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Doc. 8232
7 October 1998
Energy co-operation in the Baltic Sea region
Opinion 1
Committee on Economic Affairs and Development
Rapporteur: Mrs Blattmann, Norway, Socialist Group
Introduction
1. The present opinion is in comment on the highly informative preliminary draft report prepared by the Assembly's Committee on Science and Technology on the subject "Energy Co-operation in the Baltic Sea Region" (Rapporteur: Mr Lekberg, Sweden, SOC). That report is still not final. Indeed, the Science Committee intends to send some of its members for a fact-finding mission to the Baltic Sea region to learn more, and so it is likely to be considerably expanded in the months to come. Your Rapporteur nevertheless believes that an early comment on her part could be useful, not least given the strong interest in the subject among many of her colleagues on the Committee on Economic Affairs and Development. (This also became clear during the Committee’s meeting at Kirkenes in northern Norway in May 1997.)
2. Nine countries line the Baltic Sea: Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland, Russia and Sweden. Already in 1992, the Committee on Economic Affairs and Development organised a colloquy on the theme "Economic Renaissance of the Baltic Sea Region", convening the first day in Stockholm and the second in Tallinn. It was a pioneering event, coming as it did in the wake of the dissolution of the Soviet Union and the abandonment of central planning in the other countries of central and eastern Europe. The first tentative steps toward energy co-operation among the Baltic Sea countries needless to say figured prominently in the proceedings. The main message coming out of the colloquy and of the Assembly's Resolution 995 (1993) drawn up afterwards (Rapporteur: Mrs von Teichman, Germany, FDP) was one of encouragement to the countries of the Baltic Sea region to intensify their contacts and to overcome their past division. The present dynamism of the region - the prosperity it already creates and radiates toward neighbouring regions in Europe - shows the usefulness of the Assembly's initiative. This also very much holds for energy co-operation.
3. Soon after the Stockholm - Tallinn Colloquy, several organisations were created to promote co-operation between the Baltic Sea countries, including on energy. In 1992 the Council of Baltic Sea States (CBSS) was established with the nine countries mentioned plus Norway and Iceland as members and with participation also by the European Commission. The action programme of the CBSS gives strong emphasis to the promotion of the sound use of energy. The Baltic Sea Chambers Association unites close to fifty Chambers of Commerce and Industry in all the Baltic Sea countries. It tries to develop trade contacts and promote the exchange of information. Co-operation among the three Baltic States Estonia, Latvia and Lithuania still has some way to go, however. Yet the potential for particularly close institutional ties among these three countries would seem promising given their small size and similar level of economic development.
A diverse situation
4. The report by Mr Lekberg rightly points out that the countries in the Baltic region are anything but homogeneous – a diversity which also applies to their energy situation. However, they are all taking great strides forward jointly and individually and are rapidly turning the region into an economic ‘powerhouse’ with positive effects for the whole of Europe. With Denmark, Finland, Germany and Sweden already members of the EU, with Estonia, Latvia, Lithuania and Poland slated for future EU membership, prospects for even more intensive co-operation and integration seem particularly bright.
5. Continued successful transition along the eastern and southern shores of the Baltic presupposes a rich, price-worthy and environmentally sound supply of energy, and one where the different sources are sufficiently interconnected. The European Union for its part in 1995 adopted a White Paper on Energy outlining a future European Energy Policy, which also included its two Nordic members Finland and Sweden and took into account prospective new members in the Baltic Sea region. It called for a diversification of energy sources, greater use of renewable energy, more competition between energy producers and greater efforts to protect the environment.
6. Among the nine countries surrounding the Baltic Sea, only Russia possesses abundant energy resources. The three Baltic states, as a result of their gaining independence, have gone from energy abundance as parts of the Soviet Union to pronounced energy dependency today. Indeed, their dependence on Russia in this field has even had political repercussions.
7. Oil and gas reserves have recently been found off the coastlines of the three Baltic States, making political arrangement among them as regards, for example, ownership more urgent. Meanwhile, the exploitation of oil in the area has environmentalists in the three countries and beyond alarmed over possible environmental consequences. Clear guidelines are needed from the governments concerned, individually and jointly.
Numerous initiatives
8. The opening for signature in the early 1990s of the Energy Charter Treaty set northern Europe on a new and promising course. The Treaty which has so far been ratified by 33 countries, and which entered into force on 16 April 1998, among other things seeks to interconnect various energy networks between the energy-rich north-eastern Europe and the energy-craving north western Europe. It also lays the foundation for a legal framework as regards energy investment, transit, trade and exchange of know- how. The Rapporteur in this context wishes to recall the Assembly's Resolution 1131 (1997) which call upon Council of Europe member states to "consider the possibilities of the swift ratification of the Energy Charter Treaty and the Energy Charter protocol on energy efficiency and related environmental aspects". Today, this call is addressed to the 13 Council of Europe member states (out of a total remaining 17 states) which have not yet ratified.
9. The development of regional energy network projects and their link-up with so called Trans-European Networks (TENs) of the European Union remain a priority. It would be highly desirable to also include the Baltic States in this co-operation. The Nordic EU countries aim to add a "northern dimension" to the EU's work in this and related fields, through projects such as the Baltic Ring of linked-up electricity grids between north-eastern and north-western Europe, and the more recent Nordic Gas Grid. This would presumably also open up EU funding for these projects. It is important for all Baltic Sea region states, including the three Baltic States, to seek joint solutions rather than individual ones.
10. Regional energy co-operation takes on a particular significance when one considers nuclear safety. Not least the two RBNK reactors at the Ignalina in Lithuania are a source of contention. The EU and the EBRD have pronounced themselves in favour of the closure of the Ignalina plant, and they are supported in this by much of the general public in surrounding countries, especially in Scandinavia. Others, however, such as many Lithuanians, argue that there is evidence to prove that these reactors are now sufficiently safe and can be made even safer through enhanced support from, say, the EU and the EBRD. They also point to the precarious energy supply situation in Lithuania and neighbouring countries.
11. Meanwhile, efforts are underway around the Baltic to enhance the role of renewable energy sources, such as wind and hydro power, or energy from biodegradable waste. Furthermore, the introduction of new technology in the energy as well as other sectors of the economy could allow substantial further savings in energy consumption, benefiting the environment in the process.
12. This last point is of particular importance to the transition countries along the Baltic. During the central planning era, artificially low energy prices led to excessive consumption in industry and in society as a whole. This of course brought with it massive waste of energy at all stages, with negative consequences also for the environment. Even today the Baltic states use between two and three times as much energy per unit of economic output as do countries in western Europe. These and other countries in the same situation therefore need to take urgent action. This requires enormous investments for which these countries need international support. Price rises more in line with those on the world market are also necessary, even though they do not always go down well with populations which are already economically burdened. Even though energy conservation requires substantial investment at the outset, the eventual return on investment is considerable. Energy conservation needs to be considered as energy production, in line with the slogan: “A barrel saved is a barrel produced”.
13. Most countries around the Baltic Sea use district heating, signifying that it is done in centrally located heating plants for all dwellings in a given area. Here again, there are great differences among them as regards the efficiency of energy conversion from whatever fuel is used to heat, and as regards the amount of heat lost during the transportation from producer to user – and hence great value in international co-operation. The same holds for the spread of combined production of heat and power - so called co-generation – through which up to 30% more output can be reached with the same amount of fuel and with less pollution.
14. Since the early 1990s the World Bank, the EBRD, the Nordic Investment Bank, the European Investment Bank and private foreign investors have assisted in the restructuring, privatisation and de-monopolisation of the energy sector in ‘Baltic Rim’ transition countries. They have also addressed safety and environmental concerns.
15. During the central planning era energy projects were as a rule financed out of government budgets, with the state closely supervising timely implementation while often disregarding things like cost efficiency, safety and the impact on the environment. Today, governments still monitor the projects but leave the essentials to private industry. What governments still need to do is, however, to eliminate any remaining irrational features in the national energy set up.
Deregulation, competition, link-ups
16. When discussing the future supply of energy, we might usefully talk about the
"3 E's": Energy, Economy and Ecology. We need energy at appropriate prices to ensure industrial development and growth. We must also ensure that energy conversion takes place with the least possible environmental impact.
17. In today's world, large trading areas are being formed around the world, in which energy and energy infrastructure are no longer national issues, but international, indeed global. Industries and companies establish themselves in regions that offer the best infrastructure, from the economic and environmental points of view.
18. The electricity and energy industries in the Baltic Sea region are at present undergoing comprehensive deregulation. Over the last three years, electricity consumers in the three Nordic countries of Finland, Norway and Sweden, have been able freely to choose the electricity supplier they prefer. Meanwhile, a new community directive advocates gradual introduction of competition on the electricity markets within the European Union. Furthermore, natural gas markets are being deregulated and opened up to competition. And this is only a part of the global deregulation process underway.
19. The electricity and gas markets are becoming increasingly intertwined. We can no longer really talk about gas or electricity companies. Rather we should discuss companies that operate with several forms of energy, such as oil, natural gas, electricity or heat. Examples include Shell and Statoil, traditional oil companies, which are now trading electricity on the Nordic Electricity Exchange in order to be able to offer their customers a fuller programme.
20. The deregulation of the energy market in the Baltic Sea region entails a transition from monopolies with central planning to competitive markets driven by customers. State dominance is giving way to greater privatisation, large-scale central solutions to smaller-scale, decentralised approaches. There is less emphasis on trying to increase supplies and more on the efficient use of energy.
21. Deregulation of energy markets is contributing to greater competition between companies, types of energy, markets and countries. Countries and regions around the Baltic Sea are establishing new trade relations. The electricity market in the Nordic countries is a good example. Trading in electricity via cable links is increasing between the Nordic countries, as well as between them and the rest of Europe.
22. For an open electricity market to function well, we need harmonised operating conditions in the various markets that are being connected. This requires cooperation between governments in such fields as the harmonisation of energy taxes and environmental charges, construction work to remove physical limitations in the electricity network, etc. It is our task as politicians to create the framework for such harmonisation - around the Baltic Sea and in Europe in general - and to ensure that conditions of competition are reasonably similar. We also have to support research and development as regards new sources of energy, their introduction on to the market and their compatibility with a clean environment.
Concluding remarks
23. In conclusion, the foundation for fruitful cooperation across the Baltic in the energy field is now being laid, although considerable work remains to done. Cooperation in the energy field is not only vital for economic development in itself, but also a bellwether for overall cooperation. Sharing energy presupposes, and subsequently strengthens, peaceful relations between countries, for it makes them more dependent on one another in rendering any disturbance in economic or overall political relations more costly for all. Energy co-operation among many holds a major potential not only for countries that are poor in own energy resources and which may become overly dependent on one source of energy or on one single supplier; it can be equally beneficial to energy-rich countries by allowing them to share what they have with others. Greater Baltic Sea cooperation will also permit greater diversification of energy sources for electricity production, helping reduce the dependency of some countries on nuclear power. There could also be considerable mutual learning about how to reconcile energy supply interests with environment protection concerns. There is considerable international work to be done in the search for more cost-effective and environmentally friendly technologies and for a greater role for renewable energy sources.
24. Co-operation around the Baltic Sea is of course no novelty. During the Cold War contacts between the two sides of the Baltic Sea largely came to a halt. Over the last decade they have intensified all the more, as if to recuperate the lost opportunities incurred in that sad era. Energy co-operation is somehow emblematic of the overall efforts of the countries in the region to cooperate more closely. It is therefore only proper that the Baltic Sea example will figure prominently in the Conference which the Economic Affairs Committee has just decided to organise in 1999 on the theme "Seas as Bridges: the Potential for Increased Co-operation and Development Across Europe's Seas". As will energy cooperation, not only around the Baltic but around other European seas as well.
Reporting committee: Committee on Science and Technology (Doc. 8168)
Committee seized for opinion: Committee on Economic Affairs and Development
Reference to committee: Doc. 7862 and Reference No. 2207 of 22 September 1997
This opinion was approved by the committee on 21 September 1998
Secretaries to the committee: Mr Torbiörn, Mr Bertozzi and Ms Ramanauskaite.