European energy policy — will doors open for nuclear?

8 April 2014 by Steve Kidd

New low-carbon EU targets are both a threat and an opportunity to the future growth of nuclear power.

The European Commission has recently announced a 2030 energy and climate policy framework for the European Union (EU) which arguably moves away from such a heavy reliance on renewables to achieve emission reduction targets. The motivation for this is apparently much tougher economic conditions than expected and the need to curb rising energy costs. At a time of economic austerity, rising energy prices have become an acute public issue in many European countries, where there are concerns over so-called energy poverty. This, to some extent at least, is getting blamed on the rapid move towards renewable energy sources, with their substantial subsidies and other costs of integration into an electricity system. This new approach arguably provides at least a little more scope for nuclear power to play a larger role in Europe's energy future.

The centrepiece is a binding 40% reduction in greenhouse gas (GHG) emissions by 2030 (compared with a 1990 baseline) which will require strong commitments from individual EU member states. This goes beyond the existing binding target of a 20% reduction by 2020. Current policies and measures, if followed through, should arguably deliver an estimated 32% reduction by 2030, so 40% is regarded by the Commission as achievable, and is claimed by the Commission to be widely supported by individual member states. EU leaders are due to debate the new framework and goals at summits in March and June, ahead of formal legislative proposals expected early in 2015. These will still require lengthy debate by EU governments and the European Parliament before becoming law, which may still not be as easy as the Commission believes (with more pressure likely to be exerted to reduce the target than to put it up).

On the other hand, the Greens have argued that the proposed 40% target is too low and will be insufficient to avert terrible climate change. They believe that it would scupper any hopes of keeping temperatures below the 2 °C danger level, highlighted by the International Energy Agency's (IEA) work on plausible lower emissions scenarios. Interestingly, this is something with which the nuclear industry (see below) would also sympathise.

Post 2020 renewable energy targets scrapped

An important point, however, is that the proposal is for no post-2020 national renewables targets, leaving individual states free to use whatever technology they wish to achieve emission reductions in the longer term. At the same time, a 27% headline target for renewable energy at the full EU level is still included. How this will be achieved is still up for debate within EU circles, and there remain forces in favour of mandatory national targets. But the onus is now on national governments to come up with plans that fit in with overall EU objectives, rather than imposing 'top down' edicts.

The framework also proposes a substantial reform of the EU Emissions Trading Scheme (which has been a huge failure) to make it the principal driver of climate policy, while dropping some previously binding energy efficiency targets. Impetus for the profound change in emphasis from the previous (2008) policy framework appears to have come directly from those EU member states that are already winding back renewables programmes due to escalating costs.

"Industry trade associations the WNA and Foratom have noted that the new approach outlined would allow nuclear power to play an expanded role in decarbonising electricity supply"

The IEA has pointed out the huge difference in energy prices between the USA and the EU, with gas prices three times as high and electricity twice as high in the EU. The EU is evidently concerned about loss of international competitiveness and the rapid and somewhat chaotic retreat from subsidy schemes related to its existing 2020 renewables target. There are also important issues with the very different prices in various EU member states themselves, which hamper the stated move towards a common and fully-competitive market in energy. For the first time, the EU is acknowledging that the rapid development of renewable energy sources poses important new challenges for the energy system. The need to provide back-up power when the wind isn't blowing or when the sun isn't shining imposes significant additional costs, whilst coping with times when there is a sudden strong renewables input is also proving very difficult for power systems.

Industry trade associations the WNA and Foratom have noted that the new approach outlined would allow nuclear power to play an expanded role in decarbonising electricity supply, but that they would both also support even more ambitious targets for greenhouse gas emissions. This is assuming that such targets are technology-neutral, as they have pointed out that the target of 27% for renewable energy continues to undermine the possibility for cost-efficiency in meeting an overall emissions target. Indeed, this continues to demonstrate an unjustified preference in EU policy for renewable energy over other ways of reducing greenhouse gases (including nuclear energy), regardless of cost, maturity and the preferences of individual member states. The Commission still does not explicitly recognise that nuclear power already produces two thirds of the EU's low-carbon electricity, nor that nuclear new-build in a number of EU countries will contribute to the further reduction of GHGs in Europe. So the Green lobby still has a substantial position in Brussels and within many national capitals.

No single technology will be enough

On the other hand, nobody should underestimate the effort required to reduce GHGs to even the levels currently required. Nuclear advocates rightly accept that no single technology, be it nuclear, solar, wind or energy efficiency, is going to be enough. All will be needed, and for that reason no single low-carbon technology should be allowed to hamper the potential for growth of any other. What is needed is a practical approach with an emphasis on energy diversity among low-carbon options. Countries like Sweden and France have already shown that you can have a very secure low-carbon generation sector with different mixes of renewables and nuclear. In contrast, Germany seems to be showing that cutting one option (nuclear) out of the mix means greater fossil-fuel use (in the short term at least).

The shared competence problem

One of the big problems of energy policy in Europe is that it is a shared competence between the EU and its member states. It is neither a so-called 'exclusive competence' of the EU, as for example world trade, fisheries policy, or monetary policy (for the Eurozone members); nor is it a competence fundamentally retained by the member states, such as taxation and national security. This position of energy as a shared competence was recognised and established by the Lisbon Treaty of 2009. However, the Treaty also supports a liberalised European energy market with better interconnections, while ensuring competition is an exclusive competence of the EU. So while core aspects of energy policy are decided in Brussels it is noteworthy that the national energy mix remains firmly a matter for individual member states. Matters such as interconnected markets should not affect a member state's right to determine the conditions for exploiting its energy resources, its choice between different energy sources, and the general structure of its energy supply. It is odd, given that climate change is a global threat and that much of the EU's energy security concerns relate to EU-wide import dependency, that energy policy is not an area of exclusive competence of the EU. The current situation perhaps reflects the fact that the member states have not been willing fully to pool their sovereignty on such an economically-fundamental matter.

"Despite much effort having been devoted to building a single market in the European Union, nuclear new-build can simultaneously be a preferred option for one member state while illegal in another."

So despite much effort having been devoted to building a single market in the European Union, nuclear new-build can simultaneously be a preferred option for one member state (for example, Finland or the UK) while illegal in another (for example, Ireland or Austria). With competition being an exclusive competence of the EU, there are state aid considerations around the Hinkley Point C deal in the UK, such as the strike price and loan guarantees, that must be approved in Brussels. There is thus a rather strange and inefficient mixture of energy policy mechanisms in Europe. There is also a lot of naivety in the Commission about how lower energy prices may be obtained, which still ignores the root causes (enshrined to some extent in previous renewables-friendly policies). So the Commission is still advocating that consumers and industry explore the opportunity to lower their prices by switching to cheaper energy suppliers (by 'shopping around'), improve their energy efficiency, urge key consumers to diversify energy supplies and supply routes and ensure that, in their negotiations with major energy partners, they speak with a single European voice (which is surely rather difficult given the above).

Energy policy will always be intensely political and never simply a matter for the market. While at any given time one aspect might be dominant, in the wider scheme of things concerns will centre around the three competing, and to some extent irreconcilable, concerns of the environment, security of supply and affordability. For example, ten years ago the dominant concern in the UK was energy security, five years ago it became the environment, while today it is affordability.

It is also possible to argue that EU energy policy is still muddle-headed, as individual countries have still pursued policies appearing in keeping with it, but which have had obviously adverse effects. So Germany has shut down nuclear power stations and replaced them with dirty coal stations rather than renewable energy (which was going to expand rapidly anyway). Then surplus renewable power has at times been dumped at negative prices on the power markets of neighbouring countries, which has been awkward to handle. The EU also seems to have assumed that climate change can be averted at relatively little economic cost; but in fact changing the way people produce and consume energy is difficult.

Europe's efforts to curb rather than cut emissions

"The number-one challenge globally for the future is to curb the use of coal (particularly in China and India) and to switch to less environmentally-damaging alternatives"

Arguably the biggest error of EU policy, as emphasized by the prominent energy economist Dieter Helm, is that Europe has tried to curb the production of carbon rather than its consumption. Thus the EU may have succeeded in cutting carbon emissions in Europe, but to date this has been achieved largely by shutting down industry and switching production to China and the developing world. So carbon emissions have simply been transferred to another area of the world, where dirty coal is the dominant energy source. This may now begin to change as the renewable share of electricity continues to rise in Europe and we adopt cars with more economical and clean engines. But the number-one challenge globally for the future is to curb the use of coal (particularly in China and India) and to switch to less environmentally-damaging alternatives. Carbon taxes at appropriate levels should therefore be targeted at the consumption end rather than the production end, so exporting countries receive a strong financial incentive to adopt more environmentally-friendly energy supply. Such border taxes would be hard to deal with bureaucratically, but make more sense than top-down international agreements.

Overall, greater realism from the EU on its energy and environmental policy will unfortunately not in itself cause any turnaround in nuclear power's fortunes. Renewables will still play a more important role in the coming years than nuclear, which will mark time on most forecasts without many governments pushing it strongly. The industry must continue to stress the key attributes of nuclear power, in the solidly-established terms of safety, reliability, affordability and the environment. Ultimately these arguments may well win over decisionmakers, but it could take until well into the 2020s for this to happen, by which time the obvious weaknesses of renewables on affordability and supply security will have become fully-recognised. Germany will remain the key country to watch here. There are signs that the previously strong support from the population for the energy transition is beginning to weaken, particularly led by the voices in industry very concerned by their diminishing competitiveness against Asia and North America.

Steve Kidd is an independent nuclear consultant and economist with 17 years of work in senior positions at the WorldNuclear Association and its predecessor organisation, the Uranium Institute.



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