Committee Reports > List of Committees > Joint > 1980 > Committee on the Secondary Legislation of the European Communities > Report No. 83 - Energy Matters

REPORT

Background

1. The Joint Committee has already examined certain Commission proposals on Energy Matters in its 37th Report (Prl. 7639) which was adopted on 13th December, 1978. The Committee has decided that it is opportune to issue a further report in the light of developments since it issued that Report.

Documents Examined

2. The Joint Committee has examined the following Commission documents relating to energy matters—

(i)Energy objectives of the Community for 1990 and convergence of policies of Member States [COM(79) 316 final],

(ii)Community energy policy [COM(80) 130 final],

(iii)Economic aspects of a Community initiative on energy [COM(80) 151 final],

(iv)Energy price and tax harmonisation in the Community [COM(80) 152 final],

(v)Fiscal instruments for raising Community revenues from energy [COM(80) 153 final],

(vi)Community programme for the promotion of investment in energy [COM(80) 220 final],

(vii)Energy and economic policy [COM(80) 583 final],

(viii)Proposals for Council Regulations amending

(a)Regulation (EEC) No. 725/79 as regards the granting of financial support for demonstration projects in the field of energy saving, and

(b)Regulation (EEC) No. 726/79 fixing the ceiling for the aid to be granted under Regulation (EEC) No. 1302/78 on the granting of financial support for projects to exploit alternative energy sources [COM(80) 567 final], and

(ix)Amended proposal for a Council Regulation replacing the proposal at (viii) (b) above [COM(80) 629 final].

3. These documents have been examined in detail for the Joint Committee by its Sub-Committee on Economic, Commercial and Financial Affairs under the Chairmanship of Senator Noel Mulcahy. The Sub-Committee had discussions on the subject with the Friends of the Earth, the Confederation of Irish Industry and representatives from the Department of Energy. It also considered written memoranda received from the Department and the bodies mentioned and from the Industrial Liaison Office, University College Cork, the Institute for Industrial Research and Standards, the National Economic and Social Council, the Electricity Supply Board, Texaco (Ireland) Ltd., Irish Shell Ltd., the Consumers Association of Ireland and the National Board for Science and Technology. The Joint Committee is indebted to Senator Mulcahy and his Sub-Committee for their work.

The Joint Committee wishes to express its thanks to all the bodies concerned for making their views known to it.

Energy objectives of the Community for 1990 and convergence of policies of Member States [COM(79) 316 final]

4. The two major policy objectives listed in the document are as follows:—

(i)To reduce gradually below 0.7 the ratio between the growth of energy consumption and economic growth, and

(ii)To limit to 50% the Community’s dependence on energy imported from non-Community countries and more particularly to restrict to 472 million tonnes the level of net imports of oil (the level reached in 1978).

5. At its meeting on 13th May, 1980, the Council of Ministers approved the substance of two resolutions setting out objectives for reducing growth in energy usage and towards a Community energy saving programme.

Community Energy Policy [COM(80) 130 final]

6. In this paper the Commission has endeavoured to show that there is a need for a new Community initiative for the purpose of developing a Community energy policy. The paper discusses a number of proposals on which this initiative might be based. It may be divided into four main sections:—

(i)A lengthy introduction which reviews the general energy situation and points to the need for an effective Community energy policy identifying two broad areas in which action might be taken:—

(a) energy price and tax policy, and

(b) increased energy investment.

The general economic implications of this energy policy are covered in Document COM(80) 151 final.

(ii)A price and tax policy section dealing with the progressive harmonisation of energy prices and taxes throughout the Community, the implications of which are discussed in a separate paper—COM(80) 152 final.

(iii)A financing section which discusses the means of raising additional finance to support a Community energy programme — this question is discussed in detail in a separate paper—COM(80) 153 final.

(iv)A section on Energy Investment which discusses the need for Community support for investment in the energy sector, the implications of which are discussed in a separate paper— COM(80) 220 final.

7. The introduction to this paper gives a factual review of the world energy situation, points out that oil is already a scarce commodity and that if the economies of the Community countries are to continue in their present form not to mention grow, they will require major reorganisation whereby dependence on oil is drastically reduced. The paper points out that the Member States of the Community are particularly vulnerable being dependent on oil for 55% of their energy requirements of which 85% comes from outside the Community.

Economic Aspects of a Community Energy Policy [COM(80) 151 final]

8. Developing the theme discussed in the introduction to Document COM(80) 130 final the Commission sees five major developments arising from the 1979/80 increases in oil prices:—

(i)huge balance of payment deficits and for the first time a large balance of payment deficit for the Community as a whole in 1979/80;

(ii)inflationary effects have been intensified by the scramble for a share of the oil and by exchange rate movements (e.g. recent trend of the yen);

(iii)contracted demand as a result of endogenous factors trading conditions, insufficient recycling of OPEC revenue, negative effects of the general increase in uncertainty on the domestic propensity to spend and also of restrictive policies which seek to counter increasing inflation or the external imbalance;

(iv)difficulties in making the requisite structural adjustments because of faster obsolescence of capital stock and changing pattern of labour and capital costs which make investment not only even more necessary but also more difficult;

(v)concentration of disproportionate effects on some economies (in relation to their relative share in GDP): Mediterranean countries but particularly non-oil-producing developing countries.

9. The paper goes on to state that the level of specific taxes (excise duty) on oil products, for example, did not change in absolute value terms between 1973 and 1978; its influence on the final price had hence declined, lightening the burden to final consumers but failing to create the desirable changes in energy consumption behaviour.

10. The paper proposes the following objectives in order to help avoid recurring crises:—

(i)reduced dependence on imported oil;

(ii)a weaker link between economic growth and energy consumption;

(iii)greater efforts to save energy;

(iv)more systematic development of domestic production of primary energy sources which replace imported crude oil;

(v)diversification of types of energy and of geographical location of energy supplies from outside the Community.

Price and Tax Policy [COM(80) 152 final]

11. The paper states that progressive harmonisation of energy prices and taxes would be a long term process since a wide diversity of energy price regimes, tariff structures, and taxation policies have existed within the Community for many years. Apart from differences in productivity/wage rate structures in the economies of individual Member States, and within the energy industries, the principal reasons for divergence include:—

(a)differences in the structure of the energy industries, in the financing of nationalised industries and public utilities, and in the control of pricing policy,

(b)differences in taxation,

(c)differences arising from energy policy considerations, and from the balance that individual Member States strike between energy problems and broader policy objectives.

12. This paper reviews the extent of these differences and some of the policy issues from which they derive. It concludes that divergence in energy pricing and taxation is increasingly becoming an obstacle to harmonisation in energy policy. It states that complete harmonisation is the Community’s long-term objective, the first step of which must be to move towards a common approach to pricing regimes, tariff structures and frameworks for taxation.

Financing [COM(80) 153 final]

13. The introductory document COM(80) 130 final states that the moneys required for a major Community effort are too large to come out of the existing Community budget and that new means of financing would be required. The main purpose of the additional funds would be:—

(a)to supplement the harmonisation of energy taxes and prices,

(b)to supply more funds for saving energy, exploiting existing resources and developing new sources,

(c)to help in promoting the switch from oil to other sources of energy, and

(d)to provide underpinning for a Community energy policy.

14. The Commission has prepared a separate document— COM(80) 153 final—which discusses various means of raising Community revenue from energy. The main possibilities for taxation are:—

(a)to impose a tax on the consumption of energy either in all its forms or on oil or specific oil products,

(b)a tax on production of energy in general or oil in particular,

(c)a duty or levy on imports either of energy in general or of oil or specific oil products.

These taxes could be combined in various ways.

Energy Investment [COM(80) 220 final]

15. The paper states that in the period 1980 to 1990 Member States plan to spend over 400 billion ECU capital investment on energy. It is assumed that the greater part of this investment will be on the construction of electricity generating stations — mainly coal and nuclear stations. The particular role of the Investment Fund would be to help to remove the obstacles which now prevent investments from being undertaken. All Member States would qualify to benefit from the Investment Fund, especially those most dependent on oil as an energy source.

Commission communication to the Council concerning energy and economic policy [COM(80) 583 final]

16. This document was discussed at recent meetings of the Council of Ministers. There was agreement on the crucial need to construct an energy policy which would discourage waste and encourage diversification in investment. No specific measures were agreed.

(a)Proposal for a Council Regulation (EEC) amending Regulation (EEC) No. 725/79 as regards the granting of financial support for demonstration projects in the field of energy saving, and

(b)Proposal for a Council Regulation (EEC) amending Council Regulation (EEC) No. 726/79 fixing the ceiling for the aid to be granted under Regulation (EEC) No. 1302/78 on the granting of financial support for projects to exploit alternative energy sources [COM(80) 567 final and COM(80) 629 final]

17. These documents contain two draft Regulations both of which would ensure continuity of funding already begun for (a) projects in energy saving and (b) projects to exploit alternative energy sources, the allocations for which have been nearly exhausted.

Views of the Joint Committee

18. The Joint Committee accepts the view that Ireland must reduce its present over-dependence on one non-indigenous source of energy namely oil, and having regard to the uncertainty surrounding availability of future oil suplies, supports the objective of having a balanced “mix” of sources of energy supply for electricity generation. It has been represented to the Joint Committee that a series of relatively small separate regional power stations supplying both heat and power would be appropriate for Ireland, having regard to the diversity of energy sources available, but the Joint Committee is not convinced that such an arrangement would be more economic than the present centralised system, when account is taken of the need for each independent system to be supported by an adequate standby facility. The Joint Committee is advised that storage facilities of the magnitude required to obviate the need for substantial standby facilities would not be possible. It is accordingly vital to exploit to the fullest extent possible those resources over which we have the greatest control and in particular our renewable resources. The Joint Committee notes that at present a draft Council Regulation (EEC) is under consideration to increase the ceiling for aid to be granted to support projects to exploit alternative energy but that while the projects at present in hand—liquefaction and gasification of solid fuels, exploitation of geothermal fields, and exploitation of solar energy—are all orientated towards developing the alternative energy potential of the Member States of the European Community as originally constituted, no Community moneys have been allocated towards the demonstration of projects in the field of wind, wave or tidal energy. The Joint Committee while understanding that harnessing wind power presents particular problems because of the wide range of wind velocities occuring in Ireland believes that research at present being pursued by the ESB should be continued but that the tidal range around the coast offers little hope for exploitation because its range it too small.

19. On the other hand, the potentially available wave energy is at its maximum in latitudes 40° to 60° and Ireland is very well placed to avail of this source. A figure of 50 megawatts per kilometre has been mentioned as a measure of this power. In a paper by Mr. Richard O’Flaherty, Electricity Supply Board, on this subject, he estimates a possible yield of between 2,500 to 6,000 megawatts from a coastal stretch of 250 kilometres; the lower figure is of the order of total Irish ESB capacity. Many problems must be solved before the energy can be made available — but the implications of a failure to place funds behind the acceleration of research and development in this area can be understood by a consideration of the size of these figures. In recent publications Mr. Lewis of the Civil Engineering Department, University College, Cork has indicated the great potential of wave power for Ireland. It has been pointed out that whereas Britain can only regard wave power in terms of energy insurance, the relatively low energy requirements of this country put wave power potential into a more active position. For instance, it is estimated that the wave length requirement to fulfil UK energy needs would be 1716 kilometres whereas Ireland would only require between 35 and 58 kilometres. The table set out in the Appendix to this report summarises the comparative situation of various countries in relation to wave power. Even if a Community research and development programme were initiated today, it would be many years before the significance of wave energy as a contribution to national (and Community) energy requirements can be evaluated. Failure to undertake the necessary programme at this time is in effect a decision to exclude the possibility of utilising this resource. It is, accordingly, the view of the Joint Committee that a Community research programme into wave energy potential should be launched forthwith.

20. While the exploitation of direct solar energy in Ireland is viewed as having a very limited potential, due to the low levels of direct solar radiation available, a major participation in the Community programme of financial support for demonstration projects in the field of energy saving has been possible because of the high interest in energy from biomass (which is viewed as an indirect form of solar energy). The Irish Biomass project is in fact one of the largest of the projects in this area. The costs for the project have grown very rapidly, and exceed initial estimations by about 80 per cent. It is therefore strongly in Ireland’s interest that the budget for the Solar Energy programme be substantially increased. The same programme provides support for solar-heated swimming pools, and Ireland has a successful proposal in this area.

21. The Friends of the Earth have stated that it has been estimated that 12 per cent of the land area could provide the equivalent, in energy terms, of our present total energy consumption if planted with energy crops such as short rotation trees. The Joint Committee supports the proposition that the potential of energy crops i.e. biomass he developed in line with its desire to have the highest proportion possible of primary energy within domestic control. Nevertheless the Joint Committee is aware that pending long and sustained research into alternative energy sources, Ireland will remain heavily dependent on imported primary energy, the sources of which must be as widespread as possible to diminish the likelihood of catastrophic supply disruption from one dominant supplier.

22. The Joint Committee has noted the Council of Ministers resolution to reduce gradually below 0.7 “the ratio between the growth of energy consumption and economic growth”, and has been informed by the Confederation of Irish Industry that for an increase in primary energy consumption of 7.08 million tonnes of oil equivalent in 1973 to 7.83 million tonnes of oil equivalent in 1978, an increase of 10.6 per cent, the GDP increased from IR£3,473.7m. to IR£4,222.0m. (at 1975 prices), an increase of 21.5 per cent.

23. In the 1973-78 period therefore the economic growth/primary energy growth ratio adopted by the Council as a target for 1990 was easily surpassed by Ireland. However, in view of the present stage of development of Ireland’s economy, this favourable ratio may not prove sustainable. Should this happen, the Joint Committee is of the view that economic growth should not be curtailed and that rigid comparisons with the more fully developed economies of other Member States should be avoided.

24. Regarding the harmonisation of energy prices and taxes the Joint Committee believes that this objective cannot be treated in isolation from the question of the harmonisation of prices and taxes generally within the Community. It must be recognised that the price and taxation regime for any particular commodity in any of the countries of the Community is established within a wider prices and taxation matrix which exists for the individual countries. It is closely related also to the economic structure of the different countries. It would accordingly, be inappropriate to attempt to harmonise taxes and prices on particular commodities on an ad hoc basis without a detailed examination of the repercussions which such an attempt would have on Government revenue and expenditure and on economic policy in the different countries.

25. The Joint Committee understands that the Community is as yet a long way from formulating an overall energy policy. Most of the documents considered in this report are merely discussion documents and it is not possible to do more than note their general contents. The fact of the matter is that since 1973 very little progress has been made. Apart from loans provided by the European Investment Bank or through the Euratom loans mechanism and the provision of some funds of a limited nature for research and development projects no funds of a substantial nature have so far been provided for the support of energy projects. Nevertheless the Joint Committee feels that even at this stage, it should draw attention to certain areas, even if—after due research and evaluation—they prove no more than a useful adjunct to the main sources of supply. In this context the Joint Committee believes that research and development of wave energy and biomass in particular are of particular relevance to this country. As it now seems inevitable that coal will play an increasing role in the energy picture for the foreseeable future, it is clear that every effort should be made to improve existing and develop new facilities for the importation, transportation and storage of coal, and of course exploit indigenous sources of coal and peat. However, it is perhaps in the area of conservation and the avoidance of waste in the home, the place of work and in getting to and from work, that the greatest single contribution to coping with the energy problem can be made.

(Signed) ALEXIS FITZGERALD,

Chairman of the Joint Committee.

16th December, 1980.