On the Road to 2030: Questions and More Questions

As part of a public hearing at Gas Week 2013 aimed at "Reconciling EU Energy Policy goals with Reality," numerous questions were raised on the best ways to achieve European Union climate policy objectives without throwing economic concerns in the back seat.

Questions grappled with by speakers on the panel included: Does EU energy policy need to set a new direction towards growth and innovation? Can renewable and natural gas work together to reach both short and long-term climate and energy goals? Are existing policies sufficient to meet our energy, climate and industrial goals? Where is the largest potential for carbon reduction? Power, transport, agriculture or industry?

Showing a diagram from the IEA depicting the projected subsidies for renewables, Anders Marvik, Vice President, EU Political Affairs, Statoil EU Affairs Office, explained, "This is a picture of the future, which shows that we are looking at renewables subsidies for a very long time."

He also presented a depiction of 30 years of CO2 emissions, from 1990 to 2020. He commented, "It looks like we're on track—great—achieving our 20/20/20 targets."

For the 2050 "end game" the curve, he showed, got steeper.

"How do you do it," he asked of emissions reductions, "and which policies are the right ones?"

Mr. Marvik showed a graph of European GDP growth, which was basically a flat line near or around zero. He commented: "Based on that economic reality, we have to take into consideration when we establish the new policies going forward."

Regarding technology and its development, he offered an example of how the number of Internet users had exploded in a very short period of time. The oil and gas industry had a parallel in the shale gas revolution.

"At the end of the 1990s the first horizontal well was drilled in the US," he recalled. "Ten years later, the US was the biggest natural gas producer in the world—a huge change in a very short period of time.

"Coal is being replaced by gas in the US, coal is being dumped in Europe and we're burning it because it's nice and cheap," he observed.

He pondered what was next and how things would develop on from there.

"The point is," Mr. Marvik explained, "how do you predict what is going to happen? It's very difficult."

Then he listed some challenges, like the renewables target, which had resulted in renewables growth because they were subsidized and the "lock-in"—not removing the subsidies—which was leading to an unsustainable situation.

"Can we afford it?" he asked.

The Emissions Trading System (ETS), he said, was not giving the pricing needed for investing in new, low carbon technology. It was also a fact, he said, that there was a trend of switching in Europe from gas to coal.

"Countries like Germany have increased their emissions—the opposite direction. Is it temporary or the long run?"

Of Statoil's suggestions, he said: "We think a universal and single target for reduction of greenhouse gas emissions is the right way to go forward, not having a multitude of targets."

It was all about being realistic, he said, querying that if we needed to speed up emissions reductions, what was the best way of doing that?

"The completion of the Internal Energy Market is absolutely crucial. Lastly, we think that technology neutral and market-driven policies are the right way to go, because as we've seen it's very hard to predict how technology is developed, how new technologies come along."

Mr. Marvik explained that was why it was so crucial to put lots of money into R&D, but then not lock in subsidies once a technology was producing.

Didier Sire, Executive Vice-President, Strategy, GDF Suez Energy Europe, said that when one looked at the figures, it looked like Europe had built a good track to reach a 2020 emissions reduction. "However," he said, "if we analyze the situation the reduction is mainly due to economic factors and the the deep economic crisis Europe has been facing since 2009."

He said this wasn't due to the system itself, because the system did not promote low carbon energy. "Indeed, the current CO2 price lowered below EUR 5 hampers the competitiveness of existing low carbon existing power plants compared to the highest emitting ones, and this level does not deliver a signal for low carbon investment."

This meant, he said, that investments which were needed were not being made and wouldn't be there when economic recovery occurred. "This is even more worrying when we see that the 'backloading proposal' (which would have delayed the auction of carbon permits for certain years in the hopes of boosting prices) was rejected in the plenary session of the European Parliament," he reported, adding that this put the ETS in a dire situation.

Meanwhile, the situation for gas-fired power plants had become critical, despite their key role in security of supply for electricity.

Mr. Sire observed, "They have been pushed to the side of the merit order and utilities are being forced to mothball or decommission some of their gas plants."

The challenge for Europe, he explained, was to reach the objective of decarbonization in the power sector by giving a clear CO2 price signal leading to the promotion of gas technology investment.

He said it was worth taking not of what had happened in the US, where, by switching from coal-fired plants to gas-fired ones, America had rapidly and economically reduced its CO2 emissions.

In the short term, he said, measures were needed to keep existing power assets with lower emissions in the merit order. "In the mid term, appropriate price and political signals must be sent to investors to encourage them to invest in gas. The EU should take note of this reality and engage in a clear and coordinated policy to promote natural gas in power generation."

In the long term, Mr. Sire said the best energy sources needed to conciliate environmental targets, the competitiveness of the European economy and security of the power system. "This, without a doubt, would be a balanced mix, with renewables supported by coordinated and flexible schemes."

According to him, such a mix would allow gas-fired power plants to develop at a coordinated level.

"A European coordinated approach to capacity mechanisms is absolutely essential to provide appropriate remuneration to access the backup to renewables and secure the European power system," added Didier Sire.

Not everyone in attendance gave whole-hearted support to fossil fuels.

Paal Frisvold, Chairman, Bellona Europa (an NGO) said that in the context of the economic crisis, it was questionable whether Europe could continue as it had with its import dependence on fossil fuels. He noted that Greece had spent 10% of its GNP on importing fossil fuels.

"Is that an economically sustainable rate for Greece to regain competitiveness, economic growth?" he asked, explaining that's why he thought Europe's renewables picture was vitally important, both in terms of job creation and reducing import dependency.

"There is no doubt that the Renewables Directive that introduced binding commitments by the EU Member States triggered the kind of support mechanisms that were needed, and that's partly why the penetration of renewable energy has been so successful in many countries," explained Mr. Frisvold.

Renewables made up a huge proportion of the energy mix when the sun shone and when the wind blew...

He admitted, "We do need fossil fuels to have the kind of basis for electricity—we have to have baseload energy, and that needs to be clean as well."

He reported that he had been working on carbon capture storage (CCS) technologies for a number of years. With CCS top of mind, he said gas would play a significant role in the future.

"Don't be so coal bashing," appealed Mr. Frisvold to the gas sector audience, explaining that coal would also have its role in the future, especially with CCS.

"We can also use CCS on sustainably produced biomass, for which we can go carbon negative by removing CO2 from the atmosphere," he said.

In closing, he suggested that the European Commission take a bolder approach when it came to taking on all of the challenges. "A climate tariff is what we need to protect climate friendly industry. We cannot compete in a world without a global agreement on CO2 emissions, and nor should we expect that our industry shall thrive and create jobs if we impose unilaterally carbon mitigation policies.

"Therefore, we need to think of how we can introduce a system to reinforce European standards on CO2 emissions, just like on other airlines entering Europe, and we must dare to think about this for industry, to safeguard our competitiveness, growth and jobs in the future," concluded Paal Frisvold.