BRUSSELS, Belgium -- Of all the difficult challenges currently facing Europe, the need to secure a sustainable and affordable supply of energy for the long-term is surely among the most important. Given that almost every EU member state is now a net importer of energy, there could scarcely be a clearer example of the common European interest.
Yet we have failed so far to develop the common policies required to face the future with confidence. Unless we can fashion a more integrated and robust European energy system with a stronger external energy policy to match, rising import dependency will become an acute source of political and economic vulnerability in the decades ahead.The problem is compounded by the trend toward energy nationalism evident among some of the world's leading producers of oil and gas. In the case of the gas dispute between Russia and Ukraine earlier this year, a disagreement over price was magnified by political factors and the desire of the Russian government to use energy supplies to assert "privileged interests" within the post-Soviet region.Efforts led by Russia, Iran and Qatar to develop a cartel-type arrangement among gas-producing nations point in a similar direction. The temptation for authoritarian states in particular to use energy resources for political or monopolistic effect will only increase as global demand rises and oil and gas supplies become more limited. The recent surge in the oil price suggests that we do not have time on our side.This is an issue that keeps forcing itself onto the EU agenda, as we have seen again in the last few weeks. The recently revised version of Russia's National Security Strategy makes it plain that Russian leaders regard their energy assets as tools of foreign policy leverage and envisage a future in which resource competition may be resolved by military means.Moscow's hostile reaction to the recent EU initiative to modernize Ukraine's gas supply network and to the Eastern Partnership project reveals a competitive, zero-sum mentality in European energy affairs. Finally, President Dmitry Medvedev has hardened Russia's stance on the Energy Charter Treaty, which protects the rights of international energy investors, calling for it to be replaced by a looser, non-binding conceptual approach to a new agreement.The motive behind this last proposal is not difficult to understand. The ECT establishes multilateral rules on issues like transit and investment protection, along with legal arbitration mechanisms. Russian leaders would clearly prefer energy relations to be determined by power politics and the logic of supply dominance rather than by market forces and the rule of law. The EU, in turn, has to be firm and united in defending its own interests.Any departure from the rules-based approach should be deemed unacceptable. Although Russia has still not ratified the ECT, it agreed to be legally bound according to Article 45 when it signed in 1994. There can therefore be no question of allowing Russia to renege on its obligations just because it finds them inconvenient.The starting point for any new relationship must be a commitment by Russia to respect the rules to which it is already party. It would be extremely dangerous to flirt with the idea that the ECT should be abandoned and replaced in the face of Russian obstructionism. Which ECT provisions should be sacrificed in the process? The protection of property rights for European investors in the Russian energy sector?The obligation to allow the transit of third country energy supplies? The commitment to resolve disputes by international arbitration? If the EU's response to rule breaking by a major partner is to abandon the rules, then what future is there for international law and ultimately the EU system itself? This is about something much more fundamental than one treaty. It is a question of Russia's willingness to accept the rule of international law and the EU's determination to hold them to it.The EU needs a credible policy for encouraging Russia to return to the multilateral, rules-based approach it embraced in the 1990s. Taking "no" for an answer should not be an option. A large part of the solution is for the EU to get its own house in order and press ahead with the rapid completion of its internal energy market.The latest energy liberalization package goes a long way to meeting that objective by proposing the separation of supply and transmission. It needs to be matched by investment to build the interconnectors needed to overcome market segmentation and switch gas and electricity supplies rapidly to meet demand within Europe.There also needs to be a more active approach to energy diplomacy with countries in the eastern neighborhood and beyond. Extending the benefits of the single-market approach to transit countries in the east would benefit everyone involved. In particular, any measure that strengthened Ukraine's energy security would automatically strengthen our own.Also welcome is the new political momentum behind the Nabucco gas pipeline project. Envisaged as part of a wider project to build a new energy corridor to the Caspian basin and beyond, this would transform the geopolitical reality of energy diplomacy in Europe's favor. President Obama has announced his intention to develop the new technologies needed to reduce America's reliance on carbon fuels. The EU should work with him, hand in hand.Equipped with more effective instruments of internal and external policy, the EU would find itself in a much stronger bargaining position with respect to Russia. Even so, our intention should not be antagonistic. Russia has as much to gain from an energy relationship conducted according to market principles as we do, even if its leaders don't always see it that way.One consequence of Russia's shift to energy nationalism is that its energy sector has become chronically inefficient, with under-investment in new production putting a question mark over its ability to meet future supply commitments.Russia needs European investment and technology to unlock its energy potential and return to the high growth rates of recent years. Europe needs Russia to be a reliable energy supplier according to the market rules it has already signed up to.The important thing for EU policy makers to understand is that Russia will be more likely to accept a new bargain on these terms if Europe takes the initiative by demonstrating its ability to solve its energy security problems by independent means.
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