalism was at the height of its acclaim. But even though especially in the 1960s it was practically synonymous with an integration theory, the fall from its pedestal in the 1970s did not mean its discarding into oblivion. To the contrary, neofunctionalism has displayed impressive qualities of obstinacy and revitalization 156 on account of the SEA and the ensuing integrationist wave. Its reinstatement, however, also meant a downgrade of the theory from grand to mid-range, which, on the other hand, enabled for the logic and terms of 154 Huelshoff, M.G. (1993) European Integration after the SEA: The Case of the Social Charter. Political Research Quarterly. 46(3): , p Jensen, C.S. (2000) Neofunctionalist theories and the development of European social and labour market policy. Journal of Common Market Studies. 38(1): Rosamond, B. (2000) Theories of European Integration. Houndmills: Palgrave, p

57 neofunctionalism to be preserved in combination with other perspectives. 157 The impact of neofunctionalism on the study of European integration might have been stronger than this, though. For example P. Schmitter believes that some of the present-day theories, the authors of which have unequivocally denounced or at least distanced themselves from neofunctionalism, are at their cores based on neofunctionalism. 158 Whether this is the case or not, the shared liberal roots of neofunctionalism and its contemporary challengers, such as liberal intergovernmentalism, institutionalist theories or the multi-level governance approach, certainly help the theoretical proximity. The main premises of neofunctionalism relating to the nature of the international environment are fully in line with the liberal tradition. As its predecessor, functionalism, neofunctionalism advocates the centrality of economy and low politics instead of security issues or ideology. It is a theory of international cooperation, rather than conflict. Finally, the primary neofunctionalist actor is the supranational organization with its technocracy, and the interest group, rather than the nation-state. The member states play a role in the initial phases of integration when they set the terms of the agreement but do not exclusively determine the direction and extent of subsequent changes. 159 The intimate connection between neofunctionalism and the practice of European integration provides the theory with an especially precise vocabulary and applicable concepts for the study of EU policy and politics Basic concepts The elementary and distinctive concept used by neofunctionalists is that of spillover. In the early works of Haas, spillover refers to the way in which the creation and deepening of integration in one economic sector would 157 A. Stone Sweet and W. Sandholtz for example explicitly acknowledge that elements of their proposed grand theory of European integration are prefigured in neofunctionalism. Stone Sweet, A. - Sandholtz, W. (1998) Integration, Supranational Governance, and the Institutionalization of the European Polity. In Stone Sweet, A. - Sandholtz, W. (eds.) European Integration and Supranational Governance. New York: Oxford University Press. 158 P. Schmitter cites the liberal intergovernmental approach of A. Moravcsik as one that would be virtually indistinguishable from neofunctionalism if the impact of transnational players on domestic politics was taken into account. See Schmitter, P.C. (2004) Neo-Neofunctionalism. In Wiener, A. - Diez, T. (eds.) European Integration Theory. New York: Oxford University Press, p Schmitter, P.C. (2004), p

58 create pressures for further economic integration at the European level. 160 This definition implies that 1. sectors of economy are interdependent and linked functionally, and 2. integration, once started, is automatic and inevitable. The notion of automaticity is well visible in Lindberg s definition of spillover as well: [spillover is] a situation in which a given action, related to a specific goal, creates a situation in which the original goal can be assured only by taking further actions which in turn create further condition and need for more action and so forth. 161 This aspect of spillover, one which is conditioned by the interconnection of economic sectors and exhibits signs of an automatic process was later labeled as functional or technical spillover, as to distinguish it from other aspects of spillover which require the repeated action of actors to incite integration. 162 An example of functional spillover can be seen in the establishment of Community policy in the field of transport, following the need to carry coal and steel within the common market. Thus, the conventional understanding of spillover logic is that integration of particular economic sectors across nations will create functional pressures for the integration of related economic sectors, 163 which points to the widening of European-level competencies. Schmitter, in his definition, however, pays attention to both widening and deepening of integration: Spillover refers to the process whereby members of an integration scheme- agreed on some collective goals for a variety of motives but unequally satisfied with their attainment of these goals- attempt to resolve their dissatisfaction by resorting to collaboration in another, related sector (expanding the scope of mutual commitment) or by intensifying their commitment to the original sector (increasing the level of mutual commitment), or both Rosamond, B. (2000), p Lindberg, L.N. (1963) The political dynamics of European economic integration. Stanford: Stanford University Press, p Jensen, C.S. (2003) Neo-functionalism. In Cini, M. (ed.) European Union Politics. New York: Oxford University Press, p Rosamond, B. (2000), p Schmitter, P.C. (1969) Three Neo-Functional Hypotheses about International Integration. International Organization. 23(1): , p

59 Schmitter s definition also denotes another important aspect of spilloverthe role of actors in furthering (and stalling) integration. The aforementioned distinction between political and cultivated spillover refers to the activities of the interest groups and the supranational institutions, which have the ability to guide and manipulate the automatic process. 165 Political spillover describes the situations where linkage of policy areas occurs not on functional or technological grounds, but as a result of deliberate political decision, often made by means of package deals, which enable the actors to safeguard their interests via bargaining concessions in two or more apparently discrete issues. 166 The so-called cultivated spillover is linked to the activity of the supranational organization. In the case of the EC/EU, this is the Commission. The Commission develops and pursues its own interests in integrationextending its own sphere of influence over policy areas. Accordingly, the Commission pushes forward with a supranational agenda, acts as a policy entrepreneur and mediator of national interests with the aim of obtaining a compromise favorable to further integration. 167 Cultivated spillover is thus seen as the clue towards understanding the success of integration in Europe, in both the scope and its depth. It was the existence of an autonomous supranational organization and its activity that enabled the achievement of more than just the lowest common denominator of preferences during the bargaining process among the member states. 168 This leads us towards the conditions set out by the neofunctionalist theorists that are vital for the spillover process to take place. L. Lindberg identified several, among which the independence and activism of the regional institution was essential. Furthermore, the areas where integration was initiated should be inherently expansive in order to unleash the spillover potential. Which sectors are inherently expansive, however, may be difficult to denote ex ante. P. Schmitter argues that in order to operationalize this requirement, a test of scope and level of initial commitment should be 165 Jensen, C.S. (2003), p Jensen, C.S. (2003), p Jensen, C.S. (2003), p Rosamond, B. (2000), p

60 applied: The greater the policy scope and the higher the level of the initial commitment to collective decision-making, the greater the propensity for task expansion, where scope refers to the number and importance of policy areas and actors involved, and level to the extent of supranational policymaking. 169 Lastly, for the integration momentum to be retained, convergence of interests among the participants should occur over time. 170 Another process associated by the neofunctionalists with the way integration proceeds is the concept of the shift of loyalties. Here, they do not talk about the massive turn of entire populations towards the new supranational center, but see it as a process of elite socialization. There are two aspects to the shift of loyalties. On the one hand, it concerns the officials of the Commission and other supranational bodies who are involved in the supranational policy process on a regular basis. As a result, they are said to develop European loyalties and preferences to replace national ones. 171 On the other hand, it pertains to the various interest groups whose loyalty has hitherto been directed to national centers of authority. However, as integration proceeds, these groups gradually perceive that the location of authority is shifting towards the new regional center. In the pursuit of their interests, they transfer their loyalties to the location that promises their effective materialization. 172 Thus, integration would change the strategies of these groups, which may also be expressed in their changed organizational form. In other words, they would create European interest associations. Neofunctionalist logic, therefore, expects that interest groups would become a natural ally of the Commission working with it on the European level but also pressuring their respective governments to speed up the integration process. 173 What is not immediately obvious is the presumption of utmost rationality of behavior on the side of the actors, whose loyalties are selfregarding and purely utilitarian. Also, this idea presumes the direct access of interest groups to the new decision-making center, that is, the traditional gate-keeping role of governments is being bypassed. As a result, the political 169 Schmitter, P.C. (1969), p Lindberg, L.N. (1963), p Jensen, C.S. (2003), p Rosamond, B. (2000), p Jensen, C.S. (2003), p

61 organization on the European level would be modeled on the national societies, as opposed to the vision of federalists who pictured the end-result to be a union of states Modifications to neofunctionalist concepts Although the question of finalité is difficult to avoid when theorizing European integration, neofunctionalism is definitely a theory of the process, not the outcome. To sum up, the process of integration according to neofunctionalism would then look somewhat like this: two or more governments agree to set a goal which is best attainable by integrating a sector of their economies; for this purpose, they establish a supranational authority; over time, it shows that in order to attain the original goal and to achieve full benefits of integration, other sectors must be drawn into the process; meanwhile, the increased level of transactions within the region spurs the development of region-wide interest group organizations and the shift of their loyalties towards the supranational body, which sponsors further integration by pointing out more functional linkages and mediating among the governments who are also pressed to integrate by the interest organizations through domestic channels. 175 What happens, though, when the reality does not follow the theory? The most often cited rebuke to neofunctionalism is its failure to predict the stalling of the integration process following de Gaulle s comeback to the peak of French politics. The discrepancy between the expectations of neofunctionalism and the empirical evidence at first prompted the theorists to look for ways to modify the theory by adding new concepts and curbing their enthusiasm in regards to integration. Later, it led to the recognition of the theory s limitations as an all-explaining theory of European integration. One of the most important, albeit subtle, shifts concerned the concept of spillover. While in the early works, functional linkage appeared as an essential element of spillover, later works came to emphasize the actions of actors at the expense of the automaticity of spillover. Alone, functional interdependence is impotent. It must be perceived, interpreted, and translated 174 Rosamond, B. (2000), p Rosamond, B. (2000), p

62 into expressions of interest, strategies of influence, and viable decisionmaking styles. 176 This meant that deliberate deal-making among the participants would become central to progress in integration, which would, however, make it complex and a lot more difficult to predict. 177 A new concept of spill-back was devised as a reaction to the reality of integration and an attempt to save neofunctionalism in the face of negative empirical evidence. Spill-back referred to the reverse of spillover- a decrease in sectoral scope and/or institutional capacities of the supranational level of governance. 178 In order to sustain the coherence of neofunctionalism as a theory, spill-back was introduced as one of the possible outcomes or actor integration strategies. The conceptualization of spillover and spill-back as being only two of the several possible outcome patterns of negotiations among the integration participants was proposed by L. Lindberg and S. Scheingold in 1970, and it clearly drew on the then popular systems theory of D. Easton. They attempted to devise a theory that would explain the transformation of the system of the EC, using a model of a system (defined in terms of its functional scope and institutional capacities) and its environment, inputs (demands, systemic supports, leadership resources), outputs (decisions) and feedback. 179 With this, they abandoned neofunctionalism as an integration theory and instead presented a theory of system change, where change could match four possible outcome patterns: spill-back, forward linkage (replaced spillover), equilibrium, and output failure. A similar attempt was undertaken by P. Schmitter, who sought to reintroduce spillover as one of the possible actor integration strategies within repeated decisional cycles. Besides spillover, which corresponded to the increase in both the level and the scope of the actor s commitment, actors could choose to apply a strategy of spill-around (increase only the scope of commitment), buildup (increase the decision-making autonomy of common institutions, but not their scope), retrench (deepen commitment but 176 Schmitter, P.C. (1969), p Jensen, C.S. (2003), p Rosamond, B. (2000), p Rosamond, B. (2000), Figure 4.1., p

63 circumvent common institutions), muddle-about (debate but take no significant action), spill-back (decrease in both the level of scope of commitment), and finally, encapsulate (respond to a crisis by marginal modifications) Framework for analysis As we have seen, neofunctionalism has gone quite some way to meet the demands of reality for a flexible theory that can take into account both the ups and downs of integration. However, although some concepts have been modified over time, the core of neofunctionalism has been upheld, which makes it easier to reconcile the old and new neofunctionalism and set up a coherent framework for our analysis. The first category concerns the main actors who, in neofunctionalist terms, manipulate the process of integration. If the development of energy policy were to match neofunctionalist premises, then the process of its formation should be first and foremost influenced by the perceptions and actions of interest groups and the supranational institutions. Accordingly, the role of the Commission is one of a policy entrepreneur, advancing proposals aimed at not only the widening of its functional scope (i.e. pointing out functional linkages between sectors) but also at the deepening of cooperation in the energy sector. Furthermore, the Commission acts as a mediator between the various nations interests and ensures that the final compromise extends its own powers within the energy sector. This is be done through formal as well as informal channels, as the body often lacks formal competence in some policy-areas and decision-making processes, but can wield influence via eager personal engagement of its highest officials, for example. According to neofunctionalist theory, the Commission officials, Members of European Parliament (MEPs), as well as the judges at the European Court of Justice (ECJ) should become more pro-european in their views (shift their loyalties) and wherever possible, advocate greater EC/EU involvement in 180 Rosamond, B. (2000), Figure 3.1., p

64 energy matters, or, in the case of the judges, rule in favor of Community competence expansion. 181 The Council of Ministers is expected to defend the particular national interests and resist the pooling and transfer of competencies towards the European level. However, the continual day-to-day involvement in Community negotiations should leave its marks on the way the defense of national interests is done in practice, with the states preferring bargained solutions in package deals and compromises to power plays, thus making it more difficult for them to resist integration pressures. Neofunctionalist logic further assumes that Europe-wide energy business associations are created to help spread the cause of integration. Working within the common market, the energy businesses should see it as advantageous for them to expand in other member states. However, this expansion would be conditioned by the harmonization of regulatory environments, as the energy sector has very specific and strict requirements in this regard. Thus, deeper integration would be necessary. These energy interest groups also should, still following the logic of neofunctionalism, become natural allies of the supranational bodies on the European level, and a powerful lobbying force on the member state level. Since the basic theoretical rationale which underlies the neo-functionalist approach towards the integration process is spillover, it should follow that it would occur at some point during the formation of the European energy policy. This means that the increase in the scope and/or the level of integration in the policy area should supersede the conclusion of package deals, of which energy issues are a part. To summarize, the following constitutes the neofunctionalist analytical framework for the development of European energy policy: the main actors are various interest groups, powerful business entities, whose interests are of economic nature, and the supranational institutions of the EC/EU whose role is especially vital to integration. The process of integration happens via 181 Jensen, C.S. (2003), p. 87. Schmitter, as one of the leading theorists of neofunctionalism, however, sees the ECJ s role differently, insisting that the ECJ was not assigned any major role in the neofunctionalist hypotheses. See Schmitter, P.C. (2004), p. 56 and 72 (note 12) 64

65 spillover, aided by the shift of loyalties expressed in the formation of transnational associations and interests. Other concepts developed later as a reaction to the crisis of neofunctionalism are not included in this framework as they amount to a step away from the original purpose of developing a theory of regional integration, and the different conceptualizations of authors also make it difficult to find a consistent definition Realism With realism we enter the great debate in European integration theory, that between the classical integration theory of neofunctionalism and the intergovernmental backlash that followed the crisis of European integration in the late 1960 s. Since then, the differing understanding of the role of the supranational institutions became (and remained) the axis of theoretical deliberations, with the neofunctionalists and other institutional approaches underlining their importance as intergovernmental approaches downplayed their role. The emphasis here is on the intergovernmental, as the real realist nature of the works concerning European integration is sometimes disputed. 182 The fact is, however, that realism itself is not a coherent theory. Rather, it is a set of theories, a paradigm, connected through shared core assumptions about the nature of world politics, but differing in the understanding of the content of some concepts and causal mechanisms. Thanks to the blurred borders of realism, however, European integration theory was enriched with a new perspective, and realism grappled with an atypical case in point. It is an established fact that realism, as opposed to the then new propositions of neofunctionalism, has always been the dominant theory of international relations. Indeed, even the term international relations itself suggests that the field has its roots in realism, and that the development of the entire area owes its present state to realism. The nation, or the state, and the relations among the states in an anarchical system are the elementary premises of realism, which have not withered since the days of Carr, 182 See Cini, M. (2003) Intergovernmentalism. In Cini, M. (ed.) European Union Politics. New York: Oxford University Press, p. 98 and Legro, J.W. - Moravcsik, A. (1999) Is Anybody Still a Realist? International Security. 24(2):

66 managing to withstand challenges to the premises presented by globalization and the European integration process Basic concepts The essentials of realism could be summarized as the interaction of selfinterested actors, the states, in an anarchic environment. This definition points to three core assumptions- of interests, actors (agents), and the structure of environment- the parameters of which, however, deserve a great deal of attention, as their interpretation varies from author to author. For our purpose of building an analytic framework to examine the development of EU energy policy, the interpretation of distinctive realist assumptions as provided by J. Legro and A. Moravcsik in their 1999 article will serve as a starting point. As far as actors are concerned, these can be defined as unitary political actors that rationally pursue their goals. 183 What this means is that each actor is a sovereign unit within its territorial jurisdiction, and is able to take unitary action. Depending on the period of history referred to, it may be a political group such as a tribe, a city state or a modern nation-state. 184 The rational pursuit of goals requires the actor to choose a strategy and the most efficient means available in an environment of uncertainty and incomplete information. 185 Put in simple terms, rationality means minimizing the risks and maximizing the benefits of any given action. Most commonly, the realist literature mentions two basic interests, or motives, which drive the states behavior- security and power. However, not all realists agree that they play the same role. 186 Classical realists tend to emphasize power, while neorealists put greater weight on security. In the view of some, moreover, security and power are only instances of scarce goods, for which the states compete. Legro and Moravcsik define the nature of state preferences as constant competition for control over scarce 183 Legro, J.W. - Moravcsik, A. (1999), p Karlas, J. (2006) Současné realistické teorie mezinárodních institucí. In Němec, J.- Šůstková, M. (eds.) III. Kongres českých politologů. Olomouc Praha- Olomouc: Česká společnost pro politické vědy. 185 Legro, J.W. - Moravcsik, A. (1999), p Karlas, J. (2006), p

67 goods, 187 implying that the preferences are fixed and that their nature is uniformly conflictual. This definition points to another generally consensual realist assumption about conflict as a primary characteristic of international relations. This is not to say, however, that conflict is the only possible outcome of the interaction of states. While preferences are always conflictual, states may choose not to clash over them, as it is also possible for them to dominate, bribe, threaten or balance as an alternative strategy. 188 Cooperation, nevertheless, is a very slippery slope in realism. Most realists agree that it is possible- as a rational means towards ensuring survival. 189 The form of cooperation then, whether it is a loose alliance or a highly institutionalized union, is not important, as both represent international institutions. Different theorists, however, offer different insights of their emergence and function in international interaction. Here, the axis of intra-realist debate is the issue of relative versus absolute gains. Classical realism and neorealism work with the notion of relative gains, which is very distinctive to realism. A model derived from the classical realism explains the emergence of institutions by employing several variables, from which the states interests in security and power and polarity, i.e. the distribution of power in the system, stand out. 190 This understanding of international institutions as dependent on the states interests and the current distribution of power in the system would correspond with the understanding of cooperation as a rational means towards the achievement of states goals. But while anarchy can produce order, it inhibits effective and long-standing cooperation amongst states because of the essentially competitive and rational nature of the interstate game. 191 On the other hand, modern realists, J. Grieco, for example, acknowledges that sensitivity of states to relative gains can be volatile and even concedes that states may seek absolute gains next to relative ones. This leads him to understand institutions as a means for states to lower the sensitivity to and differences in relative gains, thus enabling the states to cooperate and 187 Legro, J.W. - Moravcsik, A. (1999), p Legro, J.W. - Moravcsik, A. (1999), p Cini, M. (2003), p. 95; also Rosamond, B. (2000), p Karlas, J. (2006) 191 Rosamond, B. (2000), p

68 increase their absolute gains. 192 If carried one step further, though, in this way Grieco admitted that institutions can play a major role, for which he has been criticized by more rigorous realists. 193 The third point concerns the structure in which the units function. In realist terms, anarchy is the constant that characterizes the international structure and it denotes the persistent absence of a sovereign power. The distribution of material resources, which determines the relative capabilities of states, accounts for variation in world politics. It follows that the interests are derived from the state s evaluation of its position in the system of states. [T]he strong do what they can and the weak suffer what they must. 194 The determining nature of the international structure thus excludes from realism all deliberations about the impact of ideas and ideology, identities, institutions, law, and morality on the behavior of states and leaves only a parsimonious and clear theory of international relations Realism and integration European integration does pose quite a bit of difficulty for realism on several fronts. First of all, realism is, at its core a theory of conflict, 195 while European history after the Second World War is an obvious and striking example of long-term international cooperation. While there have been attempts to explain this deviation from realist expectations in terms of balance of power politics, these attempts have not withstood the test of time. H. Morgenthau s hypothesis contends that European integration is the result of an attempt to preclude the regional hegemony of Germany by France within the larger context of Cold War politics. Similarly, K.Waltz considers the Cold War distribution of power between the two superpowers to be the main condition for the emergence of cooperation on the European continent as a way of improving Europe s international standing. 196 J. Mearsheimer went even further and predicted the end of integration as a result of a new 192 Karlas, J. (2006), p Legro, J.W. - Moravcsik, A. (1999) 194 Legro, J.W. - Moravcsik, A. (1999), p Legro, J.W. - Moravcsik, A. (1999) 196 Drulák, P. (2003) Teorie mezinárodních vztahů. Praha: Portál, p

69 multipolar order after the Cold War. 197 The obstinacy and even intensification of integration after the end of the Cold War, however, proved these hypotheses misconstrued. Secondly, in EC/EU institutions, realism has encountered quite a challenge to its premise of states as the preeminent actors. While on the global scale, international organizations are rather easy to disregard, the European supranational bodies wield too much influence to be simply excluded from an account of the European postwar history. Realism has coped with this problem by and large in two ways: Firstly, by incorporating institutions in the analysis and assigning them some minor role, such as that of overseeing negotiated agreements, 198 or making the states commitments seem more credible. Here, even the sharing or pooling of competencies between states and institutions would be acceptable, although not their transfer. 199 If any institutions really matter in the EU, they are the Council of Ministers and the European Council. Secondly, realism deals with the issue of strong European institutions by claiming that the complexities of governance in the EU simply do not fall in the agenda of (neo)realism, and so its failure to explain them is not really a failure. 200 The third difficulty realism has to face in explaining European integration is the formation of preferences among the member states, or to put it in realist terms- of the national interest. Realism assumes that interests are of an exogenous nature. The emblematic metaphors of state in the realist theory, the black box, or the billiard ball, suggest that realism is not concerned about what happens inside of the state, but assigns utmost importance to the events in the outside system of states. Here, interests are given by the relative capabilities of one state in relation to others. The primary interest of the state is its own survival, but as Waltz puts it, states at a minimum, seek their own preservation and, at a maximum, drive for universal domination. 201 Security and power are thus the main drives of the 197 Mearsheimer, J.J. (1990) Back to the Future: Instability in Europe after the Cold War. International Security. 15(1): Grieco, J. (1995) 199 Cini, M. (2003), p Rosamond, B. (2000), p Waltz, K.N. (1979) Theory of International Politics. Reading: Addison- Wesley. 69

70 international relations dynamic, and Europe should not be exempt from this. Looking at the progress of integration, however, the privilege given to the high politics issues of power and security seems overestimated. A number of empirical studies have revealed the importance of low politics issues, those of economy, but also environment for instance, that have not only influenced the outcome of negotiations, but also shaped them in a way a realist could never foresee. Despite these setbacks, however, realism still has a lot to offer in terms of explanatory power. One of the first attempts at conceptualizing European integration in realist/ intergovernmentalist terms was made by S. Hoffmann, who laid the foundations of the intergovernmental approach to European integration. 202 His insights into the phenomenon of integration and their critique led to the development of a range of new theories throughout the period of the 1970 s, which can be described as state-centrist, if not exactly intergovernmentalist or realist. Hoffmann built on a sharp critique of neofunctionalism, which in his view missed the reality of European integration by having forgotten about the context, the world politics, in which integration takes place. Also ignored by neofunctionalists were the persisting cultural differences among the European nations, which, integration notwithstanding, continue to influence the way nation-states perceive their interests. 203 Further, he criticized the hypothesis of spillover as a mere act of faith rather than a mechanism of integration. In his view, integration highlighted differences as well as a convergence of interests. The key word here is nationalism, which when low allows for convergence, but when high succumbs to the logic of diversity. Diversity is a natural result of the unique impact of global factors and unique domestic political conditions on the behavior of member states. The mention of domestic politics is characteristic for Hoffmann, as his thinking goes beyond the realist black box, and he assumes that ideas, ideals, precedents and political experiences, and domestic forces and rulers also play a role. Similarly out of the boundaries of realism is Hoffmann s definition of the 202 Hoffmann, S. (1966) Obstinate or Obsolete? The Fate of the Nation-State and the Case of Western Europe. Daedalus, 95(3): Cini, M. (2003), p

71 national interest, which, he claims, is not reducible to power and place alone, but is influenced by a variety of concerns. 204 Crucial in respect to his analysis of European integration, however, is the distinction he makes between high and low politics. While low politics issues are not controversial, and therefore integration is possible in these areas, high politics is the sphere of national sovereignty, at the boundaries of which any spillover, if there was any, would stop; for those issues are impermeable to integration. So, while integration in the low politics issues may seem as eroding the nation-state, the interaction of the state in the global system preserves the obstinate states for as long as power is its rule. 205 And this is indeed a very realist observation. Another interesting view of European integration was given almost forty years later by J. Grieco (see section 2.1.). 206 Grieco acknowledges that neorealism cannot quite capture the nature of the EU and identifies its four major problems: 1. the assumption of the rationality of states behavior, 2. the assumption of anarchy as the main structural feature of international relations, which is obviously not the case in the EU, 3. the mechanism of balance of power being seemingly defied by the consolidation of the power of Germany in the 1990 s, and 4. the absence of empirical testability of neorealism compared to competing perspectives. 207 To deal with the question of why the EMU was established, Grieco puts forward a voice opportunity hypothesis, a modified version of the balance of power principle. He states that in establishing the monetary union with a common currency modeled on the Deutsche Mark the weaker states did not attempt to outweigh but tie up Germany within common institutions. This allowed them not only to secure the agreement, but also to gain a voice in the decisions concerning the monetary policy- something they could hardly do before when the Bundesbank effectively set the policy independently. 204 Cini, M. (2003), p Hoffmann, S. (1966) 206 Grieco, J. (1995) 207 Rosamond, B. (2000), p

72 Framework for analysis As the above section shows, it is difficult for realism to retain its distinctive understanding of international politics and at the same time deal with the precarious issue of European integration. Any attempts at doing so had to deal with the problems mentioned above, resulting in lesser or greater modifications to realism in order to account for the divergence of empirical facts and realist assumptions. To reiterate, however, the purpose of this paper is not to find the best fitting variant of any theory, but to test the development of energy policy against the theories in their basic forms. Therefore, the framework will follow the concepts outlined above, incorporating the elementary realist assumptions about the agents, structure and interests, while forgoing the more nuanced (and varying) assumptions about the role of institutions. To be sure, realism is a systemic theory, and therefore also the scope of the framework is global and, as opposed to neofunctionalism, includes factors beyond the regional borders of Europe. Having settled this, we can move on to actors. In realist thinking, states as sovereign entities interacting under the conditions of anarchy are the only actors who are able to ignite or avert, push forward, or possibly stall the process of EU energy policy development. Their unitary character excludes an independent role of societal groups, such as interest groups, political parties, or business entities in the interaction of states. As for international institutions, however, their role is much less clear, as was already mentioned above. We prefer to adhere to the rigorously realist definition of the institution s role for reasons of coherence and clarity in the framework. In this sense, the EU bodies do not have the capacity to influence the outcomes of bargaining among states, which is a strictly intergovernmental matter. The Commission exercises neither the function of policy-entrepreneur, nor mediator between the governments. It neither facilitates cooperation, nor secures compliance to negotiated agreements. Its role is limited to being the means of the member states in the pursuit of their own goals. The European Council and the Council of Ministers, then, serve merely as forums for the realization of interstate bargaining. 72

73 Drawing on Legro s and Moravcsik s definition of state interests being given by the competition for control over scarce goods, the interests of the member states in relation to energy policy would be, at least, not to give up their control over domestic resources and, at most, to control the combined resources of the EC/EU. The drive of the EU energy policy development should then be the quest of those capable for an energy policy that would maximize their benefits in relation to other member states and, importantly, the outside players on the world stage. The prevailing interests should concern the security of supply as an essential part of national security, which entails both military and economic aspects Liberal intergovernmental approach We said at the beginning of the previous section that the debate on European integration theory centers on supranational versus intergovernmental approaches. But neofunctionalism and realism as leading approaches to European integration are long past their zenith, as the debate between them took place more than thirty years ago. Their dichotomy was replaced by another, that of governance theorizing on the one side (see 2.5.), and intergovernmentalism on the other side, albeit in a modern variation. 208 The modern variation of intergovernmental approaches to integration, and one of the most influential theories of contemporary EU studies is liberal intergovernmentalism, 209 the theory of a single author, Andrew Moravcsik. 210 For its clarity and parsimoniousness, liberal intergovernmentalism (LI) has become a benchmark against which all integration theory is now judged Cini, M. (2003), p Rosamond, B. (2000), p Moravcsik, A. (1991) Negotiating the Single European Act: National Interests and Conventional Statecraft in the European Community. International Organization. 45(1): 19-56; Moravcsik, A. (1993) Preferences and Power in the European Community: A Liberal Intergovernmentalist Approach. Journal of Common Market Studies. 31(4): ; Moravcsik, A. (1994) Why the European Union Strengthens the State: Domestic Politics and International Cooperation. Harvard University Center for European Studies (Paper No. 52); Moravcsik, A. (1995) Liberal Intergovernmentalism and Integration: A Rejoinder. Journal of Common Market Studies. 33(4): ; Moravcsik, A. (1998) The Choice for Europe: Social Purpose and State Power from Messina to Maastricht. Ithaca: Cornell University Press. 211 Cini, M. (2003), p

74 Its empirical testability and wide applicability has been applauded as a grand theory that can explain the major steps toward European integration Basic concepts LI incorporates both realist and liberal concepts. 213 Realist roots are expressed in Moravcsik s work through the rigorous state-centrism and the emphasis on relative power in bargaining dynamics. Also, the assumption of rationality is defined in rather realist terms- rationality means the use of the most effective means available towards the achievement of a goal. 214 However, the goal has been modified to fit the liberal component of the theory; and so it is not the survival of the state, but the survival of the elites who run the state that becomes the primary interest of governments. The liberal component is embedded in Moravcsik s preference formation theory. Here, he draws on earlier works on the importance of domestic politics and national preferences in understanding European integration, but also on the neoliberal works of Keohane and the regime theory. 215 Most importantly, however, the liberal emphasis on economy as the underlying factor of integration is what makes LI liberal: European integration resulted from a series of rational choices made by national leaders who consistently pursued economic interests- primarily the commercial interests of powerful economic producers, and secondarily the macroeconomic preferences of ruling governmental coalitions- that evolved slowly in response to the structural incentives in the global economy. 216 The two are linked through a two-stage process. First, the governments form their preferences amid pressure from and negotiation with domestic societal groups. In the second stage, these preferences are brought forward to the bargaining table of the EC/EU. 212 Schimmelfenning, F. (2004) Liberal Intergovernmentalism. In Wiener, A. - Diez, T. (eds.) European Integration Theory. New York: Oxford University Press, p Rosamond, B. (2000), p State-centrism and intergovernmental bargaining, however, are not distinctive to realism only, as these elements are present in rational choice theory as well. Schimmelfenning describes the roots of Moravscik s theory as an application of rationalist institutionalism to the field of European integration. Schimmelfenning, F. (2004), p Rosamond, B. (2000), p Moravcsik, A. (1998), p. 3 74

75 This process is derived from Putnam s two-level game theory, which amply fills the theoretical gap of the linkage between domestic and international politics. In Putnam s games, the leaders sit in the middle between the international and domestic game boards. In order to achieve a certain goal on the international game board, the national leaders must take the setup of the domestic game board into consideration; otherwise they could be evicted from their seat. At the domestic level, their ability to satisfy domestic pressures can be enhanced by the setup of the international game board. Translated into political language, there are always groups within domestic politics which favor a particular policy course and those which reject it. The balance between the two can be upset in a way desired by the national leader by applying international pressure. 217 While in reality the two processes are parallel and linked, for analytical purposes these two levels are analyzed separately in Moravcsik s work. The first level refers to the exchange between governments, and the second level refers to the exchange between a government and its respective national polity, consisting of domestic interest groups, political parties and intragovernmental actors, such as ministries, policy advisors, etc. Applied to European integration, on the European level the government can play the domestic card (declare it is tied up by domestic opposition), and on the domestic level it can play the EU card (pass the blame on Brussels). 218 In this way, integration can actually be understood as strengthening the nationstate against the domestic polity because it gives the government greater ability to reach deals and gain domestic ratification for compromises. As far as the supranational institutions are concerned, LI maintains that these play no major role in what is primarily an intergovernmental process. Indeed, Moravcsik views the EC merely as the most successful example of institutionalized international policy co-ordination in the modern world. 219 However, the word institutionalized suggests that Moravcsik is not on the same line here with the realists. Institutions do matter. They are set up to 217 Putnam, R. D. (1988) Diplomacy and Domestic Politics: The Logic of Two-Level Games. International Organization. 42(3): Matláry, J.H. (1997), p Moravcsik, A. (1993), p

76 improve the efficiency of bargaining through lowering the transaction costs of negotiations and augment the credibility of the negotiated commitments. 220 Thus, they facilitate the positive sum bargaining, making cooperation desirable in the long term. The entrepreneurship of supranational officials is not welcome, though. Their activities tend to be futile and redundant, even sometimes counterproductive, 221 as governments usually have the ability to find an effective distributional equilibrium easily themselves. There is only one case where Moravcsik concedes that the influence of supranational entrepreneurs helped to strike a bargain- the Single European Act. As sketched out above, Moravcsik provided LI with a clear and detailed framework for analyzing the processes leading up to the major steps of European integration. The framework is divided into three parts: preference formation, interstate bargaining in regards to policies and in regards to the institutional setting. The formation of states preferences is the one instance in LI when we look into the black box of state. Outside of this stage, LI treats the state as a unitary actor because it assumes that national governments have a consistent preference order as a result of domestic political bargaining, and that domestic actors do not play a significant independent role in negotiations beyond the state. 222 But who are these actors? In democratic societies (and this condition is important, albeit largely implicit in LI), the domestic actors are coalitions of voters, political parties, interest groups and bureaucracies. Put simply, these are the organized societal groups who decide about the fate of government. Their demands reflect primarily the commercial interests of powerful economic producers, but at times, also geopolitical and ideological concerns play a role, which explains the quasiconstitutional set-up of the EU. 223 Since the primary interest of governments is to maintain themselves in office, the support of these groups is crucial. Their views and preferences are transmitted through various channels of domestic institutions and political representation. It is important to note, 220 Cini, M. (2003), p Moravcsik, A. (1998), p Schimmelfenning, F. (2004), p Moravcsik, A. (1998), p. 6 76

77 however, that the interests of different societal groups may well be contradictory, which is a problem that is resolved in an intrastate bargaining process. Also a part of the process is the reconciliation between the societal demands and the macro-economic preferences of ruling governmental coalitions. In this way, through domestic conflict and the competition of societal groups for influence, a set of preferences and goals emerges that is brought to international negotiations. 224 What is quite striking in Moravcsik s theory of preference formation is the lack of importance assigned to transnational interest groups whose emergence was theorized already by neofunctionalism and whose influence has multiplied since then. For LI, domestic politics is a rather insulated domain, 225 although the undermost assumption about preference formation is that of economic interdependence. The second stage of the process is the intergovernmental bargaining. Here the assumption is that the governments already have a clear hierarchy of preferences about desirable policy coordination. Also, the negotiations take place in an information rich environment, meaning that the governments know about the technicalities of the issue area, EU policy making and other states preferences as well as constraints. On this basis, Moravcsik refutes the claim that supranational institutions have the advantage of expertise and act as an information resource. 226 In this stage, LI applies a bargaining theory to predict the outcomes of policy negotiations. These reflect on the relative bargaining power of the states. Bargaining power, in turn, is the result of an asymmetrical distribution of information and benefits that a specific agreement would bring to individual participants. The value of information is clear as it allows the participants to manipulate the outcomes. But the asymmetrical distribution of possible benefits from an agreement carries the most weight in the explanation of the outcome of the negotiations. LI stipulates that although cooperation is mutually beneficial (i.e. there are absolute gains in it for 224 Moravcsik, A. (1993), p Rosamond, B. (2000), p Schimmelfenning, F. (2004), p

78 everybody) the precise distribution of these benefits is not symmetrical, which leads to conflict over the relative gains. 227 Thus, the nature of negotiations is one of hard intergovernmental bargaining, in which those who are to gain the most from cooperation compromise the most, and those who are to gain the least, or whose costs of adjustment are too high, impose conditions. 228 The strategies used to coax other governments into making concessions include a credible threat to veto proposals, withhold financial side-payments and form alternative alliances excluding the recalcitrant governments. 229 Moreover, the availability of issue linkage also significantly impacts the outcomes of intergovernmental bargaining. The two stages can also be understood in terms of demand and supply side of policy-making. Through domestic channels, the national polity voices the demand for cooperation, and the governments supply integration arising out of interstate negotiations. In short: The interaction of demand and supply, of preference and strategic opportunities, shapes the foreign policy behavior of states. 230 The third part of the process by which major decisions have been taken in regards to European integration concerns the setting up of common institutions by the governments. In line with the game-theoretical view, the role of the institutions is to secure compliance with negotiated agreements, and so the nature of the institutions is determined by the level of potential gains from cooperation, their distribution, and fears of defection or cheating. Governments transfer sovereignty to international institutions where potential joint gains are large but efforts to secure compliance by foreign governments through decentralized or domestic means are likely to be ineffective. Significant pooling and delegation tend to occur,, not where ideological conceptions of Europe converge or where governments agree on the need to centralize policy-making in the hands of technocratic 227 Moravcsik, A. (1993), p Moravcsik, A. (1998), p Moravcsik, A. (1998), p Moravcsik, A. (1993), p

79 planners, but where governments seek to compel compliance by foreign governments with a strong temptation to defect. 231 In these three steps, LI offers a theory of integration based on liberal roots and the intergovernmental branch of EU studies. However, its applicability is rather limited to the grand bargains that require unanimity to reach a decision. It is because Moravcsik seeks to offer a theory of integration, rather than an analysis of EU governance (emphasis in original). 232 Also, the theory is better at predicting the outcomes when the domestic economic interests are intense, organized and institutionally represented. Further, the information level needs to be high and the transactions costs low in order to allow for efficient intergovernmental bargaining. If these conditions are not met, the role of supranational mediation might increase beyond the scope of LI. 233 So far the theory has only been applied to likely cases, so the existing empirical studies have almost inevitably proved it correct. But the day-to-day working of the EU and the incremental processes of policy-making and implementation are clearly not captured by this theory Framework for analysis First of all, it is necessary to consider whether energy policy as an issue area fulfills the above conditions of (mostly) unanimity as the decision mode, high information level and organized interest. This should indicate to what extent liberal intergovernmentalism is applicable to energy policy. The relevant actors for our analysis differ with the stages of the process described by Moravcsik. At the first stage of preference formation, the crucial issue will be to identify those interest groups who are best organized, with a clear set of demands and who wield considerable influence on the government s policy in a given issue area, in our case energy. It is probable that big energy companies will play a significant role, but it is important to also take energy consumers (industry) and environmental groups into account. 231 Moravcsik, A. (1998), p Rosamond, B. (2000), p Schimmelfenning, F. (2004), p Cini, M. (2003), p

80 The second and third stages are characteristic by the bargaining among member state governments. Here, it is important to identify the precise preferences of the governments, their intensity and benefits each would draw from the first best agreement and, if possible, establish the asymmetries in their distribution. Then, issue area linkages and possible alliance shifts will be explored in order to determine the relative bargaining power positions of the governments. Lastly, we will ask if energy policy is the kind of issue area where defection or cheating would significantly change the distribution of benefits. The outcomes, then, should reflect these factors in the final agreement on policy and institutions in the field of energy Multi-level governance The last of our four frameworks in which the development of EU energy policy will be analyzed is derived from the concept of multi-level governance (MLG). The term concept is used deliberately here, as the literature on MLG is, as could be expected, not quite unified in the position and content ascribed to MLG. To give a case in point in regards to the perception of MLG s theoretical value, B. Rosamond asserts that [a]t present MLG remains more of an organizing metaphor than a theory, 235 and [i]f anything, MLG offers a (dis)ordering framework, 236 and does not in itself constitute a coherent and distinctive approach towards European integration. On the other hand, S. George places MLG right in the center of the contemporary debate on European integration, presenting it as the successor of neofunctionalism in the supranational/intergovernmental dichotomy that has reigned over the EU studies since their emergence. 237 Yet another perception is offered by P. Schmitter who considers MLG to be the most omnipresent and acceptable label one can stick on the contemporary EU. 238 Needless to say, disagreement also exists in regards to 1. the definition of governance and multi-level governance in the international relations (IR) 235 Rosamond, B. (2003), p Rosamond, B. (2000), p George, S. (2004) Multi-level Governance and the European Union. In Bache, I. - Flinders, M. (eds.) Multi-level Governance. New York: Oxford University Press, p Schmitter, P.C. (2004), p

81 context and 2. its roots and the relation of MLG to other theories of European integration/ir. The term multi-level governance has its roots in European studies, 239 so its applicability to the international system is usually regarded as limited. Nevertheless, the term governance is a part of IR theory, albeit one drastically conceptually underspecified. 240 In the IR context, the definition is provided by contrasting governance against government, where government is hierarchical, centralized, and dominated by the public sector as opposed to the negotiated mode of interaction within governance, fragmented organization, and the prevalence of public-private partnerships. 241 To make matters more complicated, the prominent theorists of MLG, L. Hooghe and G. Marks distinguish two types of multi-level governance 242 that are not entirely consistent with the previous definition of governance. The first type refers to the more traditional perception of multiple levels of decision-making (for it is the authority to make binding decisions that lies at the heart of all governance concepts), in which such authority is dispersed between a small number of levels that correspond with territorial units, are general-purpose (i.e. exert various public services and functions), and whose membership is non-intersecting. This type of MLG clearly smacks of hierarchy, at least a certain degree of centralization, and definitely public sector domination. If we are to keep to the previous definition of governance, this should be more accurately called multi-level government. The second type roughly corresponds with the governance concept as outlined above, where jurisdictions are task-specific (i.e. fragmented), potentially unlimited, with intersecting memberships and a flexible design. Type II MLG comes and goes as the demand for governance changes. The EU, according to the authors, presents a case of Type I MLG, albeit some salient features of EU architecture are consistent with Type II, such as the 239 George, S. (2004), p Welch, S. - Kennedy-Pipe, C. (2004) Multi-level Governance and International Relations. In Bache, I. - Flinders, M. (eds.) Multi-level Governance. New York: Oxford University Press, p Welch, S. - Kennedy-Pipe, C. (2004), p Marks, G. - Hooghe, L. (2004) Contrasting Visions of Multi-level Governance. In Bache, I. - Flinders, M. (eds.) Multi-level Governance. New York: Oxford University Press; also Hooghe, L. - Marks, G. (2003) Unraveling the Central State, but How? Types of Multi-Level Governance. The American Political Science Review. 97(2):

82 flexibility clause of the Amsterdam and Nice Treaties or the functioning of independent EU agencies. 243 All the above renders MLG to be a stretched and fuzzy concept, the precise definition of which depends to a great degree on the context it is used in, whether it is IR generally, domestic, or European politics. Despite (or because) of the obscurity of the concept, MLG studies proliferate, and MLG is popular among the contemporary researchers of IR and European integration. One thing most theorists agree on is that the concept of MLG works well for the EU because it provides enough opportunities for case studies, which are best suited to this theory. In the EU context, however, MLG has to deal with other competing views of European integration and politics, and its position among these is not yet firmly established. Rosamond, for example, insists that MLG does not rest on some fundamental theoretical preconceptions that differentiate it squarely from liberal intergovernmentalism. 244 To be sure, liberal intergovernmentalism and MLG do have something in common, not least of all their common roots in the domestic political science and public policy studies. But at the same time, while LI has been criticized for its fixation on the history-making moments of European integration, MLG attempts to capture the complexity and incrementalism of the day-to-day EU policy-making. 245 Conversely, S. George positions MLG on the opposite side from the intergovernmental approaches (including and mainly LI) in the theoretical dichotomy of EU studies, as mentioned above. Following a comparison of the main premises of neofunctionalism and MLG, he concludes that multi-level governance has taken the place of neofunctionalism as the alternative theory to intergovernmentalism. It incorporates all the main elements of the neofunctionalists theory, minus functional spillover, which in his view is the only really obsolete component of neofunctionalism. 246 A yet different 243 Marks, G. - Hooghe, L. (2004), p Rosamond, B. (2003) New theories of European integration. In Cini, M. (ed.) European Union Politics. New York: Oxford University Press, p Rosamond, B. (2000), p It is unclear why Rosamond on the one hand likens MLG to LI, and on the other hand, highlights the very thing LI lacked as the principal feature of MLG. 246 George, S. (2004), p

83 outlook was provided by L. Hooghe and G. Marks, who came to regard MLG as an escape from the dichotomy of the supranational/intergovernmental debate and a new fruitful approach. 247 The latter view seems to be shared by at least several other authors with greater or lesser deviations Basic concepts One of the most parsimonious descriptions of multi-level governance refers to it as the dispersion of authoritative decision-making across multiple territorial levels. 249 Adapting it to the European context, it describes a process whereby [f]ormal authority has been dispersed from central states both up to supranational institutions and down to regional and local governments. 250 The emphasis here is on the dispersion going both ways- up and down, but in practice the application of the concept to the EU is seen by some only as a way of referring to the enhanced capacities of EU institutions. 251 In addition to the multi-levelness of governance, MLG is characterized by significant sectoral variations in governance patterns, 252 meaning that the dispersion of authority between levels varies from sector to sector. This is why case studies of EU policies and their application are popular research topics for MLG theorists. Moreover, the concept of governance encompasses the diffusion of authority to both public and private actors. Thus, MLG can be understood as an attempt to depict complexity as the principal feature of the EU s policy system. 253 A very complex definition of multi-level governance that, besides the above mentioned characteristics, captures also the mode of interaction between actors is that provided by P. Schmitter: MLG can be defined as an arrangement for making binding decisions that engages a multiplicity of politically independent but otherwise interdependent actors- private and public- at different levels of territorial 247 George, S. (2004), p See Jachtenfuchs, M. - Kohler-Koch, B. (2004) Governance and Institutional Development. In Wiener, A. - Diez, T. (eds.) European Integration Theory. New York: Oxford University Press; also Fairbass, J. - Jordan, A. (2004) Multi-level Governance and Environmental Policy. In Bache, I. - Flinders, M. (eds.) Multi-level Governance. New York: Oxford University Press. 249 Rosamond, B. (2003), p Marks, G. - Hooghe, L. (2004), p Welch, S. - Kennedy-Pipe, C. (2004), p Rosamond, B. (2000), p Rosamond, B. (2000), p

84 aggregation in more or less continuous negotiation/deliberation/ implementation, and that does not assign exclusive policy competence or assert a stable hierarchy of political authority to any of these levels. 254 Nevertheless, even in MLG, at least for the time being, state as the central authority still remains a very important actor. The substantial role of member states lies in their power to extend or reduce the formal EU level, and indeed the subnational level competencies. Furthermore, states, as opposed to the EU institutions, possess the two most important sources of power- physical force and taxation. Aside from these exclusive competencies, states are so far the only independent arena for the competition for political power. It is still the domestic political arena that determines the election outcomes and thus the composition of key EU institutions. 255 The main research focus of MLG,then, is to look for evidence that the central government is diminished in the system of governance that is the EU, 256 and thus to prove the central hypothesis of MLG about the shift of authority to supranational and subnational levels. Although there is a general agreement that neither the Commission nor other supranational bodies are wholly autonomous, and it is still questionable as to what extent they can act independently, advocates of MLG believe that supranational actors play a decisive and entrepreneurial role in EU policymaking. In fact, MLG only emerges once national governments surrender authority to supranational agents. The Commission especially is well-placed to wield influence because it is the focal point for demands and information. Also, the ECJ creates opportunities for a variety of policy actors, including the Commission, interest groups and national courts. 257 The way these supranational actors influence the policy process is through the institutional structure of the EU, which comprises treaties as well as informal components. First of all, the formal treaties are inevitably ambiguous in some points in order for agreement to be achieved, but these gaps can later be exploited by the supranational agents who escape the control of the 254 Schmitter, P.C. (2004), p Jachtenfuchs, M. - Kohler-Koch, B. (2004) 256 George, S. (2004), p Fairbass, J. - Jordan, A. (2004), p

85 principals. 258 Secondly, the informal and incremental moves make it easy to obscure a hidden agenda: constitutional moves are buried in a mass of technical detail, boring people into submission. 259 In this way, the course of integration is changed and the center of gravity of authority is shifted away from the principal actors, the states. Once the balance is tipped, the behavior of subnational actors changes as well. Although the bulk of literature on MLG concerns the dispersion of authority to regional or local levels of government, interest groups, as the representatives of private actors, are also significantly involved in multilevel policy-making. The subnational actors adapt to the shift in the equilibrium of authority distribution and try to exploit the multiple access opportunities by establishing offices in Brussels, forming direct links with Commission officials, participating in forums such as the Committee of the Regions, and voicing their demands for subsidiarity, etc. These strategies then create a dynamism that further erodes the central government s authority. 260 At the same time, they keep lobbying in the national capitals, thus pursuing a dual strategy. Likewise, EU associations and transnational interest groups target both national governments and Brussels. 261 Again, however, the extent to which the supranational and subnational actors are able to influence the policy-making varies across sectors. The more and better organized the subnational sectors are, the better constitutional position they enjoy, the more entrepreneurship they exert, the more effective they will be in getting their way. 262 The EU welcomes the involvement of public interest groups as it should enhance the legitimacy of its decisions and win public acceptance. 263 Given the diverse interaction above, the states find it difficult to control the process. There is a great amount of complexity and uncertainty in every decision. States cannot therefore know exactly what they are agreeing to 258 George, S. (2004), p Jachtenfuchs, M. - Kohler-Koch, B. (2004), p The authors put forward the notification obligation and social dialogue as cases in point. 260 George, S. (2004), p Jachtenfuchs, M. - Kohler-Koch, B. (2004), p George, S. (2004), p Jachtenfuchs, M. - Kohler-Koch, B. (2004), p. 105, also Fairbass, J. - Jordan, A. (2004), p

86 when they sign on to particular policies. 264 However, the states do not watch as the unintended consequences accumulate, but instead actively intervene to constrain the subnational actors. 265 The latter shows that the modes of interaction between the actors differs from the hard bargaining as described in the previous section on liberal intergovernmentalism. In their article, M. Jachtenfuchs and B. Kohler-Koch divide the policy-making process into two stages. In the first stage, the problem needs defined and the situation analyzed. Therefore, the prevailing pattern of interaction is the argument, consultation and dialogue. The second stage is characterized by bargaining as the actors are trying to find an appropriate solution. 266 Going back to the dilemmas posed earlier about the relation of multi-level governance to other theories of European integration, it seems that multilevel governance does indeed draw from neofunctionalism in its perceptions of European politics. The pluralistic view of society, as well as the roles ascribed to supranational, transnational and subnational actors all hint towards the roots of MLG in neofunctionalism. However, in MLG they are refined to reflect the development of European integration, especially in regards to the resilience of the member states and the increased participation of subsidiary government levels. Rather than a theory of integration, of which spillover was the original motor, MLG represents a dynamic theory of politics and forgoes the tainted concept of spillover, which is actually a point in the critiques of MLG Framework for analysis The wide-angle lens of MLG captures pictures of European policymaking, which encompass a broad range of actors, interconnections, and interactions. For this reason, the analysis will be exceptionally complicated, even if the focus remains on a single sector, energy policy. If the development of energy policy should correspond with the ideas of multi-level governance, we should be able to detect a great number of 264 Fairbass, J. - Jordan, A. (2004), p Fairbass, J. - Jordan, A. (2004), p Jachtenfuchs, M. - Kohler-Koch, B. (2004), p

87 different parties involved in the policy-making. However, their influence will certainly vary from what has already been researched in the fields of structural and social policies. Energy is a field with the member states filling a traditionally strong role as gatekeepers against the profusion of non-state actors and their interests. MLG does not deny the prominent position of the member states, however, the shift of authority up towards the EU and down towards subnational actors should be detectable if MLG is to work for energy policy. The Commission, similarly as in neofunctionalism, is expected to function as a policy entrepreneur and information resource for the member states as well as the subnational actors, both public and private. Their interconnection is to be strengthened via numerous formal and informal channels, including the extensive web of committees, consultation platforms established by the Commission, and, very importantly, through lobbying. The subnational actors, on the other hand, are expected to streamline their organization along with the increase in the powers of the EU in energy policy. As far as regional and local governments are concerned, it is a little difficult to see their influence growing outside of issues of regional/local character connected with perhaps only the environmental pillar of energy policy. On the other hand, private parties interested in energy policy, be it energy producers, consumers, or environmentalists, should establish links to the EU in the form of Brussels offices or Europe-wide associations, while retaining the links within the national boundaries Conclusion The goal of this chapter was to outline four distinct frameworks within which the development of EU energy policy is to be analyzed. These are derived from the theories of neofunctionalism, realism, liberal intergovernmentalism, and multi-level governance, which represent the two sides of the traditional supranational/intergovernmental debate on European integration at different periods. Also, with the exception of realism, all the above theories have claimed, or quietly aspire to, the position of the grand 87

88 European theory, while realism claims the position of the grand theory of international relations. The frameworks have centered on hypotheses concerning the roles of member states, EU institutions, and other actors, primarily private interest groups in the policy-making process. On the one side stand realism and LI as the proponents of the primacy of member states in policy-making. Over the years, however, the development of the intergovernmental side of the debate has seen a change in the reading of the sources of national interests- there was a move from exogenously to endogenously given interests, which brought the latter version of intergovernmentalism, LI, closer to the dividing line. On the other side stand neofunctionalism and its more sophisticated version, MLG, which assign utmost importance to the roles of supranational actors and interest groups (i.e. they see the European arena as closer to the domestic than international environment). MLG, however, differs from neofunctionalism in its absolute abrogation of the concept of functional spillover, and its greater emphasis on the regional and local, but especially the central level of government. Thus, the MLG has also moved closer to the dividing line between supranational/intergovernmental approaches. Whether this signifies the gradual decline and ultimately the end of what has been a fruitful debate, however, remains to be seen. 88

89 3. The Development of EU Energy Policy in Theories of European Integration The last chapter is devoted to the theoretical analysis of the development of the EU s energy policy. In four sections, the main formative periods of energy policy will be explored: the early years of ECSC/EURATOM, the period of the oil boom in the 1960s and the oil shocks of 1970s, the formative decade of the current energy policy between 1988 and 1998, and finally the period after the year The development of EU level energy policy is characterized by more stagnation than progress, both of which, nonetheless, deserve an explanation. That is why the question is not only why and how communitarization of EU energy policy occurred, but also what prevented the integration in this issue area. Also, due to the lack of groundbreaking events, such as those found in the monetary integration, energy policy development is explored through the policy-making patterns in the given period, not necessarily focusing on any single event. The main research question is: What actors, interests and processes were dominant during the formative stages of the EU s energy policy? Neofunctionalism, realism, liberal intergovernmentalism and multi-level governance have a different understanding of the who, why and how engaged in policy-making at the European level (see Chapter 2). The answers to these questions will illuminate the way the EU s energy policy has (not) developed and provide a theoretical reflection of this The ECSC, EURATOM and energy policy- the early years Why did the establishing of ECSC and EURATOM not lead towards a coherent European energy policy? This section will argue that the ECSC never was in the position to craft a comprehensive energy policy because of its fixation on coal and because of the divergent member states interests. The EURATOM, on the other hand, was not even envisaged to be a base for a Community wide energy policy because of its inherent nature as an intergovernmental bargaining piece. The ECSC Treaty, both in its preamble and in Article 2, states that the general objectives of the Community include economic expansion, growth of 89

90 employment and a rising standard of living to be achieved through the establishment of a common market. In practice, in regards to coal, this meant that the High Authority saw its mission in the expansion of domestic coal production, which was thought to contribute to all three objectives: expansion of domestic production would both increase employment in the sector and lower the prices of coal, adding to economic expansion and raising the living standard. This logic was compatible with the member states interests as long as coal was the predominant energy source and the availability of imports was low. However, in the second half of the 1950 s, the competitive pressures from outside of the Community began to increase, and the coal industry found it difficult to compete with cheaper imports. As contemporary analyses show, the barrier to effective competition of coal lay, among other factors, also in the state policies which ECSC failed to abolish. 267 The High Authority tended to protect the coal industry, but the preference of the member states lay in the cheapest energy possible, and this is the point where the interests of the ECSC and the member states diverged. The subsequent attempts of the High Authority to extend its powers within the Treaty framework were curbed by the member states. In 1959, the High Authority was denied intervention in the coal market by means of price control and production quotas because the preference of the member states lay on the side of cheap coal. After the establishment of the other two Communities in 1957, the overlapping agendas of all three in energy policy prompted the ECSC to seek a broader view of energy policy besides coal. Several proposals on a coordinated energy policy resulted from the meetings of various joint committees, to which the member states agreed in principle, but not in details. The proposals typically included a liberal policy towards oil, but on the insistence of the ECSC, subsidies for the domestic coal industry were also a part. In 1962 and 1964, however, the plans to construct an energy 267 Gordon, R.L. (1965) Energy Policy in the European Community. The Journal of Industrial Economics. 13(3): , p

91 policy failed on the reluctance of the member states to support and pay for the degree of protection of coal advocated in these reports. 268 As such, EURATOM was not designed to harmonize nuclear policies throughout the Community. Quite to the contrary, its establishment served the attainment of particular goals of the member states (see ), which in turn were determined by the internal competition between national interest groups. As for France, their initial proposals centered on the creation of a single West European market with nuclear technology and enriched fissile materials, supplied exclusively by France. At the time, France was the only European state capable of producing enriched uranium (used for civil nuclear power generation), albeit at a cost much higher than the price charged by the USA, the world s only large supplier. The West German industry, however, had mobilized to resist these proposals because they would have blocked their obtaining cheaper uranium and technologies promised by the U.S. The final agreement defied the French desires, but also contributed to the later rift within the Community in regards to nuclear policy. Nor did the functioning of EURATOM prove to be a success for supranational undertaking. The imbalance between the degrees of nuclear research development among the members resulted in rivalries, and, far from creating a powerful nuclear industry within the Community, EURATOM moved to merely coordinating and supplementing the national programs. 269 The policy-making in this period of energy policy development is characterized by a strong influence of the member states, even though, in the case of the ECSC, the High Authority did wield a rather wide range of powers in regards to the coal segment. Nevertheless, the decisive steps towards a stronger role of the High Authority in setting coal policy going, beyond its task of market building, were readily blocked by the member states. The joint energy policy proposals suffered a similar fate. The member states motives seem to have been economic in nature. The excess of coal on the market, and the growing availability of oil as an alternative source of energy, albeit threatening the domestic producers, decreased the price of 268 Gordon, R.L. (1965) 269 George, S. (1996), p

92 coal. On the other hand, industry thrived in these periods of cheap energy. This case points to a competition between domestic interest groups, in which manufacturing industry prevailed over the coal lobby, 270 which was also demonstrated by the willingness of especially France and Germany to dismantle their coal cartels. 271 By 1964, when the Protocol Agreement was adopted, coal was on its descent in the energy mixes of the member states, and oil was on the rise. Given the decreasing importance of coal, and the disinterest of the oil sector in any form of regulation by a supranational institution, there were no articulated preferences favoring a common policy. It is not surprising, then, that the member states were sluggish to agree on one. All of the above points rather decisively to the liberal intergovernmental framework (see 2.4.). As for EURATOM, the pattern of policy-making is similar, with member states, motivated by economic interests, playing the most important role. Although at first sight it may seem that EURATOM was, at the very least from the side of France, a product of geopolitical considerations, the security motives, while important, need to be supplemented by a view which emphasizes the economic value EURATOM could have presented for France. Had the initial proposals been agreed, France would have gained the entire West European market for its nuclear technology, and would have been able to pool the resources for further development. Although, the first desire was rebuffed by the other parties, the possibility of pooling resources was strong enough to keep France interested in negotiations. Finally, the outcome of the negotiations corresponds with the liberal intergovernmental framework, according to which the state with the strongest interest in an agreement is the one willing to make the most concessions Oil boom and oil shocks- 1960s and 1970s This section deals with two contrasting situations in which the Community found itself during 1960 s and 1970 s, one characterized by relatively cheap 270 In the immediate postwar years, the industries of coal and steel held the strongest positions in the economy of West Germany (and Western Europe) due to their role in reconstruction. With the normalization of industrial development, the weight shifted to finished goods (i.e. industries such as chemical engineering, machine-building, non-ferrous metallurgy, etc.). Deubner, Ch. (1979), p George, S. (1996), p. 3 92

93 and available oil and the other by a sudden cut in supply and a steep increase in its price. However, neither of them impelled the member states enough to institute a common approach to energy matters. The reason, it is contended, is that oil had been recognized early as a strategic good, and therefore, the subsequent policies of the member states, France especially, were motivated primarily by security concerns and political deliberations. Further, the intimate, albeit not always perfect, connection between the oil industry and the governments allows for the regarding of the oil companies as an extension of the governments. 272 The focus of this section, therefore, will be on governments and their interactions on the European scene. Nevertheless, the role of the Commission and the transnational petroleum industry should not be overlooked, although the influence of the latter is difficult to establish exactly. The history of oil exploration and extraction has traditionally been dominated by American and British companies. Oil was an important commodity, however, especially for military purposes, which put other countries in a difficult position. France, still an international power even after 1918, recognized the potential political consequences of dependence on foreign oil companies. This, in turn engendered an oil policy driven by strategic and political, rather than economic, purposes. 273 Consequently, the strategic nature of oil can be seen as the reason why no consistent oil policy was written into the text of the European Economic Community (EEC) Treaty. At the time when the Treaty was concluded, oil was not a significant source of energy on a large scale. While coal was the major energy source and nuclear power was regarded as the source of the future, energy was thought to be covered sufficiently on the European level by the ECSC and EURATOM Treaties. Only in the succeeding decade did oil gain an 272 France, in the period of President de Gaulle, pursued foreign policy strategies aimed at strengthening France s position in the international system, if not at restructuring the world order completely. Its foreign economic policies were subordinated to political objectives and can be seen as an extension of the domestic strategies of the state into the international scene. Zysman, J. (1977) The French State in the International Economy. International Organization. 31(4): The French governments held a very weak position in the petroleum industry after 1918, which they attempted to remedy by allying with the foreign oil majors, but at the same time promoting direct French involvement wherever possible by initiating oil companies and building a strong domestic refining industry. Also, state-owned companies were later established. Jones, G. (1983) Review: Some Recent Histories of International Oil. The Journal of Economic History. 43(4):

94 important economic dimension as its proportion in the energy mixes of the member countries grew. Due to its falling price in the 1960 s and its abundant availability, however, no immediate pressure was felt to coordinate the oil policies of the member states. Indeed, the only country in the EEC with anything approaching a carefully spelled-out oil policy was France, and that was for the strategic reasons sketched out above. 274 A further reason for the absence of serious attempts at creating a Community oil policy was the interconnectedness of the oil industry in some member states with their respective governments and the governments diverging policies in regards to the domestic markets. On the one side stood France with its highly dirigiste policy, giving preferential market access to French companies and retaining a high degree of government control over them. On the other side, the Dutch and the British had stakes in Royal Dutch- Shell and British Petroleum, but their policies followed more of a laissezfaire philosophy, bringing their official positions closer to those of the Americans. 275 So, in the wake of an international oil crisis, the EEC was divided with Gaullist France on one side and the rest, who did not mind American dominance quite so much, on the other. In this situation, the Commission became aware of the potential problems with the oil supply and started to press ahead with a common energy policy agenda. After an unsuccessful bid in 1968 (see ), energy was again included in the agenda of the 1972 heads of states summit, although only low down on the list. The proposed measures included augmenting the oil stocks and regular discussions on energy policy with the USA and Japan. The latter especially provoked French dissent, and when the Commissioner in charge of energy sought a mandate for the consultations in May 1973, the French insisted that the member governments, not the Community as a whole, should conduct such talks, and furthermore, that the Community should establish its own energy policy before discussing anything with outsiders. At least in part, this dispute was over the attempts to convince the remaining eight member states that the 274 Turner, L. (1974) The Politics of the Energy Crisis. International Affairs. 50(2): , p The whole history of France s involvement in oil has been a story of bitter struggle against Anglo- Saxon dominance. Turner, L. (1974), p

95 European energy market should be run according to the French model. 276 But again, this did not correspond with the other big European oil players liberal economic policies. The short period of the Commission s activity was thus curbed by the member states, and, for the foreseeable future, it was restricted to preparing guidelines and energy market projections. In addition to that, the sauve qui peut reaction of the member states to the oil shock of 1973 left virtually no room for the Commission s further involvement. The subsequent events, from the deliberations of EEC members concerning an Arab-European conference to the meeting in Washington that initiated the International Energy Agency, were of a purely intergovernmental nature with a strong taste of underlying realism at work. The Community split between France, which wanted to continue, on a Community scale now, with its Arab-friendly foreign policy in order to secure stable oil supplies, and the remaining eight members who leaned towards the American view of oil consumer cooperation and creating a counterweight to OPEC. Moreover, as a result of the crisis, the development of the North Sea oil and gas potential put another barrier between the EEC and Great Britain, which defended its control over these domestic resources from Community intervention. The failure of the Community to form a common approach to energy preceding and following the oil shock of 1973 can be viably explained in realist terms. The policy-making in this period was heavily dominated by the member states who found themselves engaged in an international crisis threatening their security. The pattern of interaction, therefore, was almost exclusively intergovernmental bargaining. Although the Commission did put forth a proposal for a common energy policy, it went nowhere. The subsequent negotiations resembled more of an attempt to use the Community institutions to further the French vision of an oil policy rather than the usual process of finding a compromise. The states interests were driven by the effort to secure stable energy supplies as a precondition for survival. Security and power can be said to have dominated this period, which corresponds with the realist framework as presented earlier (see 2.3.). The logic of realism is 276 Turner, L. (1974), p

96 consistently present in France s attitude towards the Community energy policy, as displayed by the effort to extend its influence over a common policy and possibly gain access to the combined resources of the Community. Also, the resistance of the UK towards all forms of energy cooperation that smacked of supranational involvement can be seen as the protection of domestic sources of economic and military power, clearly hinting at realism A new start for energy policy: If the previous development stages were all rather clear-cut in their emphasis on the leading role of the member governments, the policy-making in the decade from 1988 to 1998 is marked by an increase in the number of policy-actors and an increase in the complexity of relations between them. Although the member states remained the prominent actors in the process, with the launch of the internal energy market the Commission has come to the fore as an equal player next to the member states. Interest group activity intensified, but this time on both national and European levels. The member states role changed as they found themselves having to deal, not only with one another, but increasingly with the non-state actors as well. This section will argue that the change in the policy-making style can be attributed to the shift in the Commission s strategy regarding energy policy, which came as a result of the internal market program. Further, the policy-making of the period can be explained as a transition from the inter-governmental mode of interaction towards governance. Thus, while the role of the member states remains strong in this stage, the proliferation of interest group activity and the change in the formal and informal competences of the Commission lends the policy-making process a new quality, which can be best described by the multi-level governance approach. The development of the internal energy market is intrinsically connected to the general single market, although energy was originally not part of the program. Energy has always had a special status in the policies of the member states, and for a long time was regarded as a national prerogative. The prevailing concerns, as was already mentioned before, were those of the security of supply, and security issues, as such, were firmly embedded within the national boundaries. The energy sector in most member states was 96

97 monopolized and under heavy state control, if not completely state-owned. 277 Both of these factors had made it difficult for the Community to penetrate into the national energy policies, but the profound institutional and economic transformation in mid 1980 s launched a far-reaching reform even in this rigid sector. The reform, embodied by the Single European Act, reflected a more general trend towards the deregulation and liberalization of economies, which, combined with the decreasing energy prices, caused energy to become regarded as a commodity rather than as a matter of national interest. The first to follow suit in the EC was the UK, which started the deregulation of its energy sector with massive privatization in the mid to late 1980 s as a part of its general economic policy. 278 The change in economic thinking, the favorable development of energy prices in this period, the example set by the UK, and, very importantly, the reinstatement of qualified majority voting (QMV) were important factors in the diffusion of the market orientation into the energy field, 279 thus enabling a change in the Commission s strategy. The preceding periods saw the Commission putting forward relatively bold proposals to form a common energy policy, such as those of 1962, 1964, 1968 and 1972, none of which went far in achieving its goal. In contrast, the real turn in the development of an EU energy policy was brought about by a document which narrowly addressed only the internal energy market. While the preceding proposals often linked energy policy to energy problems, such as the rising importance of oil in the energy mixes and the need to preserve coal production in the 1960 s, or the oil supply problems of the 1970 s, the Internal Energy Market proposal addressed a different set of problemscompetitiveness and efficiency. Thanks to the narrow scope of the initial proposal, and its linkage to the already up and running program of general economic liberalization, the Commission was finally able to push through what today forms the core of the EU s energy policy. 277 Padgett, S. (1992), p Matláry, J.H. (1997), p Andersen, S.S. (2000a) 97

98 Hence, the new strategy of the Commission could be described as incrementalism. Characterized by small steps, all within an already existing framework of competencies, and the inconspicuous filling in of policy gaps, a large agenda for the Commission, falling under the heading of energy policy, accumulated over time. 280 While in the preceding periods, the agenda consisted mainly of oil stockpiling and energy efficiency efforts, 281 the post 1988 period (The Internal Energy Market document) added the functioning of energy markets, climate change (with a pronounced international role of the Commission), and relations with the former Eastern Bloc countries to the sphere of Community action. The Commission managed to overcome the inbuilt fear of the member states of greater bureaucratization and competence accumulation on the supranational level by presenting the internal energy market as a deregulatory process, although a degree of regulation is unavoidable if the internal energy market is to function. In this way, though, the Commission transferred some of the regulatory capacity to the European level Neofunctionalist logic at work? From a theoretical point of view, the obvious linkage of issues and the subsequent expansion of Community competence (i.e. integration) in energy policy that occurred with the launch of the internal energy market are processes very reminiscent of the neofunctionalist version of integration. The linkage of energy to the internal market, to the environment, but also to the EU s ambitions to exercise international leadership during the transformation of the former Eastern Bloc, represent a form of political spillover, where resourceful actors, the supranational institutions, exploited new opportunities within a new institutional framework. 282 Moreover, a functional link can also be established between the internal market and energy, as well as in the case of environment. The creation and functioning of the single market are conditioned by there being equitable conditions for competition across the Community. But the widely differing energy market arrangements, and the possibility of state aid in some member states, would distort any chance for 280 Matláry, J.H. (1997) 281 Andersen, S.S. (2000b) 282 Andersen, S.S. (2000b) 98

99 fair competition, since energy is a basic input in any economic activity. Thus, the internal market cannot function effectively without a liberalized and harmonized energy market. Similarly, environmental issues have a close functional link to energy, as its production and use constitute the bulk of overall carbon emissions in the EU. Also in line with the neofunctionalist framework is the role exercised by the Commission. The Commission was active in agenda-building (i.e. linking energy to other issues as mentioned above), and in agenda-setting, that is, determining how these issues should be linked. 283 The Commission acted not only as an initiator of the policy, but also as a mediator between the member states. 284 A case in point was the protracted negotiation concerning the electricity liberalization directive proposed in 1992 and finally adopted in In the meantime, the Commission changed the original proposal several times in order to accommodate the various demands, mediating not only between the member states interests, but also between the Council and the European Parliament (see ). At that time, the European Parliament was deeply divided over the issue of electricity liberalization, with the Socialists defending the existing sectoral arrangement and the European People s party favoring more competition. The political cleavage would not have allowed the EP to reach the majority required to amend or reject the Council s common position, so the Commission incorporated some elements of the EP s common position that did not counter the market spirit in its amended directive proposal. 285 In this way the Commission set itself in the center of the policy-making. Neofunctionalism seems to match yet another characteristic of this period, and that is the proliferation of interest groups targeting the European level of policy-making. The energy industry increasingly formed European-wide interest groups that were usually energy type-specific: Europia (oil industry), Eurogas (natural gas industry), Foratom (nuclear industry), CEPCEO 286 (coal 283 Matláry, J.H. (1997), p Padgett, S. (1992) 285 Eising, R. (2002), p CEPCEO (Association of the Coal Producers of the European Community) transformed into CECSO and then into Euracoal in 2002, which currently represents the European coal producers interests at the EU level. 99

100 mining) and Eurelectric (electricity industry). 287 CEDEC, the European Federation of Local Energy Companies, was formed in 1992 as a direct response to the internal energy market program. 288 Moreover, a direct reaction to the integration of energy markets was the setting up of an association of European transmission system operators. 289 Nevertheless, what is interesting about these groups, and different from the original propositions of neofunctionalism, is that they were formed to lobby against the internal market program, not in favor of it as neofunctionalism would have it. These were European-level organizations of the powerful domestic companies whose goal it was to maintain the status quo of the sectoral arrangement and object to any initiatives from the side of the Commission that would upset their privileged standings on the national energy markets. It is important to note, however, that not all of the companies shared the same outlook on energy liberalization. British electric companies, especially, defended the idea of a single competitive European energy market, but also some Dutch, Spanish, and even smaller French companies also expected advantages from liberalization. 290 The British companies already functioned in a liberalized domestic market, which would have given them a competitive edge over their continental counterparts. The smaller companies, on the other hand, expected easier market access under liberalized conditions. At the European level, though, it was the large industrial consumers and businesses that saw considerable advantages in the extension of the market principles into the energy sector. Although founded decades before the internal energy market became an issue, the most vociferous proponent of more competition was UNICE (Union of Industrial and Employer s Confederations of Europe). 291 Representing the European business and industrial interests, UNICE consistently favored the deregulation of energy, from which it expected significant decreases in energy prices. As a result, the 287 Matláry, J.H. (1997), p Matláry, J.H. (1997), p Electricity: EU Transmission Systems Operators Set up Independent Association. European Report, 30 January Eising, R. (2002), p As of 2007, the name of the organization has been changed to Businesseurope, The Confederation of European Business. 100

101 internal energy market was directly linked to the then (and still) imperative issue of the global competitiveness of Europe. Due to the conflicting interests of the transnational interest groups, the relations between them and the Commission was not quite as straightforward as neofunctionalism predicts. According to neofunctionalist logic, the transnational interest groups should back integration, but in the case of the internal energy market, the energy sector for the most part defied the Commission s attempts, although the latter found an ally in the business circles. Nevertheless, the Commission included all the relevant interest groups into the formal and informal negotiating system, by way of co-opting the lobby representatives into its working groups. 292 Consequently, the interest groups were involved in the formulation of the internal energy market proposals, while retaining also their traditional channels of communication, such as direct lobbying and consultation. As such, interest groups showed themselves capable of decisive intervention in the Community policy process, 293 which is an observation that indeed corresponds with the neofunctionalist framework. However, the exceptionally strong role played by the member states can hardly be reconciled with the neofunctionalist premises. Although the above text suggests that the member states had little impact on the progress of the internal energy market s creation, the opposite is true. While the Commission and the interest groups did exercise a greater amount of influence than in any of the preceding developmental periods, this did not much diminish the ability of the member states to vote down or veto proposals in the Council. Neither did they forgo their ability to refuse the extension of formal Commission competencies. And most of all, they were more than active in delaying and modifying the Commission s proposals. Despite the general euphoria of the relance of the European integration process in the period of the late 1980 s and early 1990 s, the member states still feared the loss of control over energy policy Matláry, J.H. (1997) 293 Padgett, S. (1992) 294 Matláry, J.H. (1997), p

102 Probably the most obvious instance of the member states power is the refusal to include an energy chapter in the treaty base of the EU. The formal competence was requested by the Commission on both occasions for a treaty reform in the 1990 s. Although there appeared to be a general agreement that the internal energy market is a somewhat limited form of energy policy cooperation, and even though Jacques Delors, the president of the Commission, regarded it as a prime area of integration, neither attempt to include a formal competence materialized. The first proposal to include a chapter on energy policy into the Treaty on European Union (TEU) was rejected at the European Council in 1991 by the UK, Germany and the Netherlands, who feared that the EU would develop a supranational role if armed with such a competence. 295 The next proposal for an energy chapter to be included in the Treaty of Amsterdam was outlined in the Commission s 1995 White Paper on energy policy. 296 This time, the Commission proceeded a lot more cautiously indeed, and did not suggest a supranational role for itself. Instead, it advocated consultation and discussion between the member states in order to draw greater attention to the need for a coherent policy rather than to its own competence expansion. While Italy and Belgium would have supported the Commission s bid, the other member states were less keen on creating a common energy policy and rejected yet another proposal for a formal energy policy chapter. 297 So, in an institutional setting where unanimous decision is required, such as treaty reform, the Commission clearly loses its strong position, and the power of the member states to resist spillover is shown. Another example of the strong role played by the member states is their cooperation on a bilateral basis, by which they circumvented the Commission-led process of energy liberalization. The tie between Germany and France is of particular interest here because it still has repercussions today. At the beginning of the cooperation was a dispute, actually. France was interested in exporting its excess nuclear generated electricity, but Germany, otherwise an ideal export market, struggled to protect its own coal 295 Matláry, J.H. (1997), p White Paper: An Energy Policy for the European Union, COM(95) Matláry, J.H. (1997), p

103 production. The Jahrhundertvertrag a political agreement between German coal producers and electricity generators, besides forming the core of the German energy policy at the time, was also an important means for maintaining social balance. France s export drive and Germany s reluctance to import at first created tensions between the two countries, but in 1989, a groundbreaking deal was concluded between H. Kohl and F. Mitterrand, which in a way preempted the Commission s internal market program. France and Germany agreed to open their energy markets to one another, but on a basis of negotiated agreements between the main utilities. As opposed to the internal energy market program, such liberalization did not threaten the existing sectoral arrangements (i.e. their large integrated energy companies). Unsurprisingly, at present the two most vocal opponents of ownership unbundling, which is part of the third liberalization package to be discussed in the next section, are France and Germany. Although the Commission s approach and the internal energy market program, with third-party access as the main controversy, prevailed eventually, France and Germany, as well as other member states, were able to modify the directives considerably in their favor. A very clear example of such input by the member states is the Single Buyer model that the Commission was forced to incorporate in its gas and electricity internal market proposal. Hence, rather than strict, invariable instructions, which characterized the Commission s initial proposals, the directives basically offered a framework for further liberalization of the electricity and gas sectors, with substantial freedom for the member states to choose pace and regulatory measures. 298 The strong influence of the member states on energy policy-making in the decade is thus undeniable, and what is more, inconsistent with the neofunctionalist framework. Therefore, let us turn to a different approach, one that would highlight the important role of the member states. According to some scholars, 299 the liberal intergovernmental approach can explain at least part of the policy-making process in the given period. 298 Eikeland, P.O. (2004) 299 Eising, R. (2002) 103

104 A liberal intergovernmental explanation The liberal intergovernmental approach theorizes the policy-making process as one dominated by the member states, but at the same time, it allows for a minimal role of the supranational institutions and for the inclusion of interest groups, at least in the preference formation stage of policy-making. It is important to remark that interest group activity at the national level did not cease with the formation of larger organizations representing the respective interests in Brussels. Quite conversely, it remained strong, and, to a great extent, influenced the demands and bargaining positions of the member states. In the energy sector especially, there are good reasons to expect that the member states would base their preferences on the domestic sectoral structures because these have displayed a high degree of stability in the post-war period. The energy sectors in France as well as in Germany were ideally set to be defended by their respective governments. 300 An almost classic example of the connection between energy utility interests and government preferences is that between the government of France and the national electricity giant Electricité de France (EdF). The interests of the company were truthfully mirrored by the Ministry of Industry, which acted as a sponsoring department for the utility. 301 Initially, the interests of EdF included more cross-border trade, as was already mentioned earlier, for reasons of excess generating capacity. As a result, the ministry initiated a Community investigation into the German coal sector with a view of forcing Germany to give up its preferential treatment of domestic coal producers and to import French nuclear electricity instead of producing its own from coal. Shortly thereafter, however, in 1988, when the Commission embraced the idea of energy market liberalization and pushed forward with the third-party access concept, EdF realized that the program would endanger its traditional sectoral organization. This, in turn, produced a reaction by the ministry, and France began to emphasize its need to preserve national autonomy in energy supply and the public service role of EdF, 300 Eising, R. (2002), p Eising, R. (2002), p

105 instead of cross-border trade. 302 So, although there were competing views towards the European liberalization process, both among the French interest groups and within the French government, the final preferences of the French government were represented by the Ministry of Industry as the responsible department in the ongoing negotiations, whose preferences were in turn strongly shaped by the demands and expectations of a large domestic company. Although the German electricity sector was organized differently from the French, with several large companies and a multitude of regional and local producers, the German government also responded to the demands of the strongest players for the maintenance of the existing arrangements. Indicative of this is the transfer of the most important structural components of the sector to the eastern part of Germany after reunification, whereby the government relinquished an opportunity for a thorough reform in line with the European liberalization program. The gas sector in Germany, represented by Ruhrgas, similarly pressured the government to resist the market liberalization and, for example, managed to achieve the delay of the gas transit directive until The subsequent directive on the internal market in gas was even further delayed, so successful was the gas sector, not only in Germany, but in all continental Europe, in enlisting the support of the governments. 304 Further, the activities of the German coal sector can also be seen as fitting into the liberal intergovernmental scheme and the two-level game concept. The issue at stake was the Jahrhundertvertrag, which maintained the coal production in Germany far beyond its effective levels. The domestic interests split with the mining circles, which were defending the existing structure with arguments about the security of the energy supply and social balance. On the other hand, energy intensive industries stressed the need for competition and lower energy prices. The German government found itself under pressure from both groups, and on top of that, Brussels was pushing forth its liberalization plans. While the government recognized the necessity 302 Eising, R. (2002) 303 Matláry, J.H. (1997), p Andersen, S.S. (2000a) 105

106 of reform, it was constrained on the domestic front not least because of the electoral backlash that would follow in the mining regions. So, compulsion from Brussels was not unwelcome. 305 In the ensuing bargaining process, the German government was able to exploit the situation at home and defer the strict application of the Community competition legislation to its coal sector. Likewise, the compulsion from Brussels served as an alibi for the government to launch the desired reform. The liberal intergovernmental approach viably explains quite a few features of policy-making in the period: the strong role of the member states, their bargaining positions vis-à-vis the energy liberalization program derived from the domestic energy sector interests, as well as the interplay between the European and domestic levels. In its account, the resistance of the member states to the internal energy market and its protracted realization should be seen as a result of the underlying domestic energy interests. However, the approach cannot sufficiently account for the fact that the liberalization directives were, in the end, adopted by the Council (i.e. it cannot explain why liberalization progressed at all). A change of attitudes is noticeable when some member states, previously critical of energy market liberalization, and TPA especially, came to endorse the process and eventually went beyond the directive s requirements to open their domestic markets. 306 Belgium, the Netherlands, Spain, Germany, Denmark and Luxembourg were initially skeptical of the TPA, but on the basis of EU negotiations, they either opened their markets to competition entirely (Germany in a single step), or significantly surpassed the requirements of the EU directives on gas and electricity adopted in 1996 and 1998 respectively. Even though it is important to note that in every member state there was a section of the domestic interests favoring the TPA and the internal energy market, such reversal of government preferences is improbable purely on the basis of a domestic interest group competition. The pro-liberalization coalition of industry consumers and potential competitors remained weaker 305 Padgett, S. (1992), p Eising, R. (2002) 106

107 than the incumbent utilities, and most governments remained skeptical. 307 Moreover, LI assumes that the governments enter the negotiations with a defined set of preferences, which may be bargained out later, but not changed during the course of negotiations (see 2.4.). Secondly, there is a discrepancy between the theoretical role and the actual role of the Commission in LI. The entrepreneurial and mediating role played by the Commission, a factor that was highlighted earlier, does pose a problem for the approach. For one thing, the Commission did not serve as a mere facilitator of interstate bargaining; it was a part of it. If the bargained preferences of the member states were to shape the outcome of the energy liberalization program, the latter would look somewhat like the deal reached between the German and French utilities- it would have liberalized crossborder trade, but it would not have introduced competition with third-party access in the energy sector. The outcome of the policy-making process was strongly influenced by the Commission, not least because of its role as agenda-setter. The negotiations to a large extent took the form of support of or resistance to the Commission proposals. Therefore, the weight of the supranational institutions in policy-making must be viewed as on par with that of the member states. From the above, it is reasonable to expect that neither LI nor realism as intergovernmental approaches will provide a workable explanation of the policy-making process of energy liberalization in the decade between 1988 and On the other hand, an analysis on the basis of multi-level governance might not only rectify the biases of the liberal intergovernmental approach and neofunctionalism, but also illuminate other important elements in the policy-making of the decade Multi-level governance The central claim of multi-level governance is that there are multiple layers of decision-making, which include a variety of actors- public, private, national, supranational and subnational. Looking at the above analyses of the policy-making process, it must be acknowledged that this was the case in the 307 Eberlein, B. (2008) The making of the European Energy Market: The Interplay of Governance and Government. Journal of Public Policy. 28(1): 73-92, p

108 decade under discussion. National governments, supranational institutions (mainly the Commission, but also the European Parliament and the European Court of Justice), and interest groups (both national and European-wide) all played a role. Moreover, the nature of the energy sector required the Commission to directly deal with the private energy companies, as the latter preferred direct contact with the various DGs officials in order to influence their future regulatory environment, virtually bypassing the national governments. 308 Further, the theory contends that a shift of authority occurs from the national level to supranational or subnational levels, which diminishes the power of the national governments. This means that the Commission as a supranational institution accumulates competencies beyond the original treaty framework, acts as a focal point for information and fills the role of agenda-setter. The expansion of the Commission s competence in energy policy was a direct result of the changes in the energy field in the period from 1988 to1998. To a great extent, this was the result of the Commission s policy gap-filling. The internal energy market program, by which the Commission launched a reform of the energy policies of the member states, was not initially envisaged as a part of the general single market scheme agreed to two years earlier. Rather, the Commission used the ambiguity of the treaties and the new institutional context to include the energy sphere into the single market program. Firstly, the shift consisted of a more rigorous application of Community competition legislation to the energy sector that had been largely unaffected until then. Supported by the rulings of the ECJ, the Commission acquired responsibility for the proper functioning of the energy market. Secondly, the electricity and gas internal market legislation extended this competence to oversee the creation of a single energy market. In the environmental sphere, although not dealt with in detail in this paper, the Commission spearheaded the carbon tax. Even though the tax proposals were unsuccessful, they laid the foundation for a future Community action in 308 Fairbrass, J. (2003) The Europeanization of Business Interest Representation: UK and French Firms Compared. Comparative European Politics. 1(3):

109 regards to carbon emissions. Lastly, the project of the European Energy Charter laid the foundation for an international role of the EC in the field of energy supply security. Considering that in 1973 the Commission was barred from leading international energy policy talks, this was indeed a shift in the extent of Community competence. The internal energy market, environmental sustainability and the security of supply are the three pillars of the present EU energy policy, the core of which formed between the launch of the internal energy market program in 1988 and the adoption of the gas market directive in In this, the Community went beyond the original treaty framework- for energy policy was not an explicit part of it at the time. The transformation of the EU energy policy paradigm weakened the role of the government and strengthened the energy companies and the role of Community law. 309 On the other hand, though, it is evident that the member governments did not let their authority slip without a fight. The facts that the energy mix of the member states is still a forbidden zone for the EU and Community energy policy was twice refused to be included into the formal treaty framework illustrate the point. The Commission s role as mediator and the initiator of policy has already been described above. What has not been described is how the Commission could act as a focal point for information. Energy policy is a highly complicated issue, and especially the internal market creation is filled with technicalities, such as the technical feasibility of grid interconnections, that require expert solutions. By including the representatives of various interest groups in its working groups, the Commission gained access to such expert advice and became a focal point of information. Its reports and policy papers thus largely serve as reference documents for the parties involved in energy policy-making, including the member states governments. Turning to the role of interest groups, the use of the MLG framework for analyzing the policy-making process of electricity and gas market liberalization resolves also the issue of their lobbying strategy. While 309 Andersen, S.S. (2000a) 109

110 neofunctionalism was biased in favor of transnational interest groups and credited them with the most influence, the liberal intergovernmental approach, on the other hand, theorized interest groups merely at the stage of national preferences formation. The multi-level governance approach asserts that the interest groups pursue a strategy of dual lobbying- at both the national and European levels. This means that through the MLG framework, both the strong national energy lobby and its influence on the domestic politics and the formation of Brussels based interest groups can be incorporated into the analysis. Lastly, the previous approaches failed to highlight an element in the policy-making of this period, which is the consensual nature of decisionmaking. While intergovernmental approaches see the decisions as outcomes of bargaining, and neofunctionalism stresses the linkage factor as an important part of decision-making, the governance approach emphasizes a continual negotiation process with no stable hierarchical structures. A case in point was the choice by the Commission regarding the legal basis for the electricity and gas directives. Out of several options, one possibility was Article 90, which allowed for a unilateral action by the Commission against electricity utilities and was favored by the Directorate General Competition. The rather straightforward proceeding, however, would have likely raised the resistance of the member states against the activities of the Commission. So, the Commission as a whole chose to proceed according to the cooperation procedure required by Article 100a of the SEA, which was rather complicated in that it involved a variety of actors, and member states would have a major say. 310 With this procedure in place, consensus was basically necessary for the adoption of the directives, but on the other hand it was guaranteed that the consensual decision would keep everybody in on the internal energy market. And that was a priority. To summarize, the development of EU energy policy in the period between 1988 and 1998 is consistent with the theoretical framework derived from the theory of multi-level governance. Neither neofunctionalism, nor the liberal intergovernmental approach could capture the full extent of relations 310 Eising, R. (2002), p

111 between the various actors in the policy-making process, although they did provide some rather valuable insights into the work of the Commission, and the influence of national interest groups, respectively. MLG accurately captures the snowball-like accumulation of Commission powers on account of the member states, but also the resistance and constraining efforts of the latter in the face of the developments. Finally, the theory can reflect the departure from the hierarchical model of interaction towards the nonhierarchical governance The development of EU energy policy after the year 2000 The developments of the preceding period ( ) confirmed that energy policy cannot be understood as a strictly national matter, but rather, as a relevant subject for the EU policy and political apparatus. The Commission emerged as an equal partner for the member states in policymaking in all three pillars of energy policy, which at the same time renders the intergovernmental approaches towards explaining the development of EU energy policy redundant. This section will argue that, conversely to the intergovernmental premises, the diffusion of power away from the central member states governments continued in the post-2000 period. Although the shift of power to the supranational level has not been as pronounced, with the Commission having already secured the mandate to create an internal energy market in the protracted negotiations of the preceding decade, the move towards governance continues with the gradual shift of regulatory power to sectoral organizations. The associations of private and state-owned companies or subnational independent agencies in the electricity and gas sectors emerge in this period as increasingly important actors in energy policy-making. Their activity, however, goes beyond the neofunctionalist assumption of transnational groups lending support for the supranational integration scheme. Instead, as will be shown below, these groups have actively participated in the creation of their own regulatory environment, sometimes even on a voluntary basis. Therefore, the multi-level governance approach best explains the policy-making in this period. With the accomplishment of the first round of liberalization, and the accompanying developments in the security of supply and environmental 111

112 pillars, energy policy definitely became a subject of European policymaking. However, after that, at the turn of the millennium, the political will for further integration in this area was desperately lacking. The protracted negotiations concerning the first round of electricity and gas directives left the Commission, the member states and the sector exhausted and disappointed to various extents. First of all, the Commission was forced to make significant concessions from its original proposals when the third-party access principle was diluted by acknowledging three possible models for its enactment- the regulated access, negotiated access and Single Buyer model. Secondly, the level of opening of the markets differed across the Community. While some member states have opened their markets entirely, or above the limit set by the directives (for example the UK, Spain, the Netherlands, or Germany), 311 most notably France and Italy opened their markets to competition only to the minimum extent required. Moreover, in the latter group, the dominant position of a single utility on the domestic markets led to constraints on competition. As a result, the landscape of the energy sector in the EU converged little, and more than stimulating competition, the free movement obligation, coupled with an unequally liberalized market, effectively gave a premium to the members who that liberalized only to the bare minimum. 312 Thirdly, the implementation of the European directives is in the competence of the member states. Unsurprisingly, given the loose framework of the electricity and gas directives and the leeway left to the member states, the pattern of implementation was very diverse across the Community. For example, the requirement of an independent system operator for both gas and electricity transmission was interpreted and implemented in a number of ways in the various member states, ranging from a completely separate legal entity (Italy), through an independent state-owned company (Ireland), to an organizational part of incumbent utilities (France), etc. The result of this was a patchwork as regards the powers of regulators, their responsibility and their 311 Europe: Gearing up for energy liberalisation. Economist Intelligence Unit- Business Europe. 29 October Competition: Prodi set to discuss EdF market issues with French leaders. Europe Energy, 29 May

113 independence. Moreover, the multiplication and uneven development of the national regulators posed considerable problems for their coordination and cooperation at the European level, leading possibly to even greater divergence in the implementation of future regulatory directives. Considering all the above problems, for the internal energy market to be developed, it was imperative that the rules applied to the internal energy market be more uniform and that there be greater coordination of activities and regulation at the European level. However, to be sure, the Commission does not pass legislation, and its competence in this area was considerably constrained. The Commission faced a regulatory dilemma not uncommon in the EU polity: On the one hand, increased uniformity is certainly needed, on the other hand, greater centralization is politically inconceivable. 313 In regards to electricity and gas regulation, the political impossibility of any centralization in regulation had already been shown earlier, in the 1990 s, when calls had been made for independent Euro-regulators. 314 The calls met with opposition then, just as they did again in 2006 when the idea was resumed by the Energy Directorate ahead of its Green Paper on energy. 315 So, as an alternative to Euro-regulators, regulatory coordination has been encouraged to promote the emergence of a European power grid. In 1998, the European Electricity Regulation Forum had its first meeting in Florence, hence the name the Florence Forum. A year later the European Gas Regulation Forum was formed in Madrid (the Madrid Forum). Also in 1999, the association of European Transmission System Operators (ETSO) was put into place. These forums do not only simply represent the interests of the respective parties, but convene all the stakeholders- the national regulatory authorities, the Commission, member states, transmission system operators, electricity and gas traders, consumers, network users, etc. - to discuss the internal energy market. An even broader platform is represented by the Council of European Energy Regulators (CEER), which started in 313 Eberlein, B. (2008) The Making of the European Energy Market: The Interplay of Governance and Government. Journal of Public Policy. 28(1): 73-92, p Coen, D. - Thatcher, M. (2008) Network Governance and Multi-level Delegation: European Networks of Regulatory Agencies. Journal of Public Policy. 28(1): EU Energy Commissioner Suggests European Energy Regulator. Dow Jones International, 9 February

114 2000 as a voluntary cooperation framework of national energy regulators. Not unsurprisingly, the Florence Forum played a vital role in federating the national energy regulators in CEER. Through such activities, the Forum succeeded, not only as a talk-shop for the regulators and those to be regulated, but also in contributing to the building of EU-level sector institutions necessary for the organization of an integrated EU energy market. 316 Moreover, all of the above organizations have vital international connections through the participation of representatives of Norway, Iceland or the USA at the meetings of the Forums. CEER also maintains links to international and regional regulatory authorities. While the above Forums and the CEER certainly serve as important discussion platforms by involving all the relevant players in the sectors, they remain very weak in their formal competence. This, of course, does not mean that they wield no strong informal influence, for example through technical expertise otherwise unavailable to the EU institutions. Nevertheless, the process towards greater decentralization of regulatory powers continued throughout the period with more formalized networks to assist the Commission in the creation of an internal energy market. In 2003, the European Regulators Group for Electricity and Gas (ERGEG) was established by the Commission as its official advisory body on energy issues. It is made up of national energy regulatory authorities of the EU s member states, so the responsibilities and mission overlap with those of the CEER to a large extent. However, as a formal Commission advisory group, the ERGEG has the possibility (and duty) to participate in the preparation of draft legislative measures in the fields of electricity and gas and to facilitate the consistent application of them in the member states. The timing of the creation of the aforementioned Forums roughly corresponds with the greater shift of regulatory capacity from the national to the European level through the accomplishment of the first stage of European internal market formation. In the new situation, all parties had an interest in mutual consultations and the gathering and disseminating of information, in order to adapt as well as possible to the changing regulatory environment. 316 Eberlein, B. (2008) 114

115 Early in the 2000 s, moves towards greater formalization of networks and increased competence delegation corresponded approximately with the second round of liberalization directives, adopted in Finally, the formalization effort has for now culminated in the current, third, liberalization package. The package comprises three possible options to reinforce the regulation at the EU level: the powers should either be given to the Commission, a new European regulatory entity, or to the strengthened ERGEG. Although the prospects for the first two options to be adopted look dim, at the minimum, the existing network of national regulators should still be given a formal mandate and powers to make binding decisions that are implemented by national regulators. 317 Although hierarchy remains strong in terms of the formal position of these EU-level sectoral forums in the decision-making structure, they may be able to overcome this weakness by developing informal resources and linkages. These could include information, expertise, reputation, and trust. As a result, their actual power may be much greater than their formal position. 318 To give an example, the rules concerning third party access to gas networks began originally as voluntary guidelines agreed upon by the industry and regulators. 319 These were taken up by the Commission, and in 2006, they took effect in the form of a legally binding regulation. 320 Such self-regulation presents an example par excellence of the emerging system of policy-making in the sector, which can be described as sectoral governance. The trend towards formalization of these networks and more transgovernmental cooperation, as demonstrated by the ERGEG, does not pose a danger to governance as a mode of sectoral policy-making. Conversely, the process involves a greater delegation of powers to the European Regulatory Networks (ERNs), as they are termed in the subject literature, 321 increasing their significance in European energy policy-making. Government actors (including the Commission) typically lack the specific 317 Ever closer union? Moving forward in the single market. OECD Economic Surveys. September Coen, D.- Thatcher, M. (2008) 319 Pressure on to complete single EU energy market. Energy Economist, 1 April Regulation of the European Parliament and of the Council on conditions for access to the natural gas transmission networks, 1775/2005, 28 September 2005, Coen, D.- Thatcher, M. (2008), p

116 knowledge and capacity to flexibly adjust to the volatile environment, which is why the delegation of power to the ERNs is crucial for developing sound policies. 322 Moreover, the informal networks and forums continue to exist alongside the more formalized ERNs. As has been shown, the governance approach towards energy market regulation has several advantages. It serves well the desired end of greater coordination at the European level and uniformity in the implementation of European energy legislation without the centralization of regulatory competence in the Commission, the prospect of which has regularly produced resistance by the member states. Furthermore, the solutions to regulatory problems offered by the sectoral organizations are more likely to reflect the interests of the relevant stakeholders than would simple top-down regulation, bringing consensual decision-making to the fore. In this way, the inclusion of sectoral governance actors in the policy-making process is a source of legitimacy for the policy s results. 323 On the whole, in technically complex areas, such as energy or environment, self-regulation by industry constitutes a mode of governance that is frequently invoked as being better. 324 It is important to note that the developments in the energy sector are not isolated from the greater changes in the European policy-making pattern. Similar development towards governance has been observed in the telecommunications sector with the establishment of the European Regulators Group for Telecommunications and the Committee of European Securities, regulators for securities. 325 The policy-making in the post-2000 period in the field of energy regulation corresponds with the multi-level governance framework as set out in the previous chapter (see 2.5.). Three key elements of MLG are present in the pattern described above. Firstly, there is the linkage of actors from different institutional levels- national, EU-level and international- and both the private and public sectors as demonstrated by the Florence and Madrid 322 Eberlein, B. (2008), p Eberlein, B. (2008), p Héritier, A.- Eckert, S. (2008) New Modes of Governance in the Shadow of Hierarchy: Selfregulation by Industry in Europe. Journal of Public Policy. 28(1): , p Coen, D.- Thatcher, M. (2008) 116

117 Forums, as well as the CEER and the ERGEG. Secondly, the power of the member states has been eroded by the delegation of considerable regulatory powers to independent national regulatory agencies (i.e. subnational actors), as required by the 2003 directives on gas and electricity. Subsequently, the member states were bypassed by the establishment of organizations at the EU level whose main role is linking and coordinating actors. In these sectoral organizations, member states are merely stakeholders along with the regulators, transmitters, consumers, etc. The third element concerns the change from a hierarchical towards a more consensual mode of policymaking, governance Conclusion Going back to the research question about what actors, interests and processes were dominant in the four stages of energy policy development, we can state the following: In broad terms, the European Union s energy policy has developed from an intergovernmental issue to a policy characterized by the interplay of various actors at different levels having diverse interests. In the first stage, from the establishment of the ECSC until approximately the mid 1960 s, the member states dominated the agenda of energy. Although two of the three Communities primarily dealt with energy, neither was in a state to found a solid base for a Community energy policy. This was due to the diverging economic interests between the ECSC and the member states and the states themselves in the case of EURATOM. The lack of progress in energy policy can be explained by using the liberal intergovernmental approach. It accurately accounts for the influence of the domestic interest groups on the formation of the member states positions, the dominant role of the member states in the European arena, and the negotiated outcomes. It the second stage, the volatile international situation of the period from approximately the late 1960 s until the early 1980 s forced the member states to apply strategic considerations to their interaction. The policy-making in this period was clearly dominated by the member states, whose main interest was to secure reliable supplies of energy for themselves. Other actors played 326 Coen, D.- Thatcher, M. (2008), p

118 minor roles, which gives relevance to the claim that the interaction bore the features of a realist framework. The shift in the balance between the national and supranational levels came with the start of the energy liberalization process in the third stage of energy policy development. The drive of the general internal market pulled energy policy closer to the EU-level, with the Commission significantly expanding its role on account of the member states. The supranational activism, the deep involvement of national and EU-wide interest groups, as well as the consensual mode of policy-making suggest a transition towards multi-level governance in energy policy. However, the transitory character of this period should be highlighted, as the member states still appeared as superior actors. The structure of the EU s energy policy field definitely worked out in favor of the multi-level governance approach in the post-2000 period, which saw the proliferation of sectoral organizations designed to bring the relevant players together in mutual consultations. Since the relevant actors include both private actors, such as large energy and industrial companies, energy traders and consumers, and public actors, such as member governments and the Commission, the hierarchical structure of policy-making is being gradually dissolved by the governance mechanisms. 118

119 Conclusion The question posed at the start was, What theoretical framework could explain the changes that occurred in the area of energy policy? That is, what was the dominant pattern of interaction among the actors, who were these actors and what were their interests? In this paper, we have seen how the EU s energy policy developed from an intergovernmental enterprise into a multi-dimensional and multi-layered system of policies, actors and interests. Such a statement suggests that there is no one single theory that can explain the entire course of development of the EU s energy policy because the changes in the field have been too profound. However, it is possible to explain the pattern of policy-making in the particular periods of the development. In the beginning there was the intergovernmental bargain about the establishment of the European Coal and Steel Community and the European Atomic Community. Neither Community, however, managed to lay the basis for a consistent energy policy in a unified Europe. Contrary to the popular understanding of European integration as the result of a spill-over process spearheaded by a supranational body, energy policy firmly remained on an intergovernmental basis. The decisive actors were the member states, whose positions in regards to energy policy were derived from the competing interests in their domestic arenas. There, the manufacturing industrial interest in cheap energy prevailed over the interests of the coal industry, which was denied protection advocated in the proposals for a European energy policy. In other words, the adoption of an energy policy was not in the interest of the member states. Hence, the failure to adopt an energy policy at the European level can be viably explained using the liberal intergovernmental approach. The subsequent period only reinforced the tendencies toward national solutions of energy problems, as blatantly manifested by the reaction of the member states to the oil crises. The attempts to establish an energy policy for the Community broke down in the face of the resistance of the member states to relinquish their control over the strategic energy sector, the significance of 119

120 which was even more exacerbated by the crisis conditions. Moreover, the differences in the structures of the sector across the Community posed major hindrances to the realization of a European-wide energy policy. The role of the Commission and domestic interest groups was minimal in this period, when security concerns prevailed over the economics of energy policy. The primary role of the member states, their concern about national security, and the minimal role of the supranational or subnational actors point to realism, which best explains the pattern of interaction in this period. The launch of the internal market meant a breakthrough in the understanding of energy policy and enabled the development of energy policy into its current three pillar structure. The impact of the 1992 program on the energy sector was profound. Firstly, by venturing the internal energy market, a process of structural convergence of the member states energy sectors was launched, which is certain to alter the preferences of the member states in the future regarding the EU s energy policy. Secondly, by pulling energy into the internal market program, the Commission expanded its power in the sector, decisively changing the balance between the main actors in the sector. The empowering of the Commission meant also the proliferation of interest groups targeting the EUlevel directly with their demands, expertise and influence, although the conflict of interests in the domestic arenas and the importance of the member states diminished little. Nevertheless, the mode of interaction in energy policy has changed, and intergovernmental approaches cannot account for this change. Rather, it is contended that policy-making in this period can be theorized as a transitory phase towards a complex web of energy policy actors, which corresponds with the multi-level governance approach. The last period was characterized by the building up of the internal energy market both in size and depth, increasing the complexity of the issue area. With it, however, came changes in the nature of policy-making in the sphere of energy, when the Commission and the various subnational groups gained an importance not envisioned before. Energy policy, now definitely a European policy, is decided about in lengthy consultations, which are designed to bring the relevant actors together in order to find a consensual 120

121 solution for the policy problems. The relevant actors include as much the member states as the Commission, other EU bodies, private companies, nongovernmental organizations, sectoral associations and the representatives of consumers. The interplay between the private and public interests, and between the international, European, national and regional levels, makes the multi-level governance approach more than pertinent to the contemporary EU s energy policy. Drawing on these conclusions, intergovernmentalism explains the cooperation over coal (and steel) policy, as well as the blocking of the further development of this cooperation into an energy policy, by pointing to the common interests of the member states. The common interest in the reconstruction of post-war Europe materialized with the establishment of the ECSC, but the lack of the overlapping interests later is consistent with the lack of a European energy policy up until the 1980 s. The success in the establishment of the EU s energy policy in the 1990 s, though, cannot be explained by a convergence of interests only. The entrepreneurship of the Commission, as well as the impact of the changes in economic thinking, played a key role that is not consistent with a strictly intergovernmental view. From that point on, energy policy should be viewed as an exercise in multi-level governance, which is also illustrated by the way it emerged incrementally without there being an actual explicit treaty base for it. This, however, also points to the last safeguard of the member states, which is their capability to alter the formal treaty provisions. The member states for a long time hesitated to give the Commission the formal competence to create an EU energy policy. Even on this issue, however, the member states yielded and the Lisbon Treaty will lay a basis for such a policy, unless it encounters the fate of the Constitutional Treaty. The future of energy policy in the European Union, however, does not depend on a chapter in the Lisbon Treaty, which only consolidates the existing policy under one heading. Rather, it depends on the successful creation of an internal energy market, which is a critical precondition for Europe being able to speak with one voice on energy. 121

122 The future of research in the area of energy policy rests in the successful exploitation of the arsenal of theories offered by European integration studies. The field certainly presents a challenge for constructivism and the post-modern paradigm. Although several attempts have been made to theorize the adoption of the gas and electricity liberalization directives through the constructivist lenses, the development of energy policy prior to and after this period could also offer valuable insights. Total pages of text 114 Total characters of text (without spaces) Total characters of text (with spaces)

123 Resumé Vychádzajúc zo zistení tejto práce o vývoji energetickej politiky EÚ, medzivládne prístupy najlepšie vysvetľujú vznik spolupráce v oblasti uhoľnej a oceliarskej politiky, ako aj zastavenie ďalšieho vývoja tejto spolupráce smerom k energetickej politike. Spolupráca v týchto oblastiach bola založená na existencii spoločných záujmov, čo v prvotnom období integrácie bola rekonštrukcia vojnou zničenej Európy. Následná absencia prekrývajúcich sa záujmov členských štátov v oblasti energetiky je v súlade so stagnáciou vývoja energetickej politiky až do konca 80-tych rokov. Opätovné oživenie Európskej energetickej politiky prostredníctvom jej zapojenia do programu vnútorného trhu však už je len ťažko vysvetliteľné len konvergenciou záujmov členských štátov. Aktivita Európskej komisie, ako aj zmeny v ekonomickom myslení zohrávali dôležitú úlohu, čo sa však už nezhoduje s prísne medzivládnym pohľadom na energetickú politiku. Prístup viacúrovňového vládnutia, ktorý zdôrazňuje prepojenie rôznych úrovní rozhodovania a rôznych typov aktérov (verejných aj súkromných) v jednom procese, je vhodnejší na vysvetlenie spôsobu, akým v súčasnosti prebieha tvorba energetickej politiky. Výrazom toho je tiež postupné budovanie energetickej politiky EÚ bez jej jasného zmluvného ukotvenia, takpovediac za chrbtom členských štátov. Zároveň sa tým však poukazuje na dôležitú páku členských štátov, ktorou je ich právomoc zmeniť ustanovenia zakladajúcich zmlúv. I v tomto smere sa však už ľady pohli a po viac než päťdesiatich rokoch sa aj energetická politika dočkala samostatnej kapitoly v reformnej Lisabonskej zmluve, ktorá formálne kladie právny základ energetickej politike EÚ. Pokiaľ ju teda nestihne osud Zmluvy o ústave pre Európu. 123

124 Summary The thesis The Development of the European Union s Energy Policy: A Theoretical Analysis presents a detailed account of the building of a European energy policy agenda and analyzes the policy-making in this policy area using four theoretical perspectives- neofunctionalism, realism, the liberal intergovernmental approach, and the multi-level governance approach. The first two periods of the energy policy development, between the establishment of the three Communities and the middle of the 1980 s, are characterized by a dominant position of the member states in policy-making. Intergovernmental bargaining, in which neither the European institutions nor transnational interest groups played any major role, was the main mode of interaction. The lack of progress in energy policy in the first period (from the establishment of the ECSC until approximately the mid 1960 s) can be explained by using the liberal intergovernmental approach. It accurately accounts for the influence of the domestic interest groups on the formation of the member states positions, the dominant role of the member states in the European arena, and the negotiations outcomes. In the subsequent period of the oil crises, however, strategic considerations and security concerns prevailed. The main interest of the member states was to secure reliable supplies of energy for themselves, which points to a realist framework. The developments in the last two periods, on the other hand, cannot be explained as a result of intergovernmental bargaining only. The supranational activism, the deep involvement of national and EU-wide interest groups, as well as the consensual mode of policy-making suggest a transition towards multi-level governance in energy policy. The interplay between the private and public interests, and between the international, European, national and regional levels, makes the multi-level governance approach more than pertinent to the contemporary EU s energy policy, in which the hierarchical structure of policy-making is being gradually dissolved by the governance mechanisms. 124

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138 Annex Graph 1: EU-27 Total Primary Energy Supply (2004) Source: EU Energy Policy Data. Commission Staff Working Document. SEC (2007) 12, 10 January 2007, p. 8 Graph 2: EU-27 Origin of Natural Gas (2004) Source: EU Energy Policy Data. Commission Staff Working Document. SEC (2007) 12, 10 January 2007, p

139 Graph 3: EU-27 Origin of Oil (2004) Source: EU Energy Policy Data. Commission Staff Working Document. SEC (2007) 12, 10 January 2007, p. 12 Graph 4: EU-27 Origin of Hard Coal (2004) Source: EU Energy Policy Data. Commission Staff Working Document. SEC (2007) 12, 10 January 2007, p