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A Transatlantic Approach to Europe's Energy Challenges
With trillions of dollars of trade and investment between the United States and the European Union (EU), members of the U.S. Chamber of Commerce, the world’s largest business organization, have a critical interest in the success of the EU’s efforts to boost growth and competitiveness with an energy policy that respects both economic and environmental objectives.
Several factors combine to paint a challenging picture in Europe: dependence on imports for more than half the EU’s energy needs, uncertainty regarding major supplying countries, inadequate infrastructure to foster fully competitive supply systems, and significant carbon reduction goals. Against this backdrop, the European Commission’s new push to build an Energy Union—focused on security and affordability of supply—is welcome. The key goals of the recently released Energy Security Package also are timely: to secure natural gas supply, encourage liquefied natural gas (LNG) imports, and improve Europe’s energy infrastructure and transmission capabilities.
The already strong transatlantic trade and investment relationship can be enhanced by leveraging opportunities in the EU energy market. These six specific steps recommended for consideration by governments would improve energy security and the economic outlook on both sides of the Atlantic:
- The United States should build on the recent action to lift its ban on exports of crude oil by reducing regulatory barriers to the export of LNG to Europe, including passing the bipartisan Energy Policy Modernization Act.
- The EU and member state governments should accelerate efforts to establish a competitive gas market and build needed energy transmission infrastructure, including improved cross-border connections allowing reverse flow.
- The EU and its member states should undertake needed assessments of indigenous resources, including prospective shale resources, and allow industry to demonstrate the safety and reliability of the technology that has proven so successful in the United States.
- The EU and its member states should focus on competitiveness and affordability of energy and should avoid measures that could put existing long-term energy and infrastructure investments at risk.
- Both sides should promote business-to-business and business-to-government dialogue via the EU-U.S. Energy Council and examine opportunities for regulatory cooperation and sharing best practices.
- The United States and the EU should strengthen research and development (R&D) cooperation and increase trade in technology to improve energy efficiency and develop further advances in traditional sources such as coal combustion and nuclear energy.
The U.S. Chamber of Commerce and its member companies stand ready to work with the EU, its member state governments, and the U.S. government to address these issues.
Context: Balancing Objectives in the Midst of Transition
In spring 2015, the European Commission outlined its plans for an Energy Union, setting ambitious goals for the EU energy market around three broad themes: energy security, sustainability, and competitiveness.
The Commission recognizes that the current dependency on limited fuel supply sources, especially in the Baltics and Central and Eastern Europe, has broad economic and geopolitical consequences for industry and consumers alike.
The Commission recognizes that the current dependency on limited fuel supply sources, especially in the Baltics and Central and Eastern Europe, has broad economic and geopolitical consequences for industry and consumers alike. The Energy Union proposal sets aggressive goals for renewable energy and energy efficiency (up to 27% improvement in each by 2030), while noting the need to better integrate the market to achieve increased cross-border flows of energy, especially electricity and natural gas, and improve competition. It also ties the overall effort to the EU’s carbon reduction goals. The Commission has enumerated 15 action points that require further development and implementation by EU institutions and/or the member states in coming years.
Both in the Paris climate talks, where the EU maintained its 2030 reduction target for CO2 emissions of 40%, and in the recently released Energy Security Strategy, the multiple goals of the EU are displayed. Particularly in the Energy Security Strategy, ensuring an adequate and affordable supply of energy is reflected in sections on gas supply regulation, intergovernmental agreements, LNG and gas storage, and heating and cooling.
Achieving balance among intersecting policy actions of this program will be challenging. Clear market signals are essential to investment across the entire energy supply chain. Similarly, energy consumers—both individuals and industry—depend on stable, affordable supplies to support and expand economic activity. When supplies are tight and expensive, job-dependent investment decisions are more difficult. Conversely, when an abundance of affordable energy exists in a regulatory environment that fosters fair competition, investment and job creation follow. Energy prices are a determining factor when deciding whether, when, and where to invest.
Although recent global price declines in energy may provide temporary comfort, history has shown that price increases and volatility can emerge quickly and with profound impact on economies. Long-term projections from the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) show a trend of increased demand of natural gas and oil globally to 2030 and beyond. In the EU, it is expected that oil and natural gas will still account for more than 50% of the EU energy mix in 2030, notwithstanding efforts to conserve or seek alternatives, with imported oil and gas still playing a dominant role, especially as domestic resources decline.
Long-term projections from the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) show a trend of increased demand of natural gas and oil globally to 2030 and beyond.
Officials are motivated to diversify suppliers not only by Europe’s ongoing economic challenges, but also by an overreliance on limited sources of supply and questions of regional stability. Indeed, due to insufficient internal infrastructure, some EU member states are almost exclusively dependent on a single supplier, namely Russia. The EU’s overall dependency on outside producers puts industry and consumers at a disadvantage relative to other global competitors. With this in mind, it makes sense to look across the Atlantic at increased imports of U.S. crude oil and natural gas to improve Europe’s energy security. Fully 53% of the EU’s total energy consumption comes from imports, including 90% of Europe’s crude oil, 66% of natural gas, 42% of coal/solid fuels, and 40% of nuclear fuels. Against this backdrop, policymakers must focus on ensuring adequate, diverse, reliable, and cost-competitive energy supplies. The EU has committed to do so while reducing carbon emissions by 40% by 2030.
Global energy trade is also a factor. As Europe considers its strategic energy position it is also engaged in a major trade negotiation with the United States for the Transatlantic Trade and Investment Partnership. America’s rapidly changing energy fortunes over the past decade stand in stark contrast to the EU’s recent experience.
The North American energy revolution fostered by technology innovations has resulted in abundant supplies of natural gas priced 50%-75% lower than a decade earlier. These same technology advancements have reversed a decades-long decline in crude oil production, restoring some 4 million to 5 million barrels per day (mbpd) of domestic production so that at 9.2 mbpd, the United States is now one of the world’s largest producers of crude oil. The net result of this plentiful energy supply has stimulated what many have called an industrial renaissance, even in the midst of other economic headwinds, including in many U.S. states which had suffered significantly when prices were far higher.
The pace and scope of U.S. energy output have not only significantly reduced imports of crude oil and natural gas, but they also have put the United States in a prime position to be a supplier of both LNG and crude oil to international markets. And just as U.S. refined product exports to Europe currently contribute to supply competition, expanded availability of LNG export facilities in the United States should give the EU more opportunity to diversify supplies, provided there is adequate internal infrastructure and a competitive market.
The Energy Security Strategy acknowledges this opportunity by emphasizing the need to connect underutilized re-gasification facilities with internal markets, especially in the Baltics and Central and Eastern Europe. However, the present U.S. licensing process for approving LNG exports or new export facilities is unnecessarily slow, sending mixed signals to the EU. Measures like the bipartisan Energy Policy Modernization Act are pending in the U.S. Congress to give LNG exporters additional flexibility following on the recent action to lift the 40-year-old ban on crude oil exports. These measures should be advanced quickly.
These same technology advancements have reversed a decades-long decline in crude oil production, restoring some 4 million to 5 million barrels per day (mbpd) of domestic production so that at 9.2 mbpd, the United States is now one of the world’s largest producers of crude oil.
The EU has made a commitment to achieve a 27% improvement in energy efficiency and in renewable energy consumption by 2030. If achieved, both measures will contribute to reducing imports and carbon emissions. In both cases, management of energy systems and provision for back up sources should be available to ensure a reliable energy supply. There is a balance to be struck on the pace and method of implementation, and flexibility to utilize cost-effective energy supply alternatives should be maintained.
It will also be crucial to allow market forces and market signals to work. In Europe, as in the United States, an all-inclusive energy strategy which lets the markets work is required. The Commission has estimated that some €120–140 billion in direct subsidies currently affect the European energy market and, by extension, decisions made by policymakers. Elimination of fuel source cross-subsidization and specific fuel subsidies should be undertaken to achieve the proper functioning of a competitive market and ensure appropriate investments in energy infrastructure.
The EU should take this opportunity to encourage the use of technological advancements to capture indigenous supplies of natural gas and oil from shale formations across the continent, in addition to conventional sources. Potential exists for new European production in both segments. Although significant work is needed to explore for, and validate, continent-wide shale resources, some economic modeling has suggested that shale gas development alone could reduce Europe’s dependency on natural gas imports significantly in the next two decades.
Both shale development and conventional oil and gas operations are highly sensitive to the complexities of regulation. The Commission, to the extent that its goal is to improve security of supply by developing indigenous resources, should take pains to avoid regulatory measures that would inadvertently undercut this objective.
The ongoing review of the EU’s Recommendation on the use of hydraulic fracturing and the current attempt to develop a Best Available Technologies Reference Document for the hydrocarbons sector may be well-intentioned. But serious thought should be given to possible unintended consequences that might stymie energy production at a time of particular challenge for the energy industry. Policymakers should also avoid directives that duplicate existing regulations without achieving any discernable improvements in environmental or safety measures, and they should avoid one-size-fits-all approaches that don’t consider localized geological or social circumstances.
Whether from shale formations, conventional production, LNG, or pipeline imports, the clean burning properties of natural gas make it an essential part of a cost-effective, market-driven, and balanced approach to carbon reduction. It is also an important back up fuel to renewable energy power systems, which will become even more important as renewable energy sources expand their market share.
Transatlantic Opportunities to Ensure Supply and Competition
Efforts under way in the EU and its member states to ensure energy supply, transition to new sources of supply, maintain competitiveness, and work toward climate-related goals present a major opportunity for the transatlantic trade relationship. Not only would the EU benefit from new and additional sources of LNG and crude oil, but both sides would benefit from more trade in energy-related goods, services, and technologies.
With natural gas supply from a limited number of increasingly unstable sources, the EU has rightly focused much attention on U.S. exports of LNG. Some 10 billion cubic feet per day (BCF/d) of LNG export capacity from eight different projects has already been approved by the U.S. Department of Energy for export to non-free trade agreement countries (the category where the EU and its Member states currently fall, until the proposed TTIP is finalized and implemented). Not all of these facilities are yet under construction, nor would all LNG be destined for Europe. Nonetheless, potential EU consumers see additional access to U.S. LNG as an important ingredient to diversify supply and make the market more competitive. A more expedient U.S. permit approval process would be a boon to a more liquid global LNG market and a significant signal to the EU’s dominant gas supplier. U.S. actions, such as passage of the Energy Policy Modernization Act, would send the right market signals and stimulate appropriate infrastructure investments in the EU.
Expansion of LNG trade also underlines the importance of infrastructure improvements needed to receive, store, and transport gas among EU Member states. Such improvements create opportunities for a broad range of companies. Making these infrastructure improvements should continue to be a priority for governments. Moreover, to achieve proper market signals to investors and suppliers alike, a more competitive and liquid wholesale energy market must exist, and the internal energy market should be allowed to develop with a minimum of government interference.
A more expedient U.S. permit approval process would be a boon to a more liquid global LNG market and a significant signal to the EU’s dominant gas supplier.
Goods and services related to the achievement of targets for both energy efficiency and renewable energy also present an opportunity in the transatlantic relationship. Addressing the 75% of European housing acknowledged to be energy inefficient and modernization of the electrical grid are two examples. Likewise, further development of technology and R&D in coal combustion, carbon capture and storage, and nuclear energy pose an opportunity for future trade and investment.
Actions by the U.S. government and the EU to enhance trade in energy, energy-related goods and services, and technological innovation are a benefit to both economies. All would gain from the economic and geopolitical benefits resulting from greater trade and liquidity of global energy markets, not to mention the geostrategic benefit of providing Europe with a more diverse supply of energy. Besides immediate policy actions, it is important that the TTIP agreement includes provisions ensuring free and open trade in energy and raw materials.
Summary and Recommendations
With trillions of dollars of trade and investment between the United States and the EU, the members of the U.S. Chamber of Commerce have a pivotal interest in the success of the EU’s efforts to boost growth and competitiveness with an energy policy that respects both economic and environmental objectives. The Chamber calls on the United States and the EU to undertake the following actions to strengthen and improve transatlantic trade in energy, energy equipment, and energy technology:
- Eliminate remaining barriers to energy trade between the United States and the European Union. The EU has tabled elimination of U.S. energy export restrictions in TTIP. But, now that the United States has eliminated the 40-year-old ban on exports of U.S. crude oil, the U.S. government should also move to expedite approval of LNG export facility licenses. This could be later enshrined in the comprehensive trade agreement. Movement here would provide America’s closest strategic allies with additional and urgently needed energy options.
- The EU should accelerate efforts to develop a more competitive gas market across the continent as well as work to improve infrastructure needed to connect economies with limited supply options today. The Energy Union and the Energy Security Package will foster construction of urgently needed physical and regulatory infrastructure. Fuel source cross-subsidization and specific fuel subsidies should be eliminated to allow market forces to function effectively.
- Industry should be given ample opportunity to demonstrate the safety and reliability of hydraulic fracturing in all countries where the geology is favorable. Technological advancements have made exploration and production of natural gas and oil from shale formations both viable and safe. Industry and government should continue to provide policymakers with improved assessments of recoverable resources as well as examples of prudent and effective regulation.
- Economic competitiveness must also be taken into account when considering environmental objectives. Energy affordability and technological capacities must be significant factors as governments consider responses to climate change. The long life cycle of energy projects and infrastructure investments should be factored into the balance of policies.
- Mechanisms to strengthen the business-to-business and business-to-government dialogue on energy and energy regulation should be at the heart of a transparent process of policy development. The EU-U.S. Energy Council dialogue should encourage robust private sector engagement opportunities in the official agenda. Sharing best practices and cooperation between regulatory agencies on both sides of the Atlantic should also feature prominently.
- The Energy Council’s work on energy technologies should be expanded and enhanced. Although the EU is placing a great emphasis on energy efficiency and renewable energy, traditional sources of coal and nuclear will continue to constitute a significant percentage of Europe’s energy mix for years to come. The United States and the EU should therefore increase transatlantic R&D cooperation and expand trade in technology to improve energy efficiency for both traditional sources including nuclear and coal combustion and renewables.
 "Energy Union and Climate." European Commission. 2015. Web. http://ec.europa.eu/priorities/energy-union/docs/energyunion_en.pdf
 See, e.g., "Macroeconomic Effects of European Shale Gas Production." International Organization of Gas Producers. Nov. 2013. Web.