E3G

The EU Strategic Energy Review

By Jennifer Morgan

Driving Investment in Energy and Climate Security

Energy and Climate security are global public goods. Markets can only make the right decisions to deliver them if governments give the right incentives and efficient frameworks. Setting ambitious targets and building emissions trading markets is a first step, but unless the investment in energy infrastructure is able to respond to these signals, action will be slow, expensive and inefficient. Experience shows that current European energy systems are not responsive to weak carbon price signals, and we are far from having the right structures in place. Stronger more directive signals are needed. Liberalisation and unbundling must be used to drive incentives for radical energy efficiency, investment in modern intelligent infrastructure, and low carbon innovation.

Europe is better-placed than any other major economy to overcome the structural barriers to achieving the large economic, environmental and security gains from radical energy efficiency improvement. Europe has the opportunity through cooperative regulation to move to a modern energy services economy, rather than continuing to rely on outdated and wasteful approaches to supplying energy commodities. Europe as a global actor could use its research and development funds strategically as part of broad market innovation incentives to drive energy and climate security goals worldwide.

Six Steps to an Integrated Energy and Climate Security Policy

The steps below would put Europe on the path to an integrated approach:

1. Pan-European coordination of regulation to ensure low carbon incentives are at the heart of liberalisation and unbundling.
Lessons from the UK and others have shown that explicit duties and regulations are needed to harness the forces of increased competition to public goals, ensuring:

a. the form of liberalisation/unbundling in the energy market is designed to explicitly deliver investment in distributed energy infrastructure and grids;

b. liberalisation gives real incentives to companies to save energy not just sell more;

c. reform gives strong incentives for new entrants and innovation in all areas;

d. investment flows to priority pan-European network projects for delivering energy and climate security; such as a direct current grid to facilitate use of European high volume renewables e.g. offshore wind, geothermal and large scale solar thermal.