European Union Energy: New Role for States and Markets

Abstract

The European Union (EU) is among the world’s largest integrated energy markets and is now in transition towards the Europeanization of its energy policies. EU energy policy is currently searching for the optimal regulatory framework. The previous overly market-based ideology is rapidly changing to a more interventionist policy based on public intervention for security of supply and, increasingly, also for environmental purposes. The market-based method is being (partially) replaced by stronger public sector involvement and solidarity between EU member states. Since markets fail to deliver security, despite economic theory suggesting that they could, states and the EU step in and provide for state responses to energy security threats. This is visible in many areas of EU energy law and policy, infrastructure investments being one of them. Here, the mechanism to make the investment decisions and EU ‘solidarity’ provide examples. Similarly, the push for renewable energy is changing the role that the state and the public sector play in the markets. Despite claiming to be a market-based system, this area of energy business is driven by state subsidies. The final area where state intervention into the markets in the name of the environment becomes particularly visible concerns the shale gas exploration in EU member states. Here, states make the decisions on activities in this area based on sustainability and security considerations.