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Consolidation of European Energy Industry
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The IEA sees the merger and consolidation considerations across Europe in the context of the liberalisation of European energy markets. The IEA trusts that relevant regulatory and competition authorities will rule appropriately so that the level of competition in European energy markets does not deteriorate at a cost to European energy consumers.
This consolidation underlines the importance of the continued development of an internal European energy market where competition can flourish with full transparency and where efficient trade across borders is ensured. Further progress toward a regulatory framework that enables effective competition is critical, as pointed out repeatedly by the European Commission.
Political interference in a merger and consolidation process by overruling the regulatory procedure can pose a real threat to the development of competition. Such interventions based on national strategic considerations seem outdated and incompatible with the spirit of a transparent, efficient and functional internal market.
Active government involvement and commitment is required to ensure that the liberalisation process leads to effective competition. Key features in all effective markets are the presence of independent regulators, the unbundling of natural monopoly network activities and price signals that reflect real costs and transparency in the market place. (For more information, see the recent IEA publication Lessons from Liberalised Electricity Markets).
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Energy Efficiency
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Energy efficiency is one of the major tools for strengthening security of energy supply. But not only does it save energy, it reduces costs and lowers CO2 emissions. Existing efficiency technologies can sharply reduce energy consumption per unit of GDP, at relatively low or sometimes even negative costs and with a similar or even improved service. Energy prices are an important signal. In focusing market interest on energy efficiency opportunities, but governments too, must play an important role. Here is but one example.
The IEA conducted a study on the stand-by energy consumption of household appliances –that is, the energy consumed by appliances when they are switched off. Some devices consume up to 10 watt, but others only 1 watt. Unfortunately, stand-by energy consumption is generally not viewed as an important decision making criteria when it comes to purchasing appliances. But if all OECD countries governments could agree on a standard to limit standby power use to no more than 1 watt per device, peak electricity load could be reduced by roughly 20GW, the equivalent of twenty large power plants.
This so called “IEA 1-Watt-Initiative”was approved by the G8 leaders at their summit in Gleneagles in July 2005 and is now being put into practice.
The IEA estimates that 10% of world energy demand could be saved by 2030 simply by seizing available energy efficiency opportunities and applying policies and measures currently under consideration. This outcome would benefit security of supply, economic growth and environmental protection as non-consumed energy, obviously, is the most secure and does not pollute.
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EU Commission plans to split Europe's energy companies from transmission networks
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The IEA welcomes the EU plans to open gas and electricity markets to more competition. The proposals are designed to facilitate the functioning of the European gas market. The objective is to increase transparency in the European energy market, to separate the supply function and the transportation function. A monopoly of companies owning both the gas and the transportation system does not promote economic efficiency or serve consumer interests. The objective is to provide gas at a more economic price to the consumers so that they have the benefit of energy services at reasonable prices while taking into account both security and environmental concerns. A stronger distinction between the supply function and the transportation function will reduce pressure on prices through competition. |
IEA View about Biofuels
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The recent shortage in grain stocks and surge in food prices have triggered questions about the sustainable production of biofuels. In reality, there are a number of important factors impacting food supplies and prices, including surging food demand, failed harvests and high energy prices.
Biofuels do have an impact but the IEA considers it very important to differentiate between types. On one hand, most biofuels are attractive in that they may serve to replace imported oil and help diversify energy resources. However, some current (“first generation”) biofuels, such as ethanol from grains and biodiesel from oil seeds, may compete with food, fibre and feed production, although currently less than 2 percent of global agricultural cropland is used for biofuels production. (Source: Worldwatch Institute, “Biofuels for Transport: Global Potential and Implications for Agriculture”, report prepared for the German Federal Ministry of Food, Agriculture and Consumer Protection, 2007).
Biofuels can be produced in a more sustainable way and, properly managed, they can offer valuable benefits to OECD and developing countries. The use of sustainable biofuels can increase energy security, foster economic development, especially in rural areas, and reduce greenhouse gas emissions. Ethanol from sugar cane produced in the tropical/sub-tropical regions such as Brazil, southern Africa and India, for example, has excellent characteristics in terms of economics, CO2 reductions and low land use requirements.
“Second generation” biofuels from ligno-cellulosic feedstocks (straw, woody biomass residues, vegetative grasses) hold considerable promise for eventually providing more sustainable types of biofuels. Although they remain relatively costly options to date, through on-going public and private research and deployment investments, much progress has been made in recent years. Several small and medium-scale conversion facilities to convert ligno-cellulosic biomass to either ethanol or to synthetic diesel are expected to come on line over the next 2-3 years in countries such as the United States, Canada and Germany. The IEA calls on governments to increase their support for 2nd generation biofuels RD&D at this critical juncture, to consider phasing out current incentive support schemes for biofuel technologies as they reach maturity, and to explore a rapid transition to policies that promote advanced biofuels.
Biofuels are playing an increasingly important role in meeting growing transport fuel demand. They represented 49% of the growth in Non-OPEC oil supply in 2007 and this share is expected to rise to 55% in 2008. An upcoming IEA publication, Energy Technology Perspectives 2008, will show that biofuels may have to play a significant role if the world is to make meaningful reductions in carbon dioxide emissions. In the report’s most ambitious scenario, advanced biofuels supply about 700 million tonnes of oil equivalent, representing 26% of total transport fuel demand, by 2050. |
Speculation on "Gas OPEC"
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There is a lot of speculation about possible creation of a gas monopoly among gas-rich nations.
The IEA believes that a cartel is always bad news for consumers and consumer countries. But cartels are also counterproductive for producing countries. Pushing up prices by forming a cartel will encourage consumers to reduce demand or switch to other fuels. This is particularly true for gas which can be substituted with coal and nuclear.
At the IEA, we believe that the market is simply more efficient. Cartels distort behavior and do not strengthen security of supply.
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Stocks and Iran
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IEA member countries have a legal obligation to hold emergency oil reserves equivalent to at least 90 days of net oil imports of the previous year. These total stocks are currently at four billion barrels, of which about 1.4 billion are government controlled public stocks (government-owned or held by an agency).
Thus far, the dispute over the Iranian nuclear program has not had an impact on world oil supply. If Tehran was to cut off supplies for any reason, the world would lose 2.7 million barrels per day (bpd). The members of the IEA would be able to react effectively to offset this shortfall. IEA stocks would be able to compensate for those lost at the rate of 2.7 million bpd for a year and a half. We note that the Iranian oil minister says Iran has no intentions of cutting its oil.
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