Energy Union − a compromise for growth and good energy

The running theme of the European Financial Congress inaugurated yesterday is European integration in the context of a security crisis. In a debate which PKN ORLEN helped to organise and which was hosted by Joschka Fisher, German Vice-Chancellor in 1998−2005, participants discussed the fundamental role a cohesive energy policy needs to play in tackling the various challenges we are facing today. The speakers in a discussion on a viable model for a European Energy Union that would make the continent more secure and competitive included Andrzej Dycha, Under Secretary of State at the Ministry of Economy, Oliver Koch, representing the European Commission, and Jacek Krawiec, President of the PKN ORLEN Management Board.

It is the fifth time the European Financial Congress has gathered in Sopot. PKN ORLEN has been a co-host of this premier event from its inception. The Congress stands out for its practical focus − the solutions to the most pressing problems arrived at by experts take the form of Recommendations, which are later used in formulating the national stance on matters of critical importance to Europe’s future. As in the previous two years, energy-related issues, particularly the European Energy Union, will be among themes covered by the Recommendations. The chances for developing a common energy policy and a policy model that would best marry security with competitiveness of the European economy were addressed by participants of a panel discussion which was part of the inaugural session of the European Financial Congress. The discussion was hosted by Joschka Fischer, German Vice-Chancellor in 1998−2005 and a regular Congress attendee, and the panellists included Jacek Krawiec, President of the Management Board of PKN ORLEN, Marek Woszczyk, President of the Management Board of PGE Polska Grupa Energetyczna, Esa Hyvärinen, Senior Vice President of Fortum Corporation, Andrzej Dycha, Under Secretary of State at the Ministry of Economy; and Oliver Koch, representative of the European Commission (Wholesale Markets, Electricity and Gas, DG Energy).

Opening the debate, Janusz Lewandowski, President of the Polish Prime Minister’s Economic Council, stressed that the proposal to create an Energy Union, put forward by Poland last year, will not only serve to enhance Europe’s security but also improve the much-needed competitiveness vis-a-vis the US, China and other markets. “We have won the war of words, with slogans like energy efficiency, diversification, liquid market or interconnectors no longer raising any doubt. Now it is time to put them in practice,” Mr Lewandowski emphasised. In his speech he also highlighted two potential obstacles to the smooth implementation of a vision for common energy policy. “The first challenge is solidarity among customers, one manifestation of which could be their consent to ex ante compliance checks, where contracts, prior to their signing, are assessed to affirm that they comply in all material respects with agreed rules and do not undermine the security of EU member states. The other challenge is striking the right balance between the climate and energy agendas, so that Europe can remain the most environmentally-aware continent without compromising its competitive position,” Mr Lewandowski explained.

Our government’s strategy has industrial growth written into it, and energy prices are of key importance to investors - pointed out Andrzej Dycha, Under Secretary of State at the Ministry of Economy. In his view, the concept of a European Union propounded by Poland would provide security of supply while creating space for industrial development. “I am glad that within the past year we have succeeded in convincing other member states that these interrelations exist and in ensuring that energy-related issues receive the attention they deserve - added Mr Dycha.

A European Commission delegate Oliver Koch assured the audience that the Commission is taking last year’s gas crisis very seriously. He said that what we need to do is build new infrastructure but also work out solutions that would help to replace the national perspectives with a pan-European one. Let us imagine for a moment that Russia has turned off gas taps. Member states will think twice before they share gas supplies with their neighbours. Solidarity sounds great, but as stress tests have demonstrated it is just an empty word in a scenario where a country has its access to gas cut off - concluded Mr Koch. He also addressed climate policy issues, saying “Decarbonisation is bringing the desired outcome, but the proposed energy union should factor in that although the course towards a better climate has been set, how fast we go should be subject to discussion.”

Giving the floor to Mr Krawiec, Joschka Fischer quoted from the CEO’s article written one and a half year earlier for Project Syndicate: “We are still lagging behind because of mistaken political decisions, made in the belief that it is society and the environment that need protection, growth will come of its own accord. These decisions have turned sustainable growth into sustainable stagnation.” Jacek Krawiec admitted that the observation, unfortunately, still remains very relevant, also in the oil sector: The oil industry supports some 600,000 jobs directly and more than two million indirectly. With fuel consumption driven by 2.3 billion passenger cars and 34 million trucks, the industry each year creates an added value of USD 23bn in the EU. The taxes, excise duties and other charges we pay account for 7% (USD 270bn) of the European Union’s central budget. Given these figures, it is shocking that the oil sector has been completely overlooked in the preparation of the energy agenda - argued Jacek Krawiec, President of the PKN ORLEN Management Board.

Likely motivated by the belief that the global, liquid nature of the oil market poses no threat to the continuity of supplies, the decision was a painful mistake, dangerous to the European economy’s security and competitiveness - Jacek Krawiec said firmly, giving the fuel industry as an example: energy represents 60% of the costs at medium-sized European refineries and 20% at similar facilities in the United States, and that in a regulatory environment which is much better for business.

PKN ORLEN’s CEO believed that the European Union’s policy, which tends to favour RES, blatantly disregards the extremely poor competitive power of the EU economy: We are all in favour of fighting climate change, but not in abstraction from reality. Climate targets should not be tightened further with China, India and the US standing idly by. In 1990−2010, the EU was the only region in the world to see a reduction in CO2 emissions from consumption of energy (by 9.2%); global emissions grew by 46% in the same period. We are investing in a very expensive delusion - commented Jacek Krawiec.

The problem was also addressed by Marek Woszczyk, President of the PGE Polska Grupa Energetyczna Management Board: Poland is doing its best to meet all climate, affordability and safety targets, but we must be aware that any energy union can only be successful if it is cost-efficient. Only then will we be able to supply our customers with relatively cheap energy, which will stimulate the European Union’s competitiveness - said Marek Woszczyk.

As a delegate of a country with a unique geopolitical position, Esa Hyvärinen, Senior Vice President at Finland’s Fortum Corporation, presented an interesting perspective: Today, Finland imports fuels from various sources using interconnectors. Supplies from Russia only account for a minor share of our imports structure. Finland has clearly shown that security is possible even without energy independence - said Esa Hyvärinen. He also spoke about fuel prices, drawing attention to the fact they tend to be competitive at the wholesale stage, but lose this advantage in retail. Why is it so? “As the EU is not unanimous internally, we can hardly expect it to present a united front in its relations with the external environment. We should be aware that we are all in the same boat, which is why taking care of the external market is so important. Some have estimated that there are 350 different RES subsidies in the EU. Kafka would be proud... -  said Esa Hyvärinen.

Summing up the debate, Joschka Fischer said: The key question remains whether we, as the European Union, will do it together or each country for itself. I sincerely believe that we will speak with one voice. In the face of global changes and geopolitical challenges, an energy union is the only way for Europe to remain secure and competitive. The EU has demonstrated on multiple occasions, for example by way of the Common Agricultural Policy, that it is able to reconcile divergent interests and work out a good compromise, - Joschka Fischer summed up.

The European Energy Union will be discussed at the Congress again today. The conclusions of a report prepared by PKN ORLEN and results of a survey carried out by the Institute of Public Affairs will be presented during a thematic section entitled ‘Energy Union − a compromise for growth and good energy’ (11.30am). The debate, moderated by Wawrzyniec Smoczyński, Managing Director of Polityka Insight, will be attended by: Adam Czyżewski, Chief Economist at PKN ORLEN, Jacek Kucharczyk, President of the Management Board of the Institute of Public Affairs, Tomasz Chmal, Local Partner at White & Case LLP, Piotr Piela, Managing Partner at EY’s Business Consulting Department, and Grzegorz Zieliński, EBRD Country Director for Poland.