Reply of LFMI for questionnaire for “The external dimension of the EU energy policy“

Lithuanian Free Market Institute (LFMI) provides its replies to the questionnaire “The external dimension of the EU energy policy”

Question 1: Should the EU promote further energy market integration and regulatory convergence (notably as regards energy market regulation, environmental and safety standards) with its neighbours? Is there a need for a differentiated approach between the Eastern and Southern neighbours or between countries?

EU should pursue cost-effective market integration with its neighbors. But the EU should only pursue interconnections that are commercially viable during the long term. EU should not engage in projects that have little or no monetary value regardless of political implications.

EU should not pursue regulatory convergence. First and foremost EU has no right to pressure neighboring states to accept standards used inside the EU (unless EU is thinking about adoption of the standards used by its neighbors, which is doubtful). Second, strive for regulatory convergence can be a major obstacle for market integration and thus be detrimental to the EU. Third, if by any chance EU would force its neighbors to adopt EU regulatory standards, this may increase the prices of energy in the third countries, and more importantly the price of energy imported to the EU from the said countries.

In other words there is a case for economic integration, increased trade in energy especially when such endeavors are commercially viable. In the same time there is no basis to push for regulatory convergence. If the Commission thinks that EU energy producers might be put in a disadvantageous position due to stricter standards (e.g. CO2 emissions) applied in EU, this is a case for liberalization of the sector and for lowering the standards used in the EU, not for pushing other countries into adopting EU regulation.

In the same time one could make a convincing case that energy producers in non-member states might benefit from the absence of prohibition on state aid and could compete with energy producers inside the EU from the privileged and unfair position. However such fears are exaggerated. First, it is unlikely, that for ex. subsidized production of energy in a 3rd country could be produced and exported to EU in such quantities as to drive EU producers out of business. Second, if this (theoretically speaking) happened, then EU consumers would be enjoying cheaper energy subsidized by a foreign government.

Question 2: Should the EU take concrete actions to foster greater investment in renewable energy sources in its neighbouring countries? What actions?

There is no justification for spending taxpayers’ money to finance investments in the neighboring countries. If by “foster” we mean “encouragement” or forms other than direct financing then it is not clear how this could be achieved. Moreover the question of purpose is also important. Why and for what reasons should EU interfere with an internal energy policy of its neighboring country especially when there is no perceived direct benefit to the EU?

Furthermore by promoting RES in other countries EU might clash with various local groups of influence that for may be opposed against development of RES energy in their home countries. Given the situation in the world energy market where there are tensions with supplying countries as we as increased competition for natural resources EU should not expand energy, effort or reputation for something that has no benefits but may cause negative consequences.

More alarmingly one of the reference papers of this consultation (“Energy 2020 – A strategy for competitive, sustainable and secure energy”) claims that “The need for international solutions obliges us to push our agenda for decarbonisation and energy efficiency with our main partners and in international negotiations and frameworks.” It is obvious that the agenda not only hurts EU domestically (via higher energy prices as discussed above) it also hurts EU externally. By pushing the “agenda of decarbonisation” EU unnecessarily reduces its space for maneuvering when choosing energy suppliers and restricts itself from using cheaper sources of energy (even domestic ones like coal).

Second, by pushing “agenda of decarbonisation” EU risks conflict with other world power and energy suppliers that it could easily avoid. This creates a two-fold negative consequence: EU is pushing a policy that is not beneficial for the EU and by pushing this policy EU is also hurting its international standing.