Abstract
In the course of the post-2020 climate and energy policy framework debate, the European Commission opened a new round in tackling a longstanding governance dilemma between European market integration and member states’ discretion to develop policies according to domestically legitimized preferences. Motivated by ensuring welfare gains from an internal market, the attempts at the European Union level to strictly harmonize national support schemes for renewables ignore costs induced by the heterogeneity of preferences in member states. This article argues for a more flexible approach in coordinating respective energy policies: It might be reasonable to consider more strictly harmonized support schemes for large-scale projects of European relevance. However, there is still a need for less harmonized policies in order to give the necessary room for experimentation with innovations suited to the diverse member states’ preferences and societal risk perceptions.
Europeanization has a long history; over time, the modes of policy coordination have developed from very loose intergovernmental coordination of decentralized member state policies to stricter forms of regulatory harmonization in selected policy fields (Hildingsson, Stripple, & Jordan, 2011; Wettestad, Eikeland, & Nilsson, 2012). Alongside this development, a partial turn from an intergovernmental to a supranational mode of governance occurred, particularly regarding competition law within the European single market (e.g., McGowan & Wilks, 1995). However, European policy integration is not characterized by a consistent and uniform degree of integration across policy fields. Instead, we can find substantial differences with regard to the degree to which member states transfer authority to the European level. 1 Literature on Europeanization 2 has pointed to this permanent tension between the policy harmonization requirements of an integrated market, on one hand, and the discretion of member states to develop policies according to domestically legitimized preferences, on the other. Thus, European policy making is characterized by a steady struggle to deal with this governance dilemma, that is, to balance the welfare gains from an internal market with possible welfare losses from overriding national peculiarities.
Member states’ energy policy has historically evolved under national authority. Energy security is a high priority of every nation-state and a key driving force for member states’ national energy policies. This underlies member states’ insistence on their right to decide their own energy mixes, even in a common European energy market. Thus, there is an immense diversity among member states regarding energy mixes, technology preferences, risk perceptions, and administrative styles and structures as well as with regard to the policy instruments used to manage energy and climate issues.
Only with the adoption of the Lisbon Treaty in 2007 did energy policy formally become a subject of community activities. In 2009, the European Union (EU) adopted a comprehensive energy and climate policy framework to foster a low-carbon energy transition, combined with a policy package to realize the internal energy market. These packages should ensure implementation of the policy targets defined by the European heads of state and government in 2007 to reduce greenhouse gas (GHG) emissions by 20%, to increase the share of renewable energy in gross final consumption to 20%, and to improve energy efficiency by 20% by the year 2020.
The integrated EU energy market should guarantee the achievement of the targets in a cost-efficient way through the free, cross-border transfer and the trading of gas and electricity. However, the question of how to move forward with a European low-carbon energy transition in an integrated market cannot be reduced to a purely economic consideration. The critics of unilateral energy and climate policy action of member states argue that a cost-efficient spatial allocation of generation facilities and transmission lines across Europe can be more efficiently organized at the EU level and by centrally defined policy instrument. However, these advocates of a uniform European energy policy ignore the heterogeneity of preferences among member states and stakeholders with regard to the definition of a feasible and desirable future energy mix or with regard to broader concepts of the prospective organization of energy flows in terms of more centralized or more decentralized supply structures.
The first part of the article analyses the logic behind the most recent modifications of the European energy and climate policy framework as well as the governance tools that are used by the European Commission (EC) to prompt coordination of energy transition efforts among member states. Generally, a weakened commitment of member states regarding the policy targets can be observed. Additionally, the EC sparked a new round of tackling the governance dilemma between European market integration and regulatory diversity among member states regarding energy and environmental issues. This is indicated by a reinforced supranational pressure for top-down energy policy coordination, that is, to harmonize national support schemes for renewable energy sources (RES) via competition law.
The EC has argued that the modifications in the target architecture aim at increasing the flexibility of member states to deliver GHG reduction. Seemingly contradictory at first glance, however, are the commission’s intensified efforts to finally come forward with a regulatory harmonization of support schemes for RES, which, in fact, restricts national flexibility. I argue that both of these modifications are adopted not for their effectiveness in achieving climate or environmental objectives but for their alignment with core beliefs of powerful stakeholders regarding cost-efficiency and internal market compatibility of targets, policies, and measures. I show that the need for greater energy policy coordination is viewed by the EC almost solely through the prism of single-market integration, with an explicit assumption of a governance need to harmonize national support schemes for RES from the top down.
The second part of the article discusses the implications of the most recent developments in European energy and climate policy on Germany’s transitions pathway. In particular, the Germans’ approach to phasing out nuclear energy and their level of ambition in increasing RES share in energy production do not align with the energy strategies of a range of other member states, which follow their own preferences according to their energy mixes, their historic domestic energy system structures, and their path dependencies. As the country with the most ambitious approach to transforming a conventional-fuel-based energy system into a system based on RES, Germany’s progress and the outcome of such an energy transition experiment are of global importance.
The discussion of the implications furthermore considers whether the current amendments in the European policy framework create the necessary room for policy experimentation and innovation. An energy transition is a complex process of sociotechnical change, which requires destabilizing lock-in mechanisms in the existing system and shifts in behavioral patterns of consumers and producers as well as technological, political, and social innovations (cf. Geels, 2010). Given that any transition process does not follow a predefined and uncontested script but is characterized by a great amount of uncertainty, there is a need for policy experimentation and innovation. Insights from the literature on federalism and mechanisms of policy convergence (cf. e.g., Oates, 1999; Rogers, 1995; Saam & Kerber, 2013; Walker, 1969) reveal the potential of decentralized policy experimentation, in contrast to a sole pronouncement of the risks of regulatory diversity in an integrated market. As an alternative to top-down regulatory harmonization, which restricts member states’ flexibility to develop adaptive and innovative policy approaches, decentralized jurisdictions in a multilevel system with a higher degree of discretion might function as laboratories of innovation. As these decentralized units are interlinked through various societal, economic, or political channels, regulatory and ideational competition might stimulate subsequent horizontal processes of policy learning and diffusion (Tews, 2005).
Thus, this article argues that a one-dimensional market perspective, which emphasizes market functioning and macroeconomic concerns about short-term cost efficiency, is too static of a perspective. Moreover, it does not appropriately engage the potential benefits of decentralized innovation and experimentation in energy transitions. A broader and more dynamic perspective on the question of how to move forward with a European energy transition should include, in particular, the need for new players who might challenge established patterns of action in the energy field through decentralized experimentation and innovation (Fligstein & McAdam, 2011).
Europe at a Crossroad? The Shaping of the Post-2020 Energy and Climate Policy Framework Through the Prism of Single-Market Integration
On October 24, 2014, the European Council agreed upon the 2030 climate and energy framework, with targets of at least 40% GHG reductions, at least 27% RES, and at least 27% energy savings. The 40% emissions reduction target is to be broken down to individual member states based on their gross domestic product per capita. Concerning the efficiency target, the heads of state failed to make it binding either at the EU or the national level.
Most relevant to this article are the modifications with regard to the RES target. National binding targets for renewables were scrapped. The new RES target is a nonbinding target for member states. The previous RES target instead had a legally binding nature for member states, and to ensure its success, the Renewable Energy Directive (2009/28/28/28/EG) was adopted in 2009. The directive requires that each member state must achieve a certain percentage of energy from renewable sources by 2020. However, member states have significant national discretion over the means and policies employed to meet these targets. Thus, member states agreed with the RES directive on a low level of regulatory harmonization regarding support schemes for renewables. With the new target, however, it is questionable whether there are sufficient incentives for member states to increase their share of renewables domestically after 2020.
Watering Down the Binding Force of Targets in the New Target Architecture
The commission’s Green Paper “A 2030 Framework for Climate and Energy Policies” (EC, 2013a) posed questions about the types, nature, and levels of targets and their interactions at the center of the consultation process. Due to diverging views among member states and stakeholders on the character of these interactions – ranging from mutual support to trade-off – the commission suggested the necessity of checking “whether new targets for renewable energy and energy efficiency would be necessary to deliver further progress in the 2030 perspective” and “whether having only a GHG emissions target for 2030 would be appropriate, taking into account other objectives such as security of supply and competitiveness” (EC, 2013a, p. 7).
Parallel to the public consultation process, the commission’s working staff has conducted a comprehensive impact assessment to assess the different policy options regarding target architecture and levels of targets in order to back the final decision of the EC with its findings (EC, 2014a).
The impact assessment found higher additional benefits in the case of a triple-target approach but equally perceived the risk for member states to continue with the other low-carbon energy sources and technologies incentivized by the European Emission Trading System (ETS), like nuclear power or carbon capture and storage (CCS): “A single GHG target would in principle treat options for GHG reductions in a non-discriminatory and technology neutral way. However, higher efforts geared towards energy efficiency and renewable energy beyond what is needed to achieve a GHG target would result in higher benefits relating to e.g., improvements in fuel efficiency, security of supply, reduction of the negative trade balance for fossil fuels, environmental impacts and health” (EC, 2014a, p. 15).
Thus, instead of arguing for a single-target solution, the report emphasized various benefits of a three-pillar approach. Nevertheless, the final decision of the EC, which was formalized in its communication to the council and the parliament, only emphasizes the short-term cost increase of the triple-target approach. In January 2014, the commission finally concluded that one binding GHG target only “represents the least cost pathway to a low carbon economy which of itself should drive an increased share of renewable energy and energy savings in the Union” (EC, 2014b, p. 5).
The commission additionally justified the single-target-approach with the higher flexibility given to member states to achieve CO2 reductions because of the nondiscriminatory and technology-neutral nature of such a single target. Regarding the additional benefits of the three-pillar approach, the EC minimizes their importance with the following arguments: “Experience with the current 2020 framework indicates that while European and national targets can drive strong action by the member states and growth in emerging industries they have not always ensured market integration, cost-efficiency and undistorted competition [emphasis added]” (EC, 2014b, p. 5).
The increased flexibility of member states, to deliver GHG reduction, however, initially seems contradictory to the commission’s intensified efforts to finally come forward with a regulatory harmonization of support schemes for renewable energies, which, in fact, would restrict national flexibility.
Flexibility of Member States Versus a Strictly Europeanized Governance Framework: An Inherent Governance Dilemma Within the EU
From the EC’s perspective, there is no conflict between its notion of flexibility regarding choice in low-carbon energy sources to achieve the GHG objectives and the need for a “strong European governance framework accompanying the single target” (EC, 2014b, p. 6) – precisely, the reduction of national flexibility regarding instrument choices for RES support schemes. Instead, the commission argues that the strong European governance framework accompanying the single target should aim at delivering “EU objectives for renewable energy and energy savings in a manner that is consistent with attainment of national and European greenhouse gas targets and coherent with the wider principles of European energy policy: the operation and further integration of the internal energy market [emphasis added] and the delivery of a competitive, secure and sustainable energy system” (EC, 2014b, p. 6).
Thus, if the community wants to promote regulatory competition and a substantial race to the top, it must allow for substantially greater regulatory diversity. However, regulatory diversity, in turn, will automatically lead to distortions in the free movement of goods and thus infringe upon one of the founding principles of the union.
This is an inherent governance dilemma that the EU has faced from of its initial pronouncement of market integration as the driving principle of European integration (e.g., Scharpf, 1996; Weale et al., 2000). Conflicts arise especially around the question of how much discretion should be given to the member states to develop national policy approaches, which might come into conflict with single-market rules. Clarification about a prioritization can often only be delivered by case law decisions from the European Court of Justice (ECJ). 3
Market integration within the EU is a politically driven process of eliminating trade and investment barriers, as well as competition distortions, between the members of the EU. It occurs through the replacement of differing national legal provisions with harmonized European legal provisions. Environmental protection within the EU – although equally a field of European action with a legal mandate since the adoption of the European Single Act in 1986 – can rely significantly less on this type of full regulatory harmonization. The desired levels of standards and the choices of policy instruments are nationally defined according to heterogeneous national preferences, path dependencies, and regulatory patterns (e.g., Knill, 1998). The same is true for energy policy coordination, which became a subject of community activity in 2007. Primary as well as secondary EU law left significant discretion to member states on energy matters. Under these conditions, however, national provisions often come into conflict with basic single-market rules. This tension has not been fully resolved by any of the amendments of the EU’s Treaty provisions.
However, a full harmonization of member states’ energy policies comparable to single-market provisions is hard to achieve due to the heterogeneity of preferences among member states. It is furthermore not desirable, as it would hinder regulatory competition between jurisdictions, which drives decentralized, adaptive policy innovations and subsequent horizontal learning processes.
Supranational Pressure to Force Regulatory Harmonization in RES Support Schemes
The long-lasting struggle in the EU over RES support schemes is a very appropriate example of this inherent governance dilemma. The EC has repeatedly made attempts to harmonize national support schemes on renewable energies and to promote a specific instrument as the most market compatible (cf. Jacobs, 2012; Lauber & Schenner, 2011).
Support schemes for renewables require an administrative determination of either the support levels or of a quantity target. 4 Thus, broadly we can distinguish between price-based and volume-based support schemes. Quota systems with tradable certificates were the first preferred instrument choice of the EC. Green electricity producers receive certificates for their energy, which they can sell to the actors, who are obliged to fulfill their quota obligation. Such volume-based quota systems were perceived by the EC as the appropriate instrument choice in an integrated energy market, particularly because of their high compatibility with market principles and their competitive price determination.
In contrast, within price-based support schemes, the price is administratively determined either as a fixed remuneration for every kWh of RES electricity produced independently of the market price, as in the case of a guaranteed feed-in tariff (FIT), or as a part of the remuneration, in the case of a fixed or floating premium in addition to the market price (feed-in premium – FIP). FITs are perceived to be highly effective in terms of stimulating investment in RES, but they are criticized for their lack of incentives to couple the feed in with the corresponding demand for electricity. Thus, FIPs, as well as hybrid forms of FIPs and FITs, have been developed to stimulate direct marketing and market integration of RES.
As early as 1998, the EC saw no alternative to an instrumental shift and regulatory harmonization: “the move from a fixed tariff approach towards one based on trade and competition is at some stage inevitable” (EC, 1998, p. 17, quoted in Busch, 2005, p. 241). However, this volume-based economic instrument was not preferred by the majority of European countries. Instead, price-based FIT systems diffused among member states, especially due to their effectiveness in stimulating investment. Current surveys indicate a growing trend toward European convergence of national support schemes based on price-based economic instruments, such as guaranteed FITs followed by guaranteed market premiums (Kitzing, Mitchell, & Morthorst, 2012). The most ostensibly market-compatible quantity-based quota system did not perform well in practice: “The recent substitution of quota obligations with other support mechanisms in three large countries – UK, Italy, and Poland – suggests a trend moving away from using quota obligations in Europe” (Ecofys, 2014, p. 81).
So far, member states have been able to fend off the supranational pressure for harmonized RES support schemes. They may do so by referring to constitutional provisions of the EU primary law which defines the “Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply” (Art. 194 TFEU) as well as by referring to EU secondary legislation, specifically the RES Directive (2009/28/28/28/EG), which provides national discretion over the means and policies for achieving mandatory national RES targets.
As is the nature of a dilemma, the problem is inherent and thus persistent; it is an equally constitutional provision of EU primary law that enables the EC to renew its attempts to harmonize national RES support schemes by using the lever of competition law (see Figure 1). Concerning single-market integration, member states have transferred the authority to control and sanction compliance with single-market rules from the national to the supranational level. Single-market integration, precisely competition policy and law, is the only European policy field in which a turn from an intergovernmental to a supranational mode of governance has occurred (McGowan & Wilks, 1995). Thus, the EC has the discretionary power to decide whether to commence an infringement procedure against competition rules and to refer a case to the ECJ.
The inherent governance dilemma in European RES policy and the new attempt to define adequate policy levels and instrument choices.
Governance Tools to Prompt Regulatory Harmonization of RES Support Schemes
The EC’s efforts to bring about regulatory harmonization in support schemes have intensified since the end of 2013. These efforts include the revision of the state-aid guidelines as well as the opening of infringement procedures against national support schemes – in particular, against the German support scheme.
In December 2013, the commission submitted a new draft of its guidelines on environmental and energy state aid. The commission’s state-aid guidelines define exemptions to the general prohibition of state aid in the internal market and define specific justifications for state aid which supersede competition rules. Since the introduction of the European Single Act in 1986, the guidelines have been an effective means for the EC to extend its scope for action beyond the interests of member states. As a kind of European soft law, these guidelines are not directly binding for the member states. However, due to their binding effects for the commission’s decisions on the state-aid rules conformity of national provisions, they have a meaningful law-shaping effect on the national policies of member states (Hartlapp & Bauer, 2011). The draft guidelines on state environmental and energy aid contain provisions which seriously interfere with member states’ national authority to shape support schemes for RES.
The initial draft of the guidelines, published in December 2013, included a provision concerning the design of national support schemes for RES, which will be considered compatible with the commission’s perception of a proportionate state aid, which does not distort competition to an extent contrary to the internal market. FITs were defined as a nonmarket compatible instrument. State aid for electricity from RES will only be considered compatible with the internal market if the aid is granted as a premium in addition to the market price; the level of granted aid has to be determined by a technology-neutral, competitive bidding process. Furthermore, the commission drafted an additional requirement that member states have to open their national support schemes for renewable electricity generated in other countries. 5
After a process of public consultation, the new guidelines were adopted in April 2014 (EC, 2014c). Due to the substantial number of critical comments and negotiations with member states, who insisted on more flexibility in the financing schemes, some slight changes were made. First, the adopted guidelines now consider the different stages of technological development of renewable energy technologies and allow technology-specific auctions. Second, the required opening of national support schemes to foreign producers was slightly softened, due to the pending cases in front of the Court of Justice concerning the issue (see note 5). Third, although the Commission maintains its preference for market premiums to be determined through competitive bidding processes, the guidelines now contain a provision for a so-called opt-out-option from the tender mechanism, if • Member States demonstrate that only one or a very limited number of projects or sites could be eligible; or • Member States demonstrate that a competitive bidding process would lead to higher support levels (for example to avoid strategic bidding); or • Member States demonstrate that a competitive bidding process would result in low project realisation rates (avoid underbidding) (EC, 2014c).
With the provision of such detailed specifications in their guidelines, the commission is using competition law to shape energy policy. It is thus seriously intervening in the constitutionally defined rights of member states. As legal scientists observe, “some of the criteria of the state aid guidelines violate the provisions regarding the energy policy competence level as defined under Article 194 TFEU and the Renewable Energy Directive 2009/28/EC” (Centrum für Europäische Politik, 2014, p. 2; author’s translation into English).
In parallel with the publication of the draft guidelines, the commission opened a state-aid infringement procedure against Germany in December of 2013. To understand the relevance of this infringement procedure within the struggle over support schemes, it is important to note that the German scheme has been recognized by many scholars and practitioners as a role model for subsequent national adoptions of similar FIT/FIP-based support schemes in a several other European countries.
The state-aid conformity of the exemptions granted for German electricity-intensive companies regarding the renewable energy surcharge has ostensibly been the subject of the procedure. There is some evidence, however, that the opening of the infringement procedure has been motivated instead by a desire to establish an additional lever to further substantiate the commission’s demand for harmonized support schemes in its preferred direction.
What becomes important in this proceeding is its side effect: A pending infringement proceeding creates immense pressure for national action, as a commission’s decision to initiate an infringement procedure results in the so-called Standstill requirement (Article 88, TFEU). It requires the immediate suspension of the controversial national provision. In the case of the infringement procedure against Germany, the EC’s decision suspended further grants of multibillion EUR exemptions to German energy-intensive companies until a final clarification of the case or a timely amendment of the national legal provision (The Renewable Energy Act), with prior notification and approval by the EC, is made.
Thus, the EC thereby follows its overarching concern with aggregate market compatibility and has used its discretionary power in competition matters as a compulsive lever to enforce regulatory harmonization of national support schemes for renewable energy.
Implications for the German Energy Transition Process
The German approach to energy transition is based on four main pillars: nuclear phase out, an expansion of RES, an increase in energy efficiency, and the reduction of GHG emissions. Rapid success in the use of renewable sources has been mainly driven by a previous policy framework, which has attracted small-scale investments from a variety of actors at local and regional levels. The emergence of these new actors in the energy field, precisely decentralized citizen’s energy cooperations investing with or without local authorities’ involvement in RES facilities in their region, is one of the most striking features of the German energy transition process. According to an ownership-type analysis, more than one third (36.4%) of installed RES capacity has been set up by local and regional initiatives in which citizens have the majority of the decision-making power, while the energy utilities’ share accounts for only 12% of the new installed RES capacity (trend:research GmbH & Leuphana Universität Lüneburg, 2013). At the local level, many municipalities and counties have strongly advocated for the expansion of the renewable energy supply. The popularity of decentralized renewable energy development among local authorities is exemplified by the rapid diffusion of the 100% RES communities concept (Beermann, 2009). 100% RES communities strive for implementing diverse measures to reach the target to feed in the same amount of locally sourced renewable energies into the grid that the region consumes annually.
Meanwhile, the market diffusion of renewable energy technologies for generating electricity has reached a new stage, where the need for policy coordination between distinct levels of jurisdiction has become obvious (cf. Ohlhorst, Tews, & Schreurs, 2013). Only recently has the political relevance of European policies for the German energy transition been given much higher political attention – enforced, of course, by the conspicuous signals given by actors at the European level.
For some time, there have been diverse voices in the German debate which have pointed to the shortcomings of a purely national perspective on the coordination requirements. However, they argue from very different perspectives. One coalition argues that Germany’s decision to follow its own path in energy system transformation threatens the EU’s efforts to achieve a cost-efficient transformation of energy supplies within the European energy market. Following this logic, Germany must modify its plans and respective instruments to fit with the expectations of the European energy market (e.g., Böckers, Haucap, & Heimeshoff, 2013). 6 Another coalition expresses concerns that EU-level politics are pressuring Germany to water down its ambitious approach to transforming its energy system. This position is grounded in the perception of the German path for energy transition as a potential role model, which, given that it provides evidence for feasibility, might motivate other countries to follow. As a consequence, they call for an “Europeanization of the German energy-transition-politics” (Geden & Fischer, 2014).
Implication I: An Unfavorable Target Architecture
According to many stakeholders and scholars, a GHG target alone, with the EU-ETS as the lead instrument of climate protection, will never set enough incentives to invest in diverse RES and in energy efficiency, as suggested in the Commission’s final proposal to the council. 7 Instead, it will lead to a strengthening of those energy actors that operate according to the logics and structures of the traditional configuration of electricity production (based on large centralized nuclear and fossil fuel power plants), while the latter gain ground in climate change issues by the promotion of CCS.
The implied neutrality regarding the choice of low-carbon technologies in the new target architecture clearly conflicts with the German approach to the energy transition without nuclear energy. Additionally, the use of other low-carbon technology options to meet climate change objectives – in particular, CCS – is not desired, according to the (still valid) conclusions of the respective German policy discourses. Thus, the avenue Germany wants to pursue to transform its energy system is not characterized by treating options for GHG reductions in a nondiscriminatory and technology-neutral way. Instead, it discriminates between wanted and unwanted low-carbon technologies – due to the respective public attitudes toward energy technologies and the policy makers’ responsiveness to those attitudes.
However, in an integrated energy market, the cross-border trade and exchange of electricity produced by unwanted technologies cannot be politically restricted; electricity is traded in the market as a homogeneous good, and its competitiveness is almost fully determined by its price in the market.
Thus, to maintain the credibility of its own climate protection ambitions, to maintain domestic public support for an energy transition based on renewables and, most probably, to maintain competitiveness, the German government must prevent any development which improves the European framework conditions for the use of nuclear energy. It also must advocate for the prominent role of renewables in transforming the European electricity or energy system (Geden & Fischer, 2014). However, due to the heterogeneity of preferences regarding energy mixes and structures among member states, transferring the German approach to energy transition by means of a strict Europeanization is not recommendable.
Implication II: A Hasty Government’s Adaptation to Supranational Pressure
As described earlier, the EC’s new state-aid guidelines specify design features of a national support scheme for renewables so that they meet the compatibility requirements of these guidelines. To reiterate, this will only be the case if the aid is granted as a premium in addition to the market price, while the level of granted aid must be determined by a competitive bidding process. Such volume-based auction or tender systems fundamentally differ from the scheme that Germany had applied over the years. Germany’s scheme was a price-based support scheme, with administratively fixed prices for RES according to their technological maturity.
Theoretically, there were two possible modes for the German response to this supranational pressure for such a fundamental instrumental shift: to provoke friction with the EC and to commence a proceeding to the ECJ, on one hand, or to adapt to the external pressure, on the other. The German government decided to pursue the latter.
It would, however, be a mistake to attribute this instrumental shift only to supranational pressure. Indeed, there has been a long-standing domestic debate on the need to introduce cost- and volume-controlling elements into the German scheme. Market integration of RES has evolved into a crucial indicator for an assessment of their maturity. In fact, it was not until the market effect of the rapid growth of RES electricity became significant in terms of low wholesale prices that the traditional energy actors changed their strategy – in particular, their communication with regard to renewable energies (Kungl, 2014). Instead of criticizing RES, they introduced another issue to the debate and started “criticizing the difficulty of integrating them into the market, to the extent of claiming that they would pose a serious threat for the security of supply” (Kungl, 2014, p. 25). Thus, the need to adapt to the existing market structure became a dominant and highly influential problem framing 8 among the actors in the energy fields (Kungl, 2014; Wassermann, Reeg, & Nienhaus, 2015).
Nevertheless, the pending infringement procedure and the subsequent standstill requirement (see earlier) led to a very hasty reform agenda and a rejectionist stance by the government on any stakeholder discussion over alternatives that might be in conflict with the commission’s state-aid rules. In a letter from mid-May 2014, the federal minister of economic affairs and energy, Sigmar Gabriel, urged the parliamentary groups to hurry in formulating proposals for amendment to the Government’s draft reform of the Renewable Energy Act to the first week of June. This schedule has to be met in order to ensure a timely examination of the legal text by the EC due to the pending EU state aid. Otherwise, “the electricity-intensive companies would have to pay the full EEG apportionment from 1 January 2015” (own translation). In a similar vein, Rainer Baake, state secretary in the Federal Ministry of Economic Affairs and Energy, argued in an e-mailed letter to the representatives of the German Länder (states) why he was forced to reject almost all of their 70 proposals for amendments: “Many of the applications for amendments, however, lead to risks for notification because they deviate from the EC state aid guidelines” (own translation).
The reform of the Renewable Energy Act was adopted by the parliament in June 2014 and entered into force on August 1, 2014. Concerning the design of the future support scheme, the reform fully adapts to the norms defined by EC’s state aid guidelines. The reform introduces a fundamental instrumental shift in the German support scheme for renewables from a price-based to a volume-based scheme. Direct marketing will be mandatory for all newly installed renewable energy facilities with a capacity of more than 100 kW by 2016. Instead of an administratively fixed FIT or premium, support will be granted as a premium in addition to the market price, while the level of the market premium is to be determined by a competitive price building mechanism via auctions by 2017.
During the consultation process for the draft of the Renewable Energy Act, many stakeholders raised concerns about the auction mechanism, which is perceived to fundamentally threaten the continued engagement of those actors who had driven the transition thus far. From the stakeholder’s consultation regarding the redesign of the Renewable Energy Act and studies on the performance of different design options for RES support schemes (Ecofys, 2014; IZES, 2014), the following risks, which are assumed to affect the actor constellation in the energy field, can be derived:
• Higher transaction costs for investors for taking part in auctioning • Higher risks for investors • Exclusion of smaller players – due to limited affordability of costs or risks for cooperatives and private actors • Threats to the process of decentralization of the energy system through spatial concentration of generation facilities (hotspots) • Exclusion of less mature RES technologies.
Furthermore, due to the practical experiences of other countries, such as Brazil or China, the effectiveness in terms of low rates of project implementation caused, for example, by underbidding, and the ostensibly cost-minimizing effect of auction schemes, is also in question (Ecofys, 2014, pp. 44–72).
There is already some evidence that suggests that the recent shift in the German renewable energy support scheme seriously threatens to stall engagement and investment at the decentralized level. The investment activities of the existing energy cooperatives have significantly decreased. According to the annual survey among energy cooperatives on behalf of the DGRV – the German Cooperative and Raiffeisen Confederation – cooperatives held off investments of about 300 million euro in 2014 (Association of Energy Engineers, Agentur für Erneuerbare Energien [AEE], 2014).
The German government has publicly declared that it will not threaten subnational efforts toward a low-carbon energy transition, and that it will consider stakeholders’ concerns when designing the German auction scheme. In January 2015, the government published its ordinance for starting a first pilot bidding round for ground-mounted photovoltaic systems. This pilot bidding round is intended to deliver the necessary lessons required for the introduction of mandatory auction schemes for all new renewable energies in 2017. However, one problem with the ordinance is that it has to specify a complex set of bureaucratic requirements related to German planning and construction law. The other problem is that – in contrast to the public declaration not to threaten the plurality of actors investing in RES – the ordinance does not contain any specific provision for smaller actors’ participation. Thus, according to stakeholders, citizen’s energy cooperatives and local authorities will face serious problems in affording the immense transaction costs of preparing a legally secure bid.
Comparative studies clearly suggest that the potentials and risks of auctioning depend on the specific design of the instrument in terms of auction procedures, its technology and spatial focus, qualification requirements, and penalties for nonrealization (Ecofys, 2014).There are a few experiences available, for example that of Denmark, which demonstrate how to further ensure new actors’ and local communities’ engagement by introducing location-specific tenders; the provision of information on local resource conditions before the submission of a tender, which allows more equal conditions for all potential bidders; and participatory elements with mandatory local resident participation in the projects (Ecofys, 2014, pp. 61–65).
Thus, further engagement of new actors in the energy field crucially depends on political willingness to introduce normative elements into a market design. All of these normative additions to a market-compatible instrument, which aims at the most cost-efficient spatial allocation of RES facilities, will, of course, influence the instrument’s efficiency. However, these additional costs of incorporating normative elements will likely pay off in public engagement in energy transition issues and public acceptance of new energy infrastructures.
Governance Options for a Low-Carbon Energy System Transition in Europe Beyond Regulatory Harmonization: Bilateral Cooperation and Horizontal Processes of Policy Diffusion
Given the restricted political opportunities to adopt more ambitious targets and measures during multilateral negotiations at the European level, it would be favorable to use other, more horizontal coordination mechanisms to trigger a European energy transition process. In this, leadership alliances among governments of willing member states such as Germany, Denmark, Austria, or France 9 can be established. Additionally, efforts for bilateral cooperation – also with countries, which so far have performed as blocking forces at the intergovernmental European level, as for example Poland or the Czech Republic – should be strengthened. Although European legislation provides opportunities for such bilateral cooperation in order to meet the mandatory national RES targets (statistical transfers, joint projects, and joint support schemes), these cooperation mechanisms have not been used thus far by national governments.
Consequently, it might be reasonable to consider the potential of another governance option to move forward with a sustainable energy system transition, one which is often overlooked in the debate on the diverging positions of member states. A possible and potentially complementary pathway for Europeanization beyond negotiated agreements between governments is a horizontal process of diffusion of problem framings, attitudes, ideas, and even policies through transnational actor networks (Hakelberg, 2014; Tews, 2005).
When considering only government positions, it is easy to overlook what happens at subnational level, especially in countries that are often portrayed as being reluctant to accept ambitious climate objectives. Surveys indicate that across Europe, public attitudes toward preferred energy technologies clearly correspond with the German preferences (EC, 2013b). A majority of European citizens prefer RES and energy efficient technologies over nuclear power, fossil fuels, CCS, and shale gas. In all 27 countries, RES is the most highly mentioned priority for energy options in the next 30 years. Particularly in reaction to the Ukraine crisis and the increasingly relevant issue of energy dependency on Russian gas imports, attitudes in Eastern European countries seem to have changed into this direction. A public opinion poll on behalf of Greenpeace International in Poland, the Czech Republic, Hungary, and Slovakia revealed that RES development and increased energy efficiency are perceived as a way of remedying import dependency by three quarters of respondents (EURActiv 18.06. 2014).
At the subnational level in various other European countries we find many initiatives, not only individual grassroots projects but also initiatives driven by local and regional authorities, which are comparable to the 100% RES communities in Germany, which aim to accelerate energy transitions and to begin experimenting with integrated approaches to decentralized energy flows. In Poland, for example, municipalities and local-level administrations show much greater support for a transition based on RES than the Polish government does, as they perceive RES deployment as a chance to combine climate protection efforts with additional benefits for their community’s development (Ancygier & Sulecki, 2014).
There are several other transnational networks beyond the well-known “Covenant of the Mayors” engaging in lesson-transfer and -drawing activities for approaching a decentralized energy transition (Bulkeley & Kern, 2009; Hakelberg, 2014 10 ). The European Association of Local Authorities in Energy Transition, “Energy Cities,” represents more than 1,000 towns and cities in 30 countries. All of these initiatives across the EU are currently creating a new energy paradigm 11 toward a low-carbon society, driven by the motivation to exploit untapped potentials for the deployment of renewable energy and energy efficiency at the local and regional level.
Although the EC and national governments have brought attention to the local level’s potential to develop innovative approaches in climate and energy, they have neglected the motives of the actors at the decentralized level to engage in the low-carbon transition. These locally rooted and citizen-led projects often pursue broader targets beyond mere return of investments; similarly, it is often not the greatest return which motivates such bottom-up initiatives by communities and energy cooperatives. Thus, they do not want to invest somewhere in Europe. Instead, the additional benefits for their community’s development motivate their investment in RES facilities and efficiency measures in their backyard. In fact, it is the additional benefits for the communities’ development – in terms of jobs, security of supply, health and environment impacts, citizen’s engagement in community issues, and their wish to control energy supplies – which makes communities active.
A pure perspective on static cost efficiency, repeatedly put forward by the former European energy commissioner Günther Oettinger, implies that market forces in the integrated electricity market would guarantee the most cost-efficient spatial allocation of RES facilities across Europe. Precisely, he argues that these market forces will spur a spatial allocation of facilities according to best available returns due to weather and geographical conditions. This perspective on the benefits of economies of scale in an integrated market neglects the negative external effect of centralized RES facilities in geographical hotspots, which introduce acceptance problems and additional costs (Strunz, Gawel, & Lehmann, 2014). Findings from environmental psychology research show that public acceptance of RES infrastructures significantly increases where the affected residents perceive an immediate economic value for their region (Zoellner, Schweizer-Ries, & Rau, 2011). If investors are anchored regionally, the public perception of the value added for their region is more obvious. In addition, as economic model calculations demonstrate, the local-added value will rise with the high participation of local companies along the value chain (Aretz, Heinbach, Hirschl, & Schröder, 2013).
Subnational level activities and actors must be acknowledged as relevant partners in shaping the European energy and climate policy framework. Thus, from a frontrunner’s perspective, it would be appropriate to strategically utilize this bottom-up and horizontal mode of convergence complementarily to multilateral negotiations. This implies assisting transnational actor networks of municipalities and regions in order to stimulate a horizontal diffusion of attitudes, ideas, and best practices for a low-carbon energy system transformation that excludes nuclear power and CCS.
Conclusion
The EU has intensified its efforts to move forward with a European low-carbon energy transition. In doing so, however, it has framed the need for energy policy coordination among member states almost solely through the lens of internal market requirements, in a manner which aligns with the interests of powerful incumbent actors in the energy system. The EC, as the supranational actor, creatively changed the rules of the game in an ongoing European governance dilemma by using its discretionary power in the Union’s competition law to force a shift in instrument choices of national RES support schemes. However, founding political decisions on sustainable energy transition issues on one ideological component – single-market functioning as the only way to ensure a cost-efficient spatial allocation of RES across Europe – ignores costs introduced by the heterogeneity of preferences and public risk perceptions in member states. Additionally, it is a rather static perspective; it does not sufficiently address the challenges for long-term societal adaptations, the need for public acceptance of large-scale infrastructures, and the need for innovation in transition processes.
Against the backdrop of limited opportunities to strictly harmonize historically developed energy policies of member states, this article has stressed the benefits of flexibility in national approaches over the risks of regulatory diversity in an integrated market. Thus, a more dynamic perspective on the question of how to move forward with a European energy transition should include, in particular, the need for new players who might challenge established patterns of action in the energy field through decentralized experimentation and innovation.
This would require a more flexible approach to energy policy coordination with regard to the appropriate governance level: It might be reasonable to consider more strictly harmonized support schemes for large-scale RES projects of European relevance or cross-border projects. However, there is still a need for less harmonized policies in order to make room for experimentation with solutions adapted to the diverse member states’ preferences and societal risk perceptions. Processes of policy learning across and regulatory competition between decentralized policy jurisdictions might stimulate policy innovations to develop feasible options as well as the respective business cases for more decentralized energy systems in European regions. This perspective on regulatory diversity may prompt supranational actors to adjust their view on energy transition matters and policy coordination tools.
Thus, to provide evidence for the feasibility of alternatives to an energy policy making favoring economies of scale and thus large-scale investments and centralized infrastructures, there is a need to reprovide the necessary room for experimentation at decentralized levels. This need is particularly clear at the subnational level, where an independent paradigm of a low-carbon society is emerging. This alternate paradigm has already gained ideational power as well as economic relevance across societies in Europe.
Footnotes
Acknowledgements
This article is a result of research in the framework of the Helmholtz-Alliance “Energy Trans.” The author would particularly like to thank Dr. Sibyl Steuwer and the three anonymous reviewers for providing helpful comments on an initial draft of this paper.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The project is funded by the Helmholtz Association (Helmholtz Association is Germany’s largest scientific organization) within the Helmholtz-Alliance “Energy-Trans.”