Brussels Energy Brief - March 2007
March 2007
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KEY DEVELOPMENTS
Regulated Electricity Tariffs in Spain
Juan Gutiérrez
The European Commission has initiated a formal second phase investigation into regulated electricity tariffs in Spain. Final consumers in Spain can purchase electricity from the liberalised market and the regulated market. On the regulated market, consumers purchase their electricity only from distributors designated by the State and at tariffs fixed by the State. In 2005, due to high electricity wholesale prices, regulated tariffs were largely below market prices. As a result, the regulated market had a deficit of EUR 3,811 million. In order to finance this deficit, Spain imposed a parafiscal levy on all consumers in Spain for 14 years. The Commission’s preliminary view is that the regulated tariffs were financed at least in part through State resources and provided a selective advantage to certain professional consumers. The same conclusion is drawn as regards the guaranteed profit element for the distributors designated by the State to provide electricity on the regulated market. The Commission doubts that the Spanish regulated tariffs system is compatible with the common market. Interested parties are invited to submit comments.
Spain Facing Court Case on E.ON/Endesa Conditions
Alana Tervo
In the ongoing process of E.ON’s bid to acquire Endesa the European Commission sent a reasoned opinion to Spain on 7 March 2007. In this reasoned opinion, the Commission required Spain to explain why the conditions imposed upon the bid had not been fully withdrawn and whether steps had been taken to withdraw these conditions. Spain has argued that the conditions were necessary to secure national energy supplies, but the Commission is not convinced and still sees the conditions as protectionist and aimed at creating a national champion. Spain also failed to inform the Commission by 16 March 2006 of any steps to withdraw the illegal measures. Consequently, the Commission has now referred Spain to the European Court of Justice. If a court action ensues it would run in parallel to another action regarding the powers of Spain’s gas and electricity regulator to review the E.ON bid.
EU Heads of State Agree upon Ambitious Energy and Climate Change Policy
Marta Becerra
During the Summit of 8 and 9 March 2007, the European Council agreed on an Action Plan to develop an energy policy for Europe by 2009, and underlined the leading role of the EU in international climate protection. Significant progress was achieved with the establishment of a binding target for the reduction of greenhouse gas emissions, with a 30 per cent reduction if joined by countries outside the EU, and a 20 per cent reduction if the EU proceeds independently. The objective of reducing energy consumption by 20 per cent by 2020 (according to projections based on current figures) was also established, along with a binding target of 20 per cent of overall EU energy consumption coming from renewable sources. In order to achieve a complete Internal Market for gas and electricity, the Council called for the timely and full implementation of existing legislation.
Renewable Energy: Commission Seeking a Burden Sharing Method for its New Directive
Jérôme Cloarec
Following the binding target decided by the European Council on 9 March 2007 to have 20 per cent of the EU’s overall energy consumption coming from renewables by 2020, the European Commission is working on a proposal for a comprehensive directive on renewable energy. The proposal is expected by the third quarter of 2007 and should determine what proportion of the 20 per cent overall renewable burden each Member State will take. In accordance with the conclusions of the European Council, the Commission will take into account the current situation of each country. In doing so, the Commission will face political and technical difficulties as European businesses warn that energy prices should not increase. According to officials, the Commission is yet to decide how to share this burden.
Electricity: Polish Excise Duty Not in Compliance with EC Treaty
Geert Dierickx
The European Commission has sent Poland a request to align its electricity taxation system with the Community framework. Under EU law, the supply of electricity is subject to taxation at the time of supply by the distributor. However, in Poland, the tax is charged to the producer. Poland had until 1 January 2006 to shift the tax liability from the producer to the distributor, but by not aligning its electricity taxation system, Poland failed to meet its obligations under the Energy Tax Directive. Therefore in November 2006 the Commission opened an infringement procedure against Poland. As Poland’s reply was not satisfactory, the second stage of the infringement procedure was launched recently in the form of a reasoned opinion. If Poland does not comply with the EU's electricity taxation regime, the Commission may take action against Poland before the European Court of Justice.
EIB and World Bank Launch Carbon Fund for Europe
Elena Kostadinova
The European Investment Bank (EIB) and World Bank have launched the Carbon Fund for Europe (CFE) as a trust fund. The fund will purchase greenhouse gas emission reductions from climate-friendly investment projects through the Kyoto Protocol’s Clean Development and Joint Implementation mechanisms. Projects are prepared, appraised and financed by the World Bank or the EIB either directly or through implementing entities. Implementing entities will include private sector companies selected by public procurement procedures. European banks and financial institutions will also be invited to collaborate with the fund. Credible and financially sound projects should be able to offer a minimum annual emission reductions volume of 100,000 tonnes of carbon dioxide equivalent. The fund may purchase carbon credits generated by a project beyond 2012 – up to a limit of 40 per cent.
Agreement on Construction of Burgas – Alexandroupolis Oil Pipeline
Sara Bacchio
On 15 March 2007, Russia, Greece and Bulgaria signed an inter-governmental agreement on the construction of the Burgas – Alexandroupolis pipeline. The Burgas – Alexandroupolis pipeline is a cross border oil pipeline that will link the Bulgarian Black Sea port of Burgas with the Greek Mediterranean port of Alexandroupolis. The pipeline will be 280 km long, and will transport 35 million tons of crude oil during the first phase and 50 million during the second. It is estimated that construction will be completed by 2009-2010. The European Commission has supported the construction of this pipeline as it is expected to reduce maritime oil transport through the Bosphorus and Dardanel straits, thus reducing the risk of environmental disaster caused by oil spills.
European Commission Proposal Aims at Levelling Tax Differentials on Commercial Diesel
Bróna Heenan
Currently, fuel price differentials between EU countries make it worthwhile for truck drivers to alter their routes to benefit from low tax rates on fuel. While this has a negative impact on the environment (in wasted truck miles), it also leads to distortions of competition between countries with different tax rates, with hauliers who have access to low taxed fuel able to gain market share at the expense of those forced to pay higher fuel taxes. The current Energy Tax Directive (2003/96/EC) lays down a series of minimum rates for excise duty on energy products. The new Commission proposal would increase the minimum rate of excise duties on commercial diesel from EUR 302 to EUR 359 per 1,000 litres in 2012 and EUR 380 per 1,000 litres in 2014, forcing lower-taxing Member States to increase their excise rates.
MERGER NOTIFICATIONS
End February – March 2007
M.4594 - OEP / ARVINMERITOR Emissions Technologies Business (2 March 2007)
M.4561 - GE / SMITHS AEROSPACE (14 March 2007)
M.4588 - PETROPLUS / CORYTON REFINERY BUSINESS (19 March 2007)
M.4632 - HANJIN / SAUDI ARAMCO / S-OIL (22 March 2007)
M.4631 - CARLYLE / RIVERSTONE / FIRST RESERVE / DRESSER GROUP (22 March 2007)
MEETINGS
April 2007
EU/ G8-Conference "Energy Efficiency: Shaping Tomorrow's World" (20 – 21 April 2007)
