I have just returned from the poll station where I participated in electing members of the European parliament. This is the largest election of the Western world. Still, it stirs a lot less enthusiasm than what we can see in the United States. In Belgium we are obliged to go and vote, but in countries where a voting right exists instead of our voting duty, turnout tends to be low. Since EU elections started, turnout continuously fell lower and lower. Many Europeans don't seem to understand that many aspects of our daily life are now regulated at the European level. They think that Europe is an abstract political entity where ageing politicians can earn a lot of money for not doing much. They are mistaken. Europe is dealing with some very concrete matters that have a huge influence on our daily life. This is certainly the case for whatever concerns our energy supply. Without Europe there would be no open market. There would be no pan-European emission trading. Countries would not be pushed to switch towards renewable energy production. Such things would have been regulated separately in every European country. This would have complicated doing business immensely.
The people that get elected to the Brussels - Strasbourg parliament today will probably continue to have multiple discussions on energy policy during their term. Some very important issues need to be addressed:
- A post-2012 carbon dioxide emissions policy is to be negotiated with the rest of the world.
- The European emission trading scheme is to be continued into its third phase. We must hope that some of its flaws will be addressed.
- In the wake of the credit crisis, the call for more regulation of the world's markets sounds louder than ever. French-style economics (le dirigisme) seems to grow in popularity. President Sarkozy even called for the world's oil markets to be regulated this week. He wants the oil price to be set by a committee of producing and consuming countries. In how far will this influence the policy on the internal natural gas and electricity markets?
- With a new Russian - Ukranian gas conflict ahead (read here) , some important questions regarding diversification of gas supply are to be adressed. How will Europe support the Nabucco pipeline project? In January, we've heard some MEP's utter the idea of subsidizing the construction of LNG gas import facilities. Will this become a reality in this next term?
I don't believe in 'le dirigisme'. Despite all the economic turmoil that we have suffered in the past year, I still believe that re-regulating markets would cause more harm than good. I agree that electricity consumers would have been better shielded form energy price inflation if the power markets hadn't been deregulated. That is, in most countries, in the Netherlands and the UK this would not have been the case. But I am also convinced that the huge rise of oil prices in the past five years would have been a disaster without an open natural gas market. Industrials could now find suppliers willing to offer them hedging services that helped them to protect themselves against the rise of their gas price formula, pegged to the oil price. Many didn't do it, because they lacked the experience and knowledge.
But at E&C we are ready to help everyone doing it in a next bull phase. I continue to believe that an open economy is the best way of maximizing profits on investments and as such it is the most efficient way of allocating money. Just consider what is currently going on in the automobile industry. I've read this morning that even when car sales peaked, the car industry had 30% excess capacity. And now, with car sales down by 40%, local governments are pouring huge amounts of public money into their local car factories in the hope of keeping them open. This is the kind of economics that we will get with le dirigisme. Our tax money will get wasted in economically unviable projects because of electoral concerns.
To deal with the world's huge energy supply issue, we definitely need more Europe. France, Germany or even the UK would be so much stronger if they would consistently talk to the world with one European voice. The politicians of these big (and even some smaller) countries ignore this. Together, we are the world's biggest market for oil, natural gas and electricity. Isn't that a good position to go and talk about security of supply with Russia or Opec?
We already know the results of the Dutch elections, and they don't inspire much hope. The Dutch have elected several MEP's with a clear anti-European position (most famously the PVV of Geert Wilders). This means that EU policymaking will be hindered by a faction that wants a minimal Europe. I was in the Netherlands last week, and I was surprised about the anti-European tone of the political debate over there, even among big parties. It is true that the Netherlands have a large financial contribution to Europe and doesn't get much back in terms of EU subsidies compared to poorer countries. But from an energy market perspective, the Netherlands got a lot back from Europe. EU energy policy makes it easier for them to sell their natural gas to other countries and hence acquire wealth that will pay them their pensions. And look at the power market. In the past, when natural gas prices rose high due to rising oil prices, the Dutch power consumers paid up to 30% more than power consumers in surrounding countries. With more than 80% of all the electricity produced from natural gas, they were more than others vulnerable to rises in oil (and hence natural gas) prices. In last year's gas price peak, the Dutch power price was not much higher than the Belgian, French or German. This was because cheaper French, Belgian or German power was flowing into the Netherlands, hence tempering prices there - or making it rise in the other countries. Whatever it was, arbitrage with surrounding countries protects the competitiveness of Dutch power-consuming industry. It is EU energy market policy that makes such cross-border arbitrage possible.
Call me naive, but I am still convinced that our best hopes for solving today's energy market issues lie in Europe. I believe that pan-European natural gas and power markets where large companies such as EdF, E-On, RWE, etc. compete with one another and with smaller niche-market suppliers would be a good place to buy energy. And I hope that the people that we have elected today will make that happen.
