Energy Policy Homework

At the end of October the Lithuanian port Klaipeda witnessed a historic event. The LNG vessel, named Independence, anchored there, built in South Korea and outfitted with Norwegian liquefied natural gas technology and crew. It was welcomed by the President Dalia Grybauskaité as well as by the prime ministers of Latvia and Estonia. After it is fully connected to the Lithuanian gas mains and the upgrade of pipeline to Latvia is finished sometime next year—the Baltic countries will be secure in their ability to procure up to 75% of their yearly gas demand on the world markets, regardless of wishes and policies of the Kremlin actual rulers.

Energy security has become a major political issue—winter is coming, the tensions are rising between the EU and Russia due to the war in the eastern Ukraine, and there are many likely future scenarios; stable supplies of Russian gas to Europe are not one of them.

The energy situation of the post-communist EU members has yet another dimension; which is being obscured in the moment by the current woes. The issue is not only the number and type of tanks for gas reserves, the level of stockpiles and who is interconnected with whom. The so-called homework of individual member states is often being mentioned, with investments into energy infrastructure in mind. Lithuanians have done their homework on their own initiative—they had not waited for the EU to agree on a LNG terminal in the Baltic and for the financial incentive from Brussels. Independence was obtained—leased for 10 years, to be precise—from the Norwegians with Lithuanian money.

Another homework has also been to substitute the old post-socialist economies with modern, more energy efficient technologies. Politicians allocate the funds, but this issue has more to do with the economics than with the politics—even though the politicians are to come up with reforms, as well as to push them through. In this respect the Lithuanians have not been idle either. In 2002, their economy, according to Eurostat, was the fourth most energy-intensive among the twenty-eight EU member states. Today, it occupies the eighth place. Energy intensity of the individual EU economies offers an interesting picture when energy security comes into equation. Energy intensity of the economy is defined as gross domestic energy consumption divided by GDP (kilogram of oil equivalent per 1000 Euro).

The new EU member states are investing heavily into insulation, new engine technologies, industrial processes—the trend is clear. Former centrally planned socialist economies have been changing into market economies. In the long perspective the energy intensity is decreasing. This indicator also shows, along with the building of new energy infrastructure, which countries have been modernizing faster and which slower.

There is no coincidence that the countries most dependent on Russian gas have also the most energy intensive economies. According to this indicator the champion is Bulgaria, which, as Eurostat figures show, has the most energy intensive economy of the whole EU. This figure is almost a double of the Czech economy, which occupies the fourth place. Bulgaria has also the smallest gas reserves, which at the beginning of October were on 84% of its capacity—mere 63 days. The country is also fully dependent on Russian supplies.

Slovakia, on the other hand, whose Prime Minister Robert Fico has been playing the card of possible gas supplies cut offs, has reserves for 201 days. Russian gas supplies constitute 70% of its consumption and its economy is the fifth most energy-intensive, right after the Czechs. But in 2002 Slovakia was the second most energy-intensive in the EU, right after Bulgaria.

Estonia is famous for its e-government and the culture of the Internet start-ups. Yet anyone familiar with the Estonian technology of electricity production from shale oil (shale rock must be heated to very high temperatures so it is possible to literally squeeze the oil out of it) will be not surprised to find that its economy is the second most energy intensive in the EU. Third place is occupied by Romania. Modernization of its economy has been dragging on in a really slow pace. If we look at its dependency on gas supplies from Russia we find out that it imports mere 25% of its consumption, while the rest is provided by its domestic resources. Romania can boast of the fifth largest proven gas reserves, so each Romanian government should push its industries and citizens to energy frugality and to the protection of their domestic resources— as it is practiced for example by the Americans. Apart from Poland, Romania is the second and last EU member state to conduct serious feasibility probes of shale gas extraction—despite the protests from the public.

Of the twenty-eight EU member states, the eleven post-communist countries have the most energy intensive economies (the old-and-rich member countries are topped by Finland). It is not surprising that at the October summit in Brussels the countries of the Central Europe mounted the most vocal opposition to a new climate deal being brought forward by the EU Commission. It pushes for a radical cut in the emission of greenhouse gasses, environmental protection and diversified energy production. Namely Poland, largely dependent on coal generated energy and in dire need of reforming its mining sector, used the issue of modernization as the main argument against its meeting the quota of the emissions cuts. Not even twenty-five years have been long enough for the post-communist economies to make the substantial changes in their energy intensity.

Is it possible to ask whose fault it is? Hardly. There have been great many changes and reforms, and the prevailing opinion had been that market forces, pushing the industry and thus also the households towards greater efficiency, will best deal with energy consumption and such. But it has become clear that post-communist states needed, and still need, their own energy revolution— comparable to Energiwende in Germany— to be willing to reform and modernize. European funds are available, but it is necessary to have a vision, ideas and programme. More efficient energy consumption will not only result in more competitive economy but in better quality of life as well. And almost as a by-product it can help to solve the issue of energy security and dependency on energy supplies from the unstable East. Let’s keep an eye on how Lithuania will benefit from its new Independence.

Martin Ehl

Martin Ehl has been working for various Czech print and online media since 1992, since January of 2006 he is the Chief International Editor of Hospodářské noviny daily. He runs a regular bi-weekly column Middle Europa at English language Internet magazine Transitions Online (www.tol.cz), for this column he was awarded “Writing for Central Europe” prize in Austria in 2012. He is a co-editor of Visegrad Insight magazine.

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