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United Kingdom

New transparency first step to reform -- Tackling the mess of Europe's energy market subsidies

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The European Commission has drawn up an inventory of all forms of state support to different energy sources throughout Europe as a first step towards scrapping subsidies that get in the way of its energy priorities, particularly its priorities on renewable energy and security of supply. The inventory represents an EC attempt at full transparency in energy subsidies.

The "opaque nature" of state aid in the energy sector was highlighted last year in the Commission's green policy paper on security of energy supply, which called for an inventory of all forms of aid to energy products. The inventory will also feed into the Commission's report -- due in 2005 -- on the progress of Europe's renewable electricity Directive, which will identify discrimination between different energy sources.

According to the Commission, the inventory could "provide the starting point for a reform of national and EU aid schemes and for analysing their impact on the relevant markets." As a next stage, it will use the findings to verify whether aid to some forms of energy jeopardises EU objectives of combating climate change.

The Commission stresses the inventory is factual, identifying the main lines of public aid since the end of the 1990s. Covering national, European and international support, it goes beyond the strict definition of state aid to include measures that offer direct and indirect advantages to energy sources, such as Germany's renewables feed-in tariff, whose costs are borne by the consumer.

Most goes to coal

The lion's share of current subsidies goes to the coal industry, which received EUR 6300 million of operating aid and EUR 23 million of research-related aid in 2001. Nuclear, according to the analysis, nowadays receives no operating aid, unlike the earlier days of the industry. Aid for nuclear research activities continues apace, however, with member states funding nuclear technology research and development in 1998 to the tune of $942 million (OECD figures). The EU's research programs also grant substantial sums to nuclear -- EUR 1260 million from 1998-2002, while EUR 1230 million has been set aside for 2002-2006. But the bulk of this funding is for research into nuclear fusion which, the Commission argues, ought to be treated in a way similar to the great scientific programs such as space research and ocean exploration.

Renewable energy, one of the EU's priorities, presents the most incomplete picture of public aid. The plethora of different support schemes and the different calculation methods used by member states makes it hard to quantify the amount of national support flowing to the sector. The inventory confines itself mostly to an overview of the various sources of national and EU support. More is known, however, of EU funding for the sector. Investments in renewables worth EUR 487 million are expected under the European Regional Development Fund over 2000-2006, EUR 80 million was dedicated to promote renewable energy under the Altener program, and some EUR 700 million is expected to fund renewable research programs under the sixth framework program.

The inventory points out that wind is the fastest growing renewable technology in Europe with an annual growth rate of 55%. Solar photovoltaic (PV) is also growing rapidly, but its prices are still much higher than other renewables and it relies heavily on subsidies.

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