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European Affairs
Special Report: Transatlantic Approaches to Energy Policy
There Is Plenty of Scope for Transatlantic Energy Cooperation
By Christel Möller
Following the terrorist attacks of last September, the citizens of Berlin came together in an impressive demonstration at the Brandenburg Gate to show our solidarity and to make clear we have not forgotten America's role in our own development.
In situations like this, friendships based on a solid foundation of shared experiences are more important than ever. Amongst friends, one can afford to be frank and honest. We can be open about the differences between our national energy strategies.
We can particularly afford to be frank with each other since the overall energy policies of our governments have more common features than differences. I believe that we need to be frank if we are not only to manage the differences, but are also to use them productively for greater cooperation.
Let me highlight three things we have in common. Firstly, we totally agree that energy policy has acquired a new strategic significance for the development of our economies. The current political situation, the price volatility on the world's oil markets in the last two years, and regional shortages have focused attention on how dependent our industrial growth and prosperity are on energy supplies, particularly on oil - not only in the United States but also in Europe.
The attacks on the World Trade Center and the Pentagon also help to remind us of just how vulnerable our cultures and lifestyles are. This makes it even more important to have not only short-term response options, but also a shared long-term outlook. That is the way to deal with crises.
One expression of this awareness is that, almost simultaneously, major industrial countries are presenting fundamental analyses of their future energy policies: The European Commission has placed energy security on its agenda again, while the United States formulated its national energy strategy in May 2001.
The UK is reviewing its national energy policy, and Germany has recently published an energy report with long-term analyses of the future development of energy policy following the decision to phase out nuclear power.
The second thing we have in common is that we fully agree that energy policy must be a key focus of foreign policy, both now and in the future, in order to minimize risks to physical supplies and to prevent price shocks affecting our economies. Germany therefore welcomes and supports the involvement of the United States in international organizations such as the International Energy Agency (IEA) and the International Atomic Energy Agency (IAEA), as well as its efforts to foster a producer-consumer dialogue with the OPEC countries.
I greatly admire the policies pursued by the United States and Secretary of State Colin Powell following the terrorist attacks, stressing partnership as much as possible and following a differentiated approach. They were an example of the art of politics at its best, with great far-sightedness and shrewdness, and they have saved us much trouble on the energy front. Even if we were, and are, already prepared for critical situations - through the IEA - I hope that we shall not have to implement the crisis mechanisms. But if we have to, we shall be prepared.
The third thing we have in common is that we fully agree that climate protection will need to be a high priority if our energy policies are to have a viable future. This creates a complex problem for all the industrial economies: We need to strike a fresh balance between environmental demands and economic viability and energy security.
This is true of the United States, it is true of Europe, and it is especially true of Germany. That is not merely because Germans are particularly aware of the environment and because the political party, which is most representative of this trend (the Green Party) forms part of the government coalition. It is above all because Germany leads Europe in cutting CO2 emissions, which were reduced by 15.4 percent between 1991 and 1999. In this respect Germany benefited from a once-only effect in the former East Germany.
Greenhouse gases covered by the Kyoto Protocol have been cut by 18.7 percent - while the economy has continued to grow. With exception of the UK, few other member states of the European Union have achieved such results. If, however, a country leads the way on climate policy but fails to attract any followers, it will not benefit the environment in the long run, nor can the economy sustain it. So Germany is particularly interested in achieving international progress on protecting the climate.
We therefore welcomed the results of the Bonn Climate Summit last summer, and I would like to stress that we are especially interested in a debate with the United States about climate protection and its integration into national energy strategies.
When we look at energy policy in the narrower sense, there are some important differences in the current background for energy policy in the United States and Europe, including Germany. Firstly, Europe is much more dependent than the United States on energy imports. The level of import dependency in the United States is 24 percent, against roughly 60 percent in Germany and 52 percent in France. What is more, Europe will become even more dependent on imports in the next 20 to 30 years - with the German level rising to over 70 percent.
Secondly, in some parts of Germany's energy market, reliance on imports is even greater. It is true that, following the energy crises of the 1970s, our power sector has become less dependent on oil: electricity production is currently dominated by coal, at around 60 percent, and nuclear power, at around 30 percent. The transportation sector, however, is almost totally dependent on oil, and the heating market is dominated by gas (41 percent) and oil (34 percent). Four fifths of our gas is imported, and in 20 years time, it will all come from abroad. This shows clearly that the issue of secure energy supplies is at least as important in Germany as in the United States.
Another important difference is to be found in the energy intensity of the two economies. For roughly the same output per capita the United States uses almost twice as much energy as Germany. Furthermore, the energy intensity of the German economy has been falling continuously for years, by an average of 1.7 percent a year since 1991. This figure places Germany at the forefront internationally: The figure for all members of the Organization for Economic Cooperation and Development was only 0.7 percent over the same period.
So Germany has succeeded in breaking the link between energy consumption and economic growth. That shows that economic growth can go hand in hand with energy conservation - without hurting the consumer. The continuation of this development will play a key role in our national energy policy.
There is another key element that needs emphasizing: Germany's energy markets are saturated. In marked contrast to the United States, most forecasts assume that German primary energy consumption will stagnate or even decline. The United States is working on the basis of a continuing rise in primary energy consumption of an average of 1.4 percent a year.
An important difference with the United States is that Germany's energy infrastructure, fortunately, does not create any scarcity problems. German refinery capacity covers roughly 75 percent of domestic demand for oil products. We even have an estimate 10 percent surplus capacity for power generation.
Following the introduction of competition in our electricity market, power plants are now being decommissioned ahead of schedule. The surplus capacity for Europe as a whole is estimated at about 40,000 MW. And the grid infrastructure already in place for electricity and gas means that Germany is introducing competition into markets with sufficient, high-tech capacity.
A final difference is that Germany has decided to do without electricity generated from nuclear power, for both political and economic reasons. The political reasons include the fact that a technology that is not accepted by the majority of the population is not secure in the long term.
The experience of the Chernobyl nuclear accident had a deep impact on Germany. There were demands that would have involved immediately removing 30 percent of Germany's base-load power production from the national grid. The consensus agreed by the German Government last year with the operators of nuclear facilities aims to continue to use the existing plant at the highest safety level for a specific period for each type of facility. But no new reactors will be built.
The economic reasons include the fact that, according to everything we currently know about future trends, new nuclear power plants with a high safety level are not the most economically advantageous ways of producing power. Compared with coal- or gas-fired power stations, they are among the most expensive investments.
That is a key factor in a competitive European market for electricity. For the next generation of power plants in Germany, which can be expected to be built from around 2010, it can be safely assumed that no plant operator would freely choose to invest in nuclear power.
So the political decision in Germany is following a trend that can also be seen in many other EU member states. In countries like Belgium, Spain and Italy, for example, no new investment has been made in nuclear capacities for years, even though the governments there have no phase-out policies. Finland is the only European member state currently discussing the construction of a new nuclear power plant.
The common aspects of our energy policies are proving very fruitful as we cooperate to secure our energy supply in the international context. And I think that, despite the current differences in our national energy policies, we can expand our cooperation within Europe and with the United States. Here are a few suggestions:
It is clear that, owing to our high level of reliance on imports, the demand management of energy consumption in Germany has been, and will continue to be, a key priority. The European Union is also aiming to set new priorities here. But the German and European measures are not based on forcing consumers to alter their consumption patterns. Instead, the approach is to use technology to achieve higher energy productivity.
Germany, for example, has just issued an ordinance on energy conservation, which requires new buildings to use roughly 30 percent less primary energy. It is up to the investor to decide whether to reach the target by means of improved insulation, high-efficiency heating technologies, improved control systems or new energy conversion systems, such as fuel cells.
In the industrial sector, we have had good experience with voluntary regulation by industry. Such regulation is an essential element of the climate protection program of October 2000.
The eco-tax introduced in Germany is an outstanding example of demand-side management. It aims to make energy consumption gradually more expensive - but to do so in a way that is predictable over the long term, in order to stimulate advances in technology. Germany is working hard to try to harmonize EU energy taxation in Europe, so that member states will move together on this.
The development of technology is also an area of outstanding potential for productive cooperation. Firstly, in view of the importance of coal for power generation in Germany and its impact on CO2 emissions, clean coal technologies are particularly significant. Germany has an efficient plant construction industry.
In the field of energy research, the German Government is promoting projects in which industry and universities work closely together. The aims of the research are to boost the efficiency of power stations, to reduce climate-related emissions (especially CO2 and NOx) and to improve the economic viability of power stations by cutting construction and operating costs.
Secondly, support of the development and marketing of renewable energies is very important in Germany. The German Government has launched a program which embraces traditional forms of investment support, but which also provides for statutory obligations to pay higher prices for electricity generated from renewables. A new priority is the fuel cell, which the German Government is promoting by funding industrial cooperation on scientific research and marketing.
A third major area of cooperation can be competition among networked energy supplies and the regulations covering them. Germany has led the way on the European continent and has fully opened its electricity and gas markets. The former monopoly markets are now becoming competitive markets.
We are facing new issues, particularly in terms of the security and reliability of adequate supplies of electricity and gas at all times. Government policy needs to integrate competitive goals on the one hand and energy security on the other.
This is an area in which the experience of the United States in regulating competitive markets is of great interest to us. I would very much welcome a more intensive debate about the advantages and disadvantages of the various approaches to regulation.
The United States and Europe are both reliant on world markets for major forms of primary energy. This has dominated our co-operation in the past, and it will continue to govern it, for example, in the context of the planned meeting of Group of
Eight energy ministers, or in the framework of the dialogue between the European Union and the United States. But our energy markets are also growing together bilaterally.
In Germany, U.S. power companies are involved in lignite mining and electricity marketing. At the same time, German energy companies are increasingly involved in the United States in coal mining, the water supply and the electricity market. And Wall Street is very important for German energy companies. So there is no lack of multilateral and bilateral issues for an intensified exchange of views. Friendships are cemented through shared experiences. We are ready to play our part.