Loyola de Palacio

Vice-President of the European Commission responsible for Transport and Energy

Finding the Environment-Energy Balance

Forum Europe & Exxon Mobil Workshop "Europe's energy outlook"
Brussels, 28 September 2004

Ladies and Gentlemen

I am delighted to open today's proceedings.

May I thank Forum Europe and Exxon Mobil for their initiative in organising today's event. It highlights one of the most challenging themes with which I have had to deal during my tenure as Commissioner for Energy and Transport: What is the right balance between energy and environmental policies? How can we achieve it? And how can we achieve this while also meeting economic and social objectives. That means, without jeopardize the economic growth, our economic growth, in a globalize word, where our commercial partners have the right to become developed and not renounce to their growth.

In my five years since becoming European Commissioner for Energy and Transport, I have noticed a marked shift: Environmental preoccupations are having a real impact on energy decisions. For years, the main aims of energy policy were to increase supply and keep prices down.

Now, equally are environmental factors such as reducing carbon emissions from energy, developing alternative energy supplies and trying to slow down demand for polluting fuels. Today I would like to concentrate on three priorities of European energy policy which demonstrate how the Commission is responding to these changes.

• First, redressing the energy supply away from fossil fuels towards cleaner alternative fuels
• Second, reducing the impact of energy production and use on the environment
• And, finally, tacking advantage from the international dimension of energy and environmental policies: close coordination in Energy Policy at EU level.

1. (Redressing energy supply away from fossil fuels towards cleaner fuels)

Let me start with the need to rebalance our energy supply. Today, fossil fuels account for around 80% of our energy supply. Despite all our efforts to move away from coal and oil, the fact remains that demand for fossil fuel is growing. Current trends indicate that fossil fuels will account for at least 82% of energy needs in twenty five years time. By this time our energy needs will have grown by almost one fifth. So in real terms we will be using significantly more fossil fuels in 2030 than today.

How can this happen? And what is being done to stop it?

The first cause is oil use in transport. Transport absorbs around one third of our energy supply - almost exclusively oil. Passenger transport is forecast to almost double by 2030, and freight transport could triple. There will be some efficiency savings, but the transport sector will use almost 50% more fuel by then than today - with corresponding rises in emissions.

This is why I have worked hard to put transport and energy policies at the top of the European agenda over the last few years.

My first goal has been to increase energy diversity in transport and diversify transport modes. The biofuels Directive will help promote alternative transport fuels. We have also fixed an ambitious target of 20% alternative fuels in transport by 2020. Bio-fuels should reach 5.75 % of energy supply for transport by 2010.

The Commission is also promoting research into hydrogen technologies. As well as fuel cells for cars, we are supporting a number of projects providing hydrogen-fuelled buses in various towns across the EU, to put it into the reality.

My second goal has been to redress the balance between transport modes. Thus, for example, EU transport policy is seeking to make the transport of goods by rail more competitive, and thus increase its share as compared to road transport. This is the aim of the trans-European transport network with massive investments not only in rail but also in waterborne transport.

The second cause of rising demand for fossil fuels is due to demand for electricity. The new single market for gas and electricity is stimulating efficiencies and investment in new technologies. But it remains the case that gas, and not renewables, is the favoured form for new generation.

Switching to gas-fired generation units to replace electricity production from solid fuels is a positive move. It increases fuel diversity and reduces the emissions from power generation. The opening of Europe's gas market is making this easier the use of this fuel.

But gas powered stations are also being built to replace old nuclear capacity. This is worrying. From 2020, when our nuclear capacities will decline, emissions are forecast to rise significantly.

This is part of the reason why I have been so determined to encourage a dispassionate debate about the nuclear option for energy supply.

Repeated surveys have shown that the public would be more receptive to nuclear power if they were convinced that a high level of nuclear safety was assured and that a permanent solution to the problem of management of radioactive waste could be found.

A further factor in the rise in fossil fuel demand is the slow rate of take up for renewable energy. We would all welcome a large contribution to energy supply from renewable energy sources. For several years, renewable energies have been given special treatment in the interests of the environment and diversification. In real terms, their production is rising, but against rising demand, their share of demand is more or less stagnant around 6%.

Far more needs to be done to make renewable energy technologies competitive. And we have to keep in mind that the renewable facilities, due to their lack of availability, must be back up by equivalent traditional facilities in order to guarantee the supply of energy when needed.

1. (Reducing the impact of energy on the environment)

Consumers are better informed than before about the environmental implications of energy use. They are asking for cleaner and less polluting energy forms. But they are reluctant to give up their private cars and their lives depend on secure electricity supplies. And there is a limit to how much more they will pay for clean fuel. Our task as politicians is clear - energy supply must be secure and affordable, but we need to mitigate its impact on the environment.

But how can we do this?

In my view, the key lies in increasing energy efficiency. During my tenure as Commissioner, I have given particular priority to creating a new legal framework for energy demand, and to provide support to new technologies.

Currently, it is estimated that over one fifth of Europe's energy usage could be saved with simple, quick and cheap measures. To exploit the potential for savings, the Commission has made a number of legislative proposals, most of which are now law.

The Buildings directive will promote greater efficiency in energy use in buildings. And a new Directive on cogeneration will encourage the wider use of energy efficient combined heat and power. In addition, I have proposed a new energy efficiency target for the European Union - which Member States should aim at saving at least 1% more energy each year than the average over the last five years.

Together, these measures could have a substantial impact on future energy needs and reduce environmental impact at all stages of the energy chain - in production, transport and final use.

The same is true in the framework of the new single market for gas and electricity. As well as clear rules governing security of supply and competition, there are new environmental duties for suppliers. Consumers will have access to more information about the type of fuel used in their electricity and its environmental impact.

Moving to the role of technologies, the Commission has considerably strengthened its support framework for environmentally friendly energy technologies. We need a technological break throw. The Commission has also pursued more long term options. Carbon sequestration has been given a new stimulus, and support is assured for research into fusion technology.

We need also to translate research successes into actual improvements in energy use. The new Intelligent Energy programme, and the new Energy Agency should make our task easier.

Finally, as regards the EU emission trading scheme, I fully adhere to the idea that the EU should politically play a leading role in the fight against climate change. However, I am not convinced that the current emission trading scheme will deliver its promises in terms of emission reduction, if eventually Rusia is not ratifying the Kyoto Protocol.

This brings me to the last part of my speech.

1. (Tacking advantage from the international dimension of energy and environmental policies: close coordination in Energy Policy at EU level )

Ladies and Gentlemen

For me, close coordination in energy policy within the EU is also the most effective way in which the EU can help to reduce its exposure to international and geopolitical tensions, and increase global stability.

When the new Constitution enters into force, energy policy will be an explicit competence of the Community. As a major economic trading block of some 450 million people, today's EU consumes almost one fifth of current global energy supplies. Acting together, EU Member States can carry more weight than individually. This is a path which I have pursued consistently as in my role as Commissioner for Energy and Transport.

I have sought to strengthen our energy dialogue with suppliers and other consumers alike - Russia, OPEC, Algeria, Iran, the USA, Japan - and increasingly in our relations with China, India and other emerging economies.

We have also built up cooperation agreements with key partners such the Gulf Cooperation Council and Algeria. And we have successfully pressed for energy issues to be covered in WTO negotiations with countries such as Russia, China and Saudi Arabia.

But there is much to do to improve our internal collaboration. The European Union is not yet equipped with the means for a coordinated response by all the Member States.

In order to strengthen our geopolitical analysis and support our dialogue with energy supplying countries, I have proposed to establish an observation system of markets and of the prices inside the Commission services. This will enable us to reflect on the operating methods of the market. It will also improve our geopolitical analysis. Recent developments in the oil markets demonstrate all too well the limitations of the current system.

It is also time to think hard about the value of using the euro as the currency for energy trade. This would send a strong message to the outside world and help to assert our influence in world markets generally.

During my time as Commissioner, I have given particular priority to our dialogue with Russia. I should remind you that Russia is today Europe's most important supplier of oil and gas and covers 20% of our consumption. And its contribution is likely to increase in the future. For gas, our scenario shows that up to 60% of our gas consumption will be imported from Russia by 2030.

After four years of energy dialogue between the EU and Russia, there are concrete results which have been achieved:

• the strategies and rules governing the organisation of markets are already starting to converge,
• EU investments in Russia have developed,
• the importance of long term contracts to satisfy supplies has been confirmed,
• maritime transport in the Baltic Sea is becoming safer and projects of common interest related to energy production and transmission have been identified,
• negotiations in the field of trade in nuclear materials are about to start.

Thanks to this dialogue, the European Union and Russia have created the principle that, for the EU, energy dependence is only acceptable if Russia guarantees the security and safety of its infrastructure, regular supplies and the protection of investments.

I believe that this is an important principle and one which could serve well in our relations with other energy partners.

If the EU can work together, this would enhance its ability to ease tensions in other regions. It could also ease its work to encourage sustainable economic and energy policies beyond its borders. This would be good news for international stability. And good news for Europe's energy supplies

Ministers, Ladies and Gentlemen,

The energy framework for the EU has changed since the appearance of the Green Paper on security of energy supply. Environmental concerns have acquired a new importance, and the emergence of a single energy market changes the ground-rules. But much remains to be done if we wish to achieve a secure energy supply, compatible with environmental, economic and social concerns.

Whether we are energy policy makers, industry actors, consumers or market analysts, we have it in our power to improve the balance between energy objectives and environmental goals.

I have covered a lot of ground today, but I would like to recall what I think are the most important steps:

• Promoting renewable and keeping the nuclear option open,
• Improving energy efficiency, developing cleaner fuels and supporting new technologies,
• Developing a broad dialogue with both consumer and producing nations, and
• Strength the coordination in Energy Policy at EU level and with its neighbours.

To get the balance right, Europe requires greater political coordination, new legislation and high levels of investment. And above all, a renewed political will. There is evidence that this is happening. And, if we work together, it will.

Ladies and Gentlemen, thank you for your attention.