Energy Security in Focus as Ukraine Unsettles EU Talks

The escalating crisis in Ukraine is moving security of gas supplies to the forefront of the European Union debate on how to design its climate and energy rules for the next decade.

Energy ministers from the EU’s 28 member states are set to discuss the unrest in the bloc’s eastern neighbor, which is the transit country for around half of Russian gas shipments to Europe, at their informal meeting in Athens today. The need to ensure energy security amid the crisis in Ukraine was also highlighted by nations from Ireland to Poland at a gathering of environment ministers yesterday.

“It’s creating a backdrop for the climate and energy package now more and more than ever before,” Ireland’s Environment Minister Phil Hogan said in an interview during the meeting of environment chiefs. “As each day passes, there’s more and more concern about energy security and security of gas supply for Europe in the years ahead.”

The EU’s energy dependency rate is set to rise to 80 percent by 2035 from the current 60 percent, according to the International Energy Agency. Russian gas met about 30 percent of EU’s consumption last year, according to OAO Gazprom (OGZD), Russia’s monopoly pipeline-gas exporter. To facilitate a European decision on energy and climate policies for the next decade, which the bloc’s leaders aim to take in October, the European Commission is due to present a road map by next month on how to cut Russian gas imports.

Ukraine Impact

“We definitely feel the impact of the Ukrainian crisis and the ensuing energy security concerns in the debate on a 2030 climate and energy framework,” German Environment Minister Barbara Hendricks said in e-mailed comments. “By progressing on energy efficiency, renewable energies and climate protection, we make ourselves more and more independent from energy imports -– while reducing greenhouse gas emissions at the same time.”

The turmoil in the former Soviet republic continued as insurgents killed seven paratroopers and wounded eight others in an ambush near an eastern rebel-held stronghold earlier this week, the deadliest attack on Ukrainian forces since the secession campaign began after Russia annexed Crimea in March. Russian Foreign Minister Sergei Lavrov said yesterday that Ukraine is sliding into a civil war that will make it impossible to hold legitimate presidential elections on May 25.

Gazprom Bill

Gazprom sent Ukraine a bill on May 12 for an estimated $1.7 billion of supplies the country may import next month, saying it will cut off flows if no money is received by June 2. The company is moving Ukraine to prepayments because it owes $3.51 billion for fuel delivered in 2013 and through April this year, Chief Executive Officer Alexey Miller said.

Gazprom raised the price it charges Ukraine for gas by 81 percent in April, to $485 per 1,000 cubic meters, after the former Kremlin-backed President Viktor Yanukovych was ousted. Ukraine considers the price economically unjustified and said it will repay the debt after Russia cuts the price back to levels from the first quarter.

“If we manage to do energy efficiency and promote renewables and trade energy more freely with each other, we will also in the long-run solve our dependency on imports of fossil fuels,” Danish Climate and Energy Minister Rasmus Helveg Petersen said in an interview today. “This question did not exist as an issue three months ago and is now one of the big issues in energy policy.”

Europe’s Challenge

The challenge for Europe is to design the best way to combine energy security with policies to cut emissions in its strategy for 2030, Jos Delbeke, director general for climate at the European Commission, told reporters after the ministerial gathering in Athens yesterday. No country has said energy security and low-carbon goals are contradictory, he said.

The commission in January proposed stepping up emission reductions to 40 percent by 2030 compared with the 2020 goal of cutting greenhouse gases by 20 percent from 1990 levels. The plan also assumes accelerating integration of the bloc’s energy market and boosting the share of renewable energy and energy efficiency without separate binding targets.

There is a “considerable amount of difficulty” for some nations related to how emissions reductions are calculated and accounted for, Hogan said. When it decides about how to divide the emissions-reduction burden among member states, the EU should take into account not only the level of gross domestic product per capita in individual countries but also public debt, he said.

Final Package

“Some member states don’t want to put themselves in an agreement they can’t achieve because of the fact that they want to recover their economies as well,” Hogan said. “We all aspire to low-carbon and climate-resilient society, but equally we have to keep in mind that we need jobs. One of the sticking points at the moment is how agriculture and forestry are going to be calculated in the final package.”

Fair burden-sharing has also been urged by six central and eastern European countries led by Poland and Hungary, according to a joint paper obtained by Bloomberg yesterday. The nations, which also include the Czech Republic, Slovakia, Romania and Bulgaria, are seeking extra emission permits for auctioning for countries with low-income per capita and financial support from special funds to help meet climate goals.

The commission’s proposal has divided member states into three groups: those supporting the plan; those that have reservations; and those that want to make it more ambitious, according to Yiannis Maniatis, the environment minister of Greece, which holds the EU rotating presidency in the first half of 2014. Ministers are next scheduled to discuss the 2030 framework at their quarterly meetings in June before the bloc’s leaders have a second round of talks on the plan.

“It is going to be difficult to make a deal and it will require compromise all around,” Hogan said.

To contact the reporter on this story: Ewa Krukowska in Athens at ekrukowska@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Andrew Reierson, Sharon Lindores

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