Category Archives: EU politics and policy

A general analysis of major decision in EU politics and policy

The Derailment of Bulgaria’s National Railways

Bulgarian National Railways (BDZ) have exited since 1866 and have been under government control since 1885. According to the CIA World Factbook, Bulgaria currently has over 4,000 km of railways all serviced by BDZ, which is also one of the most indebted public companies in the country. In the past few months, the future of BDZ has come into question due to the continuing inability for the company to pay its debts. Exacerbated by the ongoing ‘debt crisis’ in Europe, this is just one more problematic situation to take into account for the Bulgarian government.

In an continuous battle to save Bulgaria’s railway system from bankruptcy, the Ministry for Transport, Information Technology and Communications has been pursuing ways to save the BDZ. On October 3rd 2011, it was announced that the company would receive a 480 million leva (245 million Euro) loan from the World Bank under the condition that it could increase its income to the point where it can at least cover the interest on its earlier loans. These lines of credit amount to approximately 800 million leva (410 million Euro) and no installments have been made since 2008. This is due to the fact that the estimated loss of BDZ until September of this year is 25 million leva (13 million Euro).

In addition to these financial troubles, BDZ is not seen as a trustworthy company. A recent audit of its material capital reportedly showed that around 600 freight cars were “missing”. According to the BDZ Board of Directors this is due to a technical problem with the way the cars were listed in official records. However, it was due to this ‘technical problem’ that the audit was ordered, including the fact that the last inventory of the company was conducted in 2001. The outcome – for the last 10 years, the freight section of BDZ has been operating 600 freights cars that do not exist.

In the current situation, BDZ is facing a vicious circle. On October 11th, it was announced that the company would lose half of its newest passenger trains (one of its greatest assets) because it has not repaid the credit used to buy the machines. The bank which issued the credit has initiated a procedure for the sale of the trains in question, which would lead to a major disruption in the train schedules in Bulgaria. Indirectly, this would hit BDZ’s attempt to raise profits in order to repay its loans, and would also cause it to lose the newly negotiated credit from the World Bank.

From the perspective of the Bulgarian government, there is nothing that can be done. The budget does not have the possibility to bail-out the national railway company and the current European debt crisis is not helping. Possible privatization has been explored as an option and BDZ’s freight service is already being auctioned. However, whether Bulgaria’s citizens will be able to use trains in order to travel in the near future remains questionable. Many might simply decide not to take a risk and use the already booming private bus transportation system. If a further passenger decrease occurs, then BDZ’s losses would increase even more. It seems that Bulgaria’s National Railways is going to be derailed.


Commissioner Piebalgs on Energy and Development

Due to copyright restrictions, I cannot post this article here. However, it can be found on:

European Panel on Climate Change???

The Intergovernmental Panel on Climate Change (IPCC) is the UN body that deals with review of scientific research on climate change. It was created in 1988 under the UN Environmental Programme and the World Meteorological Organization. Continue reading

European Commission to Revise Energy Taxation

The European Commission has announced that it will be revising the Union rules on energy taxation. This comes at a crucial moment for the Member States, who are now coming out of the financial crisis, and will help meet the EU 2020 targets. This revision of the existent energy taxation rules is expected to introduce many benefits from taxation and at the same time support sustainable growth.

Currently, taxation of energy products is harmonized on the EU level only to a certain extent. The Energy Taxation Directive from 2003 set minimum rates for taxes of products used for energy, such as motor and heating fuels. However, these rules are now considered outdated and inconsistent with the Union’s changing goals. Revision of the Directive is aimed at addressing the EU’s higher goals in energy and climate policies, in particular increases in energy efficiency, consumption of more environmentally friendly fuel, and removing distortions in competition within the Single Market.

The Problem

A fair and transparent energy taxation is needed to reach our energy and climate targets. Our common goal is a more resource-efficient, greener and more competitive EU economy.” -Algirdas Semeta, EU Commissioner for Taxation, Customs Union, Audit and Anti-Fraud.

The energy market in the EU is generally governed by two principles – economic and environmental. Since the effects of the financial crisis are wearing off and the Member States are now facing a new challenge due to a rise in oil prices, a financial incentive to decrease the use of fossil fuels seems necessary. Also, the EU’s aim of obtaining 20% of its energy from renewable sources, having 20% energy efficiency, and decreasing greenhouse gas emissions by 20% before 2020 (the 20-20-20 Strategy), play an important role in revising the Energy Taxation Directive.

From an economic viewpoint, the EU’s current rules for taxation of energy fuels set a minimum rate above which the Member States are allowed to place their own tax rates. This has created obstacles and distortions in the Internal Market because of two economic factors – 1) current minimum rates are based on volume (EUR/1000l) and are set according to the historical rates in each state, and 2) different levels of taxation of certain fuel types has led to market price signals not fulfilling their role. The first factor means that an unfair competition between fuel sources is created and there are tax benefits for some fuel types without justification. For example, coal is currently the least taxed fuel source, and biodiesel is taxed on the same rate as conventional diesel. The second factor has resulted in artificial differences in fuel prices. For example, before taxation, diesel is more expensive than petrol. In most Member States, a lower tax is levied on the former than on the latter, resulting in the fact that the pump price does not reflect the original one.

From the environmental viewpoint, the EU’s current system of taxation does not address the issue of CO2 emissions reduction in any way. In fact, as stated above, some cleaner fuels are taxed at the same rate, or even more heavily, than the polluting fuels they are expected to replace. However, four Member States (Denmark, Ireland, Finland, Sweden) have introduced a so-called ‘carbon tax’ to address this issue by making consumers pay for pollution. Still, these states have very different rates and are not synchronized with rules under the EU Emissions Trading Scheme. This also contributes to distortions in competitiveness within the Internal Market.

Comprehensive Modern Solutions

The aim of the new Energy Taxation Directive is to steer the Union’s way into a low-carbon and energy efficient economy. The values which steer the revision are the need to contribute to sustainable growth, promotion of resource efficiency, and the creation of a greener and more competitive economy. It comes as a result of calls by the European Council of March 2008, and echoes the UNFCCC CoP 16 in Cancun in 2010.

The Commission’s answer is a comprehensive solution to a modern problem. The current minimum tax rate is to be split in two parts. One is to be based on CO2 emissions of the specific energy product and is to be fixed at 20EUR per tonne of CO2. The other concerns the energy content of the fuel and will reflect how much actual energy is generated in Gigajoules (GJ). The minimum tax rate is to be set at 9.6 EUR per GJ for motor fuels and 0.15EUR per GJ for heating fuels.

The single minimum rate for CO2 emissions would harmonize pollution taxation in the whole Union. To complement the ETS, it will apply only to sectors not covered by the scheme by the introduction of a ‘carbon tax’ on sectors such as households, transport, smaller businesses, and agriculture. For example, biofuels, which are currently taxed at the same rate as conventional fuels (due to the ‘per volume’ rule), would be subject to an exemption under the new rules, due to their better CO2 emissions. Logically, renewable energy sources are also exempt from the CO2 element, since they do not produce pollution in the energy-generation process. At the same time, the most polluting fuel – coal – will become the most heavily taxed.

The second element is more complex and has to do with how efficient the fuel source is. When it comes to energy consumption, the efficiency of the source is more important than the volume and would create a level playing field for all fuel types. For example, the current distortions in the price of petrol and diesel will come to and end. Currently, diesel is taxed at lower rates than petrol in all Member States (except the UK), despite the fact that it has a higher energy content (more energy is generated per liter). This has led to the price of diesel being lower at the pump than petrol, which has created artificially high demand for the product, also in spite of its shortage in the EU. Under the new rules, a neutral taxation method will be applied and a more realistic final price will be the result. In essence, this will contribute to the removal of distortions in the market.

A combination of the two elements will be used to determine the final rate of the tax. The EU will still set the minimum for each product and Member States would remain free to set their own rates above that. This approach has been dominant since 1993 because of a compromise solution which gives the Member States some flexibility due to their different budgetary needs.

Where is the Catch?

The changes to the Energy Taxation Directive will apply to all fuels at the point of consumption. Essentially, when a person tanks-up their car at a gas station, both components of the new tax system will apply. When it comes to electricity though, neither component applies, since there is no CO2 produced or energy generated at the end of the chain. However, the electricity sector is subject to the ETS and therefore falls under the rules of that system. Also, when it comes to nuclear power, the new rules do not apply due to the same rule. And yet, small-scale electric installations falling outside the ETS would be taxed under the revised rules.

However, the environmental component of the revisions are set to impact household budgets. Currently, 10% of CO2 emissions come from the residential sector because of fuel used for heating etc. The new rules recognize that the family purse will come under attack, and propose that there should be solid safety nets and accompanying social measures, especially for low-income households. Currently, only the UK has defined the concept of ‘energy poverty’ as occurring when a family spends more than 10% of their income on energy. Yet, no such definition has been accepted on the EU level, and the regulation of this aspect is left to each individual Member State. The Commission has proposed that the revenue from the new tax could be ‘recycled’ to compensate households through lump-sum social payments, as is already the case in the states who have introduced a CO2 tax. How effective this will be in other Member States is uncertain. It is clear that heating will remain the main problem, since each state depends on different sources for warming its residential areas (gas, wood, coal etc.) and the differentiation between fuel types will result in diverse tax rates. Certainly, individuals would have to reconsider the way they keep warm during the winter.

Furthermore, the new Directive includes a long transition period for the Member States to adapt to the new rules. Most notably, nine states (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia) will have until 2020 to implement the CO2 component of the new tax rules, due to their generally lower income level. The basis of this idea remains vague, since fuel prices are already considered too high in these countries and the current minimum levels have come under scrutiny from national governments for placing them at an economic disadvantage. For example, Bulgaria’s petrol and diesel prices have been criticized recently for being extremely high for the population’s average income, even though the country has the lowest rates in the EU.

Considering alternative fuels, the current rules tend to favor liquefied petroleum gas (LPG) and compressed natural gas (CNG) due to their fairly new position in the market. As such, a transition period of 12 years is given for these fuel types, during which they can continue to enjoy beneficial treatment and allow them to reach a level of equal competition with traditional fuels. Whether such preferential treatments will cause distortions in the market is a question left unanswered. Yet, with oil prices on the rise, these alternative fuel types are looking increasingly more attractive to the consumer, even without the new taxation rules.

Also, two other sectors will continue to benefit from the revised Directive. The tax rates related to agriculture will remain lower, although they will depend on the environmental objectives that are supposed to ensure this sector’s contribution to saving energy. Less convincingly, the new proposal will not apply to aviation and maritime transport because of existing international obligations and the risk of competitive distortions. However, aviation is set to enter into the ETS in the near future and will have to comply with rules similar to those in the new Directive. The issue of maritime transport remains shrouded in mystery.

From Principle to Reality

For now, the new proposal revises the rules for fuel taxation as the Commission sees fit. It is up to the Council of the EU and the European Parliament to discuss and amend as they wish. Expectations are such that the Directive will be accepted and put into force as of 2013. The Commission sees this as ideal, since it would coincide with the ETS’s third working phase (2013-2020).

However, this will not mean that the new rules will apply directly. The phase-in period which allows the Member States to adjust their tax systems to the new rules is still unknown (the Commission estimates that it might take until 2023), but national administrators, as well as businesses, would expect sufficient time for implementation. Taking this into account, as well as the transition periods mentioned above, it could take a long time before we see taxation playing a role in the EU’s green economy initiative.

European Parliament Rejects Resolution on Nuclear Safety

In the context of the ongoing nuclear crisis in Japan, the European Parliament discussed issues of nuclear safety in Europe on Wednesday, April 6th, 2011. During the plenary session in Strasbourg, among the items on the agenda was several proposals for a resolution on the future of nuclear power in the EU, none of which was accepted. In the midst of the debate, MEPs were divided over the topics of nuclear stress-tests (risk and safety assessments) and the need to progress to alternatives such as renewable energy.

In a mixture of realism and idealism, the MEPs debate centered on the safety of nuclear power plants in the 14 EU member states that have chosen to use atomic energy. One realistic viewpoint was presented by Giles Chichester (UK), who stated that the differences between Japan’s and Europe’s nuclear reactors and seismic activity are too great to make comparisons and to ban the technology immediately would mean “acting without evidence”. This viewpoint was officially supported by the motion for a resolution presented by a large number of political groups in the EP, stating that we have to bear in mind “that nuclear energy will continue to be part of the energy mix of several Member States for many years to come”.

On a more idealistic side, MEP Niki Tzavela (Greece) stated that “we are entering a new era of mega-disasters” and was supported by Marita Ulvskog (Sweden) who called for the need to find new alternatives to nuclear power. Such views were again to be found in the proposals for a resolution, with one text proposing that the EU should develop a “strategy beyond its borders involving consistent action at the highest political level”, pushing as far as “a ban on building nuclear power plants in high-risk regions, leading ultimately to a UN Convention”. A clearer ides of how this is to be done was lacking in the debate and the proposed resolution.

For the Council, Hungary’s Secretary of State Affairs, Eniko Gyori, stated that legislation will have to be revised in light of the proposed stress-tests. He further emphasized that a search for alternatives to nuclear power is ongoing, but no one expects the 14 Member States who use atomic energy to decommission their reactors immediately.

At the same time, Energy Commissioner, Gunther Oettinger, explained that the Commission was currently working on the criteria to be used for the stress tests, which will be sent to the Parliament and made public. He stated further that it is up to national nuclear energy regulators to carry out the stress tests because the EU lacks competence to do so. In response, MEPs attacked the voluntary basis for conducting the tests and MEP Rebecca Harms (Germany) went as far as to call them “suspicious” and stated that atomic regulators are a club, who know each other and tolerate very high risks.

At the end of the debate on Thursday, April 7th 2011, the MEPs voted on a resolution on nuclear safety, which was rejected by 300 votes against, 264 in favor, and 61 abstaining. The main reason for this outcome was a clear disagreement on many points of the text by the political groups. Evidence of this is the small margin by which the text was rejected.

Energy Security in a Post-Nuclear Age

You come home and you flip a switch – the light comes on. The reason this happens is because somewhere, many kilometers away, steam is turning a turbine and generating electricity, which is then fed into a grid, which transports the energy to your home. This is the centralized energy-production system which has existed for as long as we can remember. This process for electricity-production is common to all states. Whether you live in the USA, France, or China, that is how everyone receives their electric power. Then, everyone receives a bill to pay for the amount of electricity they have used for a specific time period. Could it be any other way? Continue reading

Geo-Politics at the Heart of EU’s Energy Future

The European Union imports a little more than 50% of its energy resources. In this situation, no one should be surprised to see the EU’s Foreign Policy Chief, Catherine Ashton, alongside the Energy Commissioner, Guenther Oettinger. Foreign policy has come to dominate energy talks and vice versa. This became even more evident at the EU’s Energy Summit in Brussels on Feb. 4th, 2011. Continue reading