IEA: Europe Needs a Single Energy Market

Better energy connections would maximise supply; Russian gas set to stay dominant, energy union can help. Carbon market reforms should be introduced now.

The European Union must not create a buyers' cartel in its bid to build a single energy market and curb reliance on Russian gas, the International Energy Agency (IEA) said on Monday.

Conflict between Russia, the EU's biggest energy supplier, and Ukraine has focused efforts on a reinforced EU energy market with better cross-border links to share out power and gas and deliver fair pricing.

In a report published on Monday, the IEA said much remained to be done, despite progress since a previous EU energy policy review in 2008.

"To make the most of the diversity of its energy sources, and to move towards an energy union, the EU must better pool its resources within the internal energy market to enhance both energy security and the competitiveness of its industry," IEA Executive Director Maria van der Hoeven said.

"But let's be clear: such a union should not represent a buyers' cartel."

Commission officials are exploring whether EU rules could allow countries to work together as a single gas buyer when dealing with Russia, which has charged some EU nations more than others.

Since 2012, the Commission has been investigating Russia's Gazprom for suspected anti-competitive behaviour, including on pricing.

Attempts to settle the dispute have stalled since crisis flared between Russia and Ukraine with Moscow's seizure of Crimea in March.

Russia supplies around a third of EU energy, roughly half of which flows via Ukraine. As a bloc, the EU is the world's biggest energy buyer, spending around a billion euros a day on imported fuel.

Russia is set to remain dominant, but the EU can improve its supply security and integrate domestic renewable energy into the system.

To help achieve that, the EU needs rapid reform of its Emissions Trading System (ETS), the EU's prime tool for shifting to lower carbon energy.

The Commission has proposed plans to remove a glut of carbon permits that has depressed the market, but member states have yet to agree how quickly to implement them.

A carbon price of around 30 euros per tonne is needed compared with around 7 euros now to drive investment in onshore wind generation, the IEA said.

The IEA also sees scope for the EU to make greater energy savings, which improve supply security and benefit the economy by saving money and cutting emissions.

The EU has agreed a new 2030 efficiency target, but critics from insulation firms and makers of lower energy intensity appliances, such as Philips, say it amounts to business as usual at best.

By Barbara Lewis