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FOREIGN AFFAIRS RESEARCH PAPERS 13

June, 2020

ISBN 978-619-7200-18-8 FOREIGN AFFAIRS RESEARCH PAPERS June 2020 131 REPUBLIC OF BULGARIA Ministry of Foreign Affairs Diplomatic Institute

ENERGY AND CLIMATE DIPLOMACY

FOREIGN AFFAIRS RESEARCH PAPERS 13

June, 2020

1 This Journal is issued with the support of:

Hanns Seidel Stiftung

Published by: © Bulgarian Diplomatic Institute, 2020 http://bdi.mfa.government.bg Facebook: Bulgarian Diplomatic Institute

Sofia

ISBN 978-619-7200-19-5

2 CONTENTS

On The after COVID-19 Introduction to the Edition by Slavtcho Neykov...... 5

Energy Diplomacy Revisited Assoc. Prof. Valentin Katrandzhiev, PhD...... 9

Green Deal for the East Julian Popov...... 44

Energy trilemma in South East Europe – seeking the balance between the , Economic and Environmental goals in times of Velislava Dineva...... 58

More than meets the eye? The EU Energy and Climate Diplomacy towards the (GCC) countries Dimitar Ivanov...... 72

South East Europe carbon roadmap – energy transition in the electricity sector Emmanuel Manov ...... 94

Natural Gas in the Western Balkans in the Framework of the Future Energy Community Goals for 2030 Assoc. Prof. Atanas Georgiev, PhD...... 108

Combining Energy Security with Energy Efficiency – the Austrian approach within the EU energy policy frame Sandra Galoci...... 118

Renewable energy sources in the Republic of Moldova – Sector overview in light of the new European Green Deal Marcelina Moraru...... 132

Solid municipal waste – an invaluable inexhaustible energy resource Tsvetozar Zahariev...... 150

More about the Bulgarian Diplomatic Institute ...... 161

More about the Hanns Seidel Foundation ...... 163

3 The contents of this paper are the authors' sole responsibility. They do not necessarily represent the views of the Bulgarian Diplomatic Institute.

4 ON THE ENERGY POLICY AFTER COVID-19 INTRODUCTION TO THE EDITION Slavtcho Neykov

This year’s edition of the “Energy Diplomacy” journal is in a way different as it was prepared in a rapidly changing environment. From an energy point of view, there are two interlinked key issues, which need to be recalled, as a start in this relation - aside the presentation and the debates at EU level of a new concept for the economic developments in Europe (the Green Deal1), Europe and the world faced the coronavirus (COVID-19) pandemic. These facts should be noted when reading the articles, included in the journal, although the key analyses and the principle messages they contain are hardly of a nature, which requires change. What unites them is the realistic look of the authors at the energy policy aspects, which represent their subject of analysis. In fact, these aspects fit very well inter alia within the Green Deal concept, although energy is only one of the elements in the latter. Timewise, the preparation of the edition coincided with the launch of a strategic concept at European level, which very strongly concerns the energy sector as well – this is the European Green Deal, formally announced by the European Commission in December 2019. The Deal provides a roadmap with actions towards effective use of resources aiming at moving towards a clean, circular economy, while in parallel cutting pollution. Certainly, the overall goals are much more detailed, but what is new is the global set of objectives with unprecedented economic, climate-related and environmental ambitions. Without any doubt, the effect of the planned steps will jump well beyond the EU borders. Concrete action and financial plans supported the launch of the concept. And then COVID-19 changed it all. As the President of the European Commission Ursula von der Leyen stated at the beginning of April, “the last few weeks turned our world upside down”2. However, the weeks turned into months – and while from medical point of view the experts say that there is a kind of predictability of what is to follow, currently the economic consequences are neither clear, nor predictable to the extent we all would like. In fact, at EU level the debate about these consequences has been ongoing –e.g. there was an informal video conference of the EU energy ministers on the impact of the COVID-19 pandemic on the energy sector, which also covered the issues of preparedness and recovery3 etc., but the major facts, necessary for well justified conclusions and steps are still not there. What is clear at the moment is the need of revision – certainly, the Green Deal will remain at the heart of the upcoming steps at

1 https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en 2 https://ec.europa.eu/commission/presscorner/detail/en/ac_20_602 3 https://www.consilium.europa.eu/en/meetings/tte/2020/04/28/

5 EU and national level, but the objective requirement for substantial update on the steps, the financial frame and the national preparedness became obvious very quickly after the start of the pandemic. And the reaction by the European Commission came recently – the Communication “Europe’s moment: Repair and Prepare for the Next Generation”4 aims at reflecting the new situation in all these aspects. However, one should recall that both the Green Deal concept and the communication above are still proposals by the EC, which need relevant approval in accordance with the EU rules. Nonetheless, there will hardly be any changes in the concept – amendments might occur about the details. There are also three other points, which in my view is important to recall against this general background.

On the role of the member states towards the EU energy policy Firstly, the role of the EU member states in this situation would be much stronger and much more important. Within the shared competence in the EU, concerning energy, the national energy policies are to a very big extent a function of the EU energy policy. Legally, this will remain, but in practice, the national policies will have a very strong say for the revision of the EU energy policy approach. Thus, the key question at national level would not be whether one can or shall follow the EU rules, but rather whether the politicians are ready for this change, do they know what the country needs and can they defend it. In this context, without any doubt, there will be a very substantial room for bilateral (between the EU and the relevant member state). For countries like Bulgaria these negotiations should also include wider considerations – the region of SEE and respectively the states, which aim at EU membership and have gone a long way forward in this direction. In fact, the Bulgarian Presidency of the Council of the EU included, inter alia, a focus on the European Perspective and Connectivity of the Western Balkans5, where energy was one of the key elements of debate.

On the necessity for national level policy update The EC has continuously underlined the role of the so called Integrated National Energy and Climate Plans”, due under the Energy Union governance regulation.6 This role has been restated recently along with the role of the planning at local level, which has been explicitly pointed out7.

4 https://ec.europa.eu/info/sites/info/files/communication-europe-moment-repair-prepare- next- generation.pdf 5 https://eu2018bg.bg/en/28 6 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2018.328.01.0001.01. ENG&toc = OJ:L:2018:328:FULL - Regulation 2018/1999; see Article 3 7 Explicitly in item 4.1 of the cited Communication “Europe’s Moment: Repair and Prepare for the Next Generation” etc.

6 However, most of these national level plans have been drafted and submitted prior to the pandemic. Reacting to the latter, the EU institutions will for sure reassess priorities, their timeline and the respective funds – this process has been already started by the Commission. Thus, these facts will certainly force the national governments to reconsider what they have already stated within the submitted plans in question. Substantial additional challenge will be related to the regional (at a local level) planning. There are several open issues in this aspect. Further to the administrative capacity, the timing is also crucial. Besides, there might be conflicting points between the national and the local consideration of the problems and respectively the most effective approach. In general, it is clear that the responsibilities for the adequate institutional and expert set up for meeting these challenges at national level belong to the national authorities. In parallel, however, the decisions will need to be well coordinated with a set of stakeholders. Such a step is not an option – the regulation on the Energy Union Governance puts this as a must (Article 10). Thus, the governments would either have to state that they do not plan any changes in the earlier submitted version of the plan or to propose amendments and duly consult them as specified in the Regulation. Certainly, this would not be very easy in the post-COVID environment – let’s not forget that it is both EU and national money, which is at stake.

Protect and support the investors! While the EU and the member states are those, which create the frame and formally outline the needs, it is the investors, who would use the money as “to get the economy moving again…” Substantial amount of funds (at the level of trillions of euros) is being considered, incl., for expanding the Just Transition Fund. However, irrespective of the concrete amount, the EU funds will be available for reforms and projects, which match the overall policy goals. This, on the other side, is linked to the integrated national plans, mentioned earlier. In this relation, the EC has clearly underlined the role of the investors via the specified pillars for the investments – support to the EU member states for investments and reforms; incentivizing private investments and recalling the lessons from the crisis8. Certainly, there is hardly a general line to be taken by all EU member states in this aspect. Nonetheless, the state institutions should be reminded that during the COVID crisis it was the business, which took care and managed well with the security of supply, even while suffering anomalies in the financial flows, as specified in legislation, concerning the extraordinary situation9. As indicated above, the business will also be a key towards performing the reforms afterwards.

8 Ibid. p.1 and p.4-5 9 E.g. along a special law in Bulgaria (State Gazette 28/24.03.20 - https://dv.parliament. bg/DVWeb/showMaterialDV.jsp?idMat=147150 in Bulgarian)

7 Therefore, without a doubt, the role of the investors in the economic recovery period will be crucial – and this demands reconsideration of the state level approach towards them.

A short wrap-up Despite the specific time frame, within which this year’s journal on energy and climate diplomacy was prepared, in my opinion it sets up a professional and realistic background for analysis and debate on the topics, which have been covered within the included articles. The authors represent different social groups – professional , state officials, business representatives, scientists, researchers, representatives of NGOs. Thus, the journal provides views on principle issues from different angles, which refer to international, regional, national and local aspects of energy policy developments. And I hope all readers will enjoy it, regardless whether they share the expressed views or not.

Slavtcho Neykov has more than 26 years of uninterrupted experience in the energy sector, including as Secretary-General of the Bulgarian Ministry of Energy, Member of the State Energy Regulatory Commission, expert at the Energy Charter Secretariat in Brussels, and Director of the Energy Community Secretariat in Vienna. In addition to his experience as a state and international official, he has sat on the board of directors of several energy companies. Prior to his involvement in the energy sector, he has worked as a state prosecutor and legal advisor. In addition to holding a law degree from Sofia University ‘St Kliment Ohridski’, Mr Neykov has completed a two-year postgraduate programme on international economic relations and foreign economic activities. He also holds a Master of Arts in European Integration from the University of Limerick, Ireland. Since the end of 2014, he has been serving as Chairman of the Board of Directors of the Energy Management Institute in Sofia. Mr. Neykov is also a member of the Board of Directors of the Union of the Electricity Industry – EURELECTRIC.

8 ENERGY DIPLOMACY REVISITED Аssoc. Prof. Valentin Katrandzhiev, PhD Bulgarian Diplomatic Institute

1. Linking the Energy and Diplomacy Domains Life of modern civilisation is unthinkable without generation of energy. Lack of energy is most evident in times of massive electricity blackouts, which virtually paralyse the economies of megapolises. Citizens are dependent on energy to cover their basic living and working needs, incl. their communication, transportation, heating, lighting, etc. Energy costs are embedded in the production cycle of goods and services. Thus, energy is the indispensable engine of the economy at a local, national, regional and global level. Production, distribution, consumption and trading of energy are principal components of energy markets and their management. Management of energy markets is transnational and not confined to national borders. It is in this context that transportation of energy sources becomes vital for smooth functioning of energy markets. This, for instance, is accomplished for electricity via electricity grids, and for oil and through pipelines. Both are considered assets of critical infrastructure and subject of the international energy security cooperation. Uncovering, accessing, controlling and exploiting sources of energy is also matter of both international energy cooperation and contention. This is where the linkage between the energy and diplomacy domains is entertained. Diplomacy has established itself as a principal institution for conducting foreign (state-to-state) relations. Diplomacy is also regarded as a main tool for the countries to achieve their foreign policy goals (incl. those in the energy field) through peaceful and non-coercive means and methods. Diplomacy is operationalised via its areas; among the most prominent ones are: political diplomacy (incl. security-driven); (incl. trade & investment, energy-driven); ; (incl. media-based); (incl. educational & scientific etc. people-to- people exchange); environmental diplomacy (incl. ozone, , polar, -driven); (incl. functioning via information and communication technology platforms). The above-mentioned areas of diplomacy are practiced both via bilateral and multilateral channels and formats of diplomatic representation and . Besides, intergovernmental organisations (IGOs) serve as traditional fora for conducting multilateral diplomacy. For instance, the UN and EU-based diplomacy, as well as international energy organisations, provide a valid diplomatic platform for conducting multilateral energy dialogues and negotiations. Contemporary and diplomacy, however, are not a reserved domain for interaction between state representatives only. For example,

9 UN-driven diplomacy has historically revolved around the interaction between governments, private sector (corporate business/industry community) and civil society (incl. think tank community), known as multi-stakeholder diplomacy. Thus, the international system has been witnessing an increased participation of non-state actors. The latter, alongside governments, are indispensable partners in management of globalisation and its consequences (described in academic and policy-driven literature as ‘global governance’10). Global governance was defined by 1995 UN Commission Global Governance report as a loose system of structures and modes of policy coordination and rule-making (standard-setting) with participation of state and non-state actors for the purpose of managing common affairs of humanity11 incl. management of the global environmental system (waste, climate change, ozone layer, biodiversity, forests, fresh water resources, etc.); global economic development; global markets of trade and investment, finances, energy, etc.

2. Defining Energy Diplomacy Energy diplomacy has emerged as a relatively new area of diplomacy in the mid-20th century. It falls within the broader domain of economic diplomacy. However, it is considered niche diplomacy because of its area of expertise, ambience, structures and tools of conduct. Energy diplomacy operates in geopolitically-driven environment dominated by access to and control over energy resources and issues of energy security (such as security of supply for energy importing countries and security of demand for energy exporting countries). Ministries, departments or agencies of energy are leading governmental institutions/structures responsible for formulation, coordination and implementation of the countries’ internal and external energy policies. Energy diplomacy constitutes that essential set of policy tools for the implementation of a country’s external energy goals. In a policy report produced by Dixi Group (a Kyiv-based international think tank),12 energy diplomacy is outlined as: • a strategy of producing, consuming and trading energy in line with a given country’s foreign policy goals;

10 Example of ‘global governance’ in the field of protection of vulnerable workers: International Convention on the Elimination of Child Labour, debated and adopted by governments, trade unions, industrial associations, humanitarian organisations, and finally, with participation of legal experts and officials from the International Labour Organisation. 11 The Commission on Global Governance. Our Global Neighbourhood. Oxford: Oxford University Press, 1995, p. 4. 12 Energy Diplomacy: International Models for Ukraine. Policy Paper produced by Dixi Group under Ukrainian Think Tank Development Initiative p. 3, online: http://dixigroup.org/ storage/files/2016-09-15/web_energy_diplomacy_dixi_2016_en-1.pdf [Accessed on 26th Feb 2020]

10 • a strategy for maximising national energy interests (securing stable energy supply or demand) through institutions and tools of bilateral or/and multilateral energy cooperation (with participation of state-run or/and multinational energy corporations). Energy diplomacy is aimed at ensuring stable and predictable external energy markets, incl. access to reliable and affordable energy sources that support the country’s economic development. Bilateral (government-to-government) energy diplomacy traditionally dominates the international energy landscape. Energy diplomacy is closely associated with the notion of global energy governance, which is considered a form of multilateral energy diplomacy. Global energy governance seeks to increase the role of intergovernmental organisations and major multilateral institutions. It groups the countries in multilateral energy partnerships and networks in line with their foreign energy interests and goals. (e.g. the International Energy Agency, the Organisation of Petroleum Export Countries, the International Agency). However, in the context of globalisation of energy markets, global energy governance utilises multilateral UN diplomatic fora (e.g. UN global conferences on climate change, sustainable development and new sources of energy, to name a few) to debate common developmental and energy agendas and priorities of global significance. Therefore, international energy policy driven negotiations placed within the multilateral diplomatic framework (both institutional and instrumental) are considered an integral part of the energy diplomacy domain.

3. Dimensions of Energy Diplomacy Energy diplomacy can be observed and practiced through its dimensions. Based on the energy source criteria, several dimensions of geopolitically motivated energy diplomacy can be identified, such as pipeline diplomacy; LNG- driven diplomacy; shale gas driven diplomacy; nuclear diplomacy, etc. In times of a global energy transition associated with “greening” of the global economy, sustainability and environmental protection, renewable energy driven diplomacy can be pointed as a new prospective dimension of energy diplomacy. (see: Figure 1)13 Thus, for example, on the one hand, the US administration utilises the shale boom (which has turned the country into one of the world’s biggest oil and natural gas producers), and major shipping routes for its LNG (liquefied natural gas) exports to Europe, as a way of counterbalancing the EU’s dependence on US’s competitors for natural gas energy supplies. The US uses LNG-driven diplomacy to reshape its relations with allies and adversaries. On the other hand, the

13 The graphical figures in this paper are original and designed by the author himself in order to support his line of writing and argumentation.

11 Dimensions of Energy Diplomacy

Pipeline Diplomacy LNG driven Shale driven Nuclear Energy Green Diplomacy (based on oil and Diplomacy Diplomacy Diplomacy (based on renewable natural gas) energy)

Energy Resource driven Diplomacy Energy Diplomacy (addressing energy security issues) in times of global energy transition (moving towards low-carbon economic and industrial development)

Figure 1

Russian Federation has been using its pipeline diplomacy to reaffirm its dominant position on the European energy markets via Nord Stream and TurkStream (and to neutralise geopolitical risks associated with the current pipeline routes and transit countries). Meanwhile, the trilateral energy agreement EU-- Ukraine, secured after difficult diplomatic negotiations by the end of 2019, preserved Ukraine as an important transit route for Russian gas to Europe. It may be considered a success of EU energy diplomacy as well. In this context it is worth noting that the multi-directional Turkish energy diplomacy has helped Ankara to emerge as an indispensable energy hub (not simply a transit country) at the crossroads of Europe and Asia. Turkey has managed to encompass the realisation of two seemingly incompatible and mutually competitive pipeline routes – the Southern Energy Corridor (based on the Trans-Anatolian Gas Pipeline [TANAP] and its continuation via the Trans-Adriatic Pipeline [TAP], projects transporting Azeri gas) and the Russian-led TurkStream. Bulgaria has also been playing on a geopolitically slippery terrain (impacted by the US-Russian struggle for energy dominance in South East Europe) by trying to maximise its interests of an energy transit country in the region. Diversification of natural gas routes and sources of supply has been Bulgarian government’s strategic priority in the energy sector. Sofia’s diplomacy of energy diversification includes transiting of Russian gas via the TurkStream pipeline [rebranded as ‘Balkan Stream’ on the Bulgarian territory] to the EU territory (with Austria as its final destination). Bulgaria has already become an entry point for Russian gas supplies to North Macedonia and Greece via the TurkStream. Its external

12 energy strategy, however, also envisages attraction of US and Qatari-originated LNG via a Greece-Bulgaria vertical gas corridor (Komotini-Stara Zagora), once it’s completed. This gas corridor is intertwined with the construction of the EU- supported LNG terminal off the shore of Alexandroupolis in Northern Greece (from where the LNG is expected to be off-loaded and further transported). The Bulgarian government (through Bulgaria’s state gas transmission company, Bulgartransgaz) has already acquired a 20% stake in the founding capital of the future LNG terminal. Sofia also seeks to secure supply of Azeri gas via the Southern Energy Corridor. Bulgaria has been playing actively on the nuclear diplomacy terrain, too. Nuclear energy occupies a sizable segment in the country’s energy mix. The country has accumulated solid nuclear energy related expertise and technological capacity. Not surprisingly, some 35% of its electricity production comes from .14 Bulgaria’s Kozloduy Nuclear Power Plant has been in operation for 46 years, since 1974. It is in this line of thinking that plans for reactivation of Belene – to be the country’s second nuclear power plant – should be looked at. The Ministry of Energy of Bulgaria (the principal negotiator on behalf of the Bulgarian government on energy matters) has engaged in complex negotiations for choosing a strategic investor. The preliminary talks have ended with short- listing prominent players in the nuclear energy field – Russia's , China National Nuclear Corporation and South Korea Hydro & Nuclear Power. The Bulgarian government has also sought to expand the list of companies by extending invitations to France's Framatome and US-based General Electric to join the project as sub-contractors. Therefore, Belene nuclear plant’s re-launch could be viewed more as an international nuclear energy project (worth 10 billion euro) in which the Bulgarian state will agree to be a minority shareholder, but with blocking minority rights in the future operating company of the 2,000-megawatt twin-reactor nuclear plant. It should be noted that construction, deployment and operation of nuclear energy capacity involves Bulgaria’s significant diplomatic engagement for access to specialised skills and technologies. Diplomatic negotiations over Iran’s nuclear program that culminated in the 2015 Comprehensive Plan of Action (JCPOA) stand as a good example of multifaceted and multilateral nuclear energy driven diplomacy. The negotiations involved Iran and P5+1 (five permanent members of the UN Security Council – China, Russia, France, United Kingdom and United States of America, plus Germany). The diplomatic negotiation framework also included EU’s High Representative for Foreign Affairs and Security Policy. Besides the political and economic issues, the negotiations also dealt with the specifically technical issue of uranium enrichment and its application in the nuclear energy domain. The International Atomic Energy Agency (an autonomous international standard-

14 Country Nuclear Profiles: Bulgaria. IAEA. Updated 2019. online: https://cnpp.iaea.org/ countryprofiles/Bulgaria/Bulgaria.htm [Accessed on 27th Feb 2020]

13 setting organisation within the UN system for safe and peaceful development and application of nuclear technologies) played a critical role in setting the technical parameters and principles of JCPOA and ensured the verification process (in other words, it made sure that Iran’s nuclear program was used for peaceful nuclear energy production purposes only). The increased fragility of global eco-systems, resulting from the environmental damage caused by greenhouse gas emissions, acid rains, water and air pollution, has pushed the global energy transition agenda forward. The energy transition process (known also as “greening of economy” or “global low-carbon energy transition”) calls for countries to increase the share of renewable sources (hydro, solar, wind, biomass) in their energy production mix. However, the energy transition could be a long and painful process because of high cost of renewable energy sources. The global economy still heavily relies on the use of polluting non-renewables (coal and oil) for energy production. As the EU ‘Green Deal’ debate indicates (meeting the European Commission’s ambitious goal of turning the Union into ‘carbon neutral’ by 2050), phasing-out of coal generated electricity production capacities will be a real challenge for the competitiveness of the EU Member States’ economies (as they will also face big political, economic and social risks as a result of this industry transformation).15 Here is where renewable energy driven diplomacy comes into play. Hence, renewable diplomacy can be identified as a new prospective dimension of energy diplomacy in times of global energy transition and movement towards economic and environmental sustainability. The global energy transition, perceived as a low-carbon transition, will affect energy geopolitics as it will alter the power relationship between energy producers and consumers. Diplomacy will be needed to re-balance the energy interests between hydro-carbon energy producers (which continue to rely on exports of oil, natural gas and coal, and by default would resist low-carbon transition) and energy importing countries that would embrace the energy transition as a way of reducing their external energy dependence. Countries that will invest in development of cutting-edge renewable energy technologies will have a substantial say in determining future geopolitical energy equilibrium.16 Therefore, energy diplomacy is used as a foreign policy tool to cushion geopolitical consequences of the global energy transition. The UN Framework on Climate Change provides diplomatic fora for cooperation on energy issues

15 Simon, F. (2020). Timmermans kicks off debate over landmark EU ‘Climate Law’. EURACTIV. online: https://www.euractiv.com/section/energy-environment/news/timmermans- kicks-off-debate-over-landmark-eu-climate-law/ [Accessed on 9th April 2020] 16 Griffiths, S. (November, 2019). Energy Diplomacy in a Time of Energy Transition. ScienceDirect. Energy Strategies Reviews. Volume 26. online: https://doi.org/10.1016/j. esr.2019.100386 [Accessed on 29th Feb 2020]

14 with particular impact on climate change mitigation. The carbon finance program (related to CO2 emissions) is also part of this UN led international energy cooperation.17

4. Energy Diplomacy Toolkit The energy diplomacy toolkit is a set of policy tools which operationalises energy diplomacy, as illustrated concisely in Figure 2.

ENERGY DIPLOMACY TOOLKIT

Conventional Policy Tools: Non-conventional Policy Tools:

 Launching of energy related initiatives  Use of specific argumentation; and projects;  Use of ’hard power’ in energy  Political (incl. technical) consultations; diplomacy;  Formal energy negotiations;  Use of ’soft power’ in energy  Energy policy dialogues. diplomacy.

Figure 2

The following are some examples to support the above classification. The EU Energy Initiative Partnership Dialogue Facility (launched in 2003) is an energy policy instrument the Union used to conduct 136 activities in 35 countries from Africa, Latin America and Asia, aimed at promoting solutions into local, national and regional development policies and strategies (and thus accelerating development of sustainable energy markets). The Initiative helped the EU (via the Commission) and contributing Member States (MS) – Austria, Finland, Germany, Italy, Sweden and the Netherlands forge series of high-level energy dialogues and partnerships in renewable energy, energy security, climate change and energy in cities. It strengthened the EU’s image as an innovative and reliable international energy partner.18 In 2010 the US government launched The Global Shale Gas Initiative as instrument of achieving long-term foreign policy goals. The Initiative was designed

17 UNEP Finance Initiative. Energy Efficiency. online: https://www.unepfi.org/climate- change/energy-efficiency/ [Accessed on 9th April 2020] 18 EU Energy Initiative Dialogue Partnership Facility. (EUEI). online: http://www.euei-pdf. org/en [Accessed on 27th March 2020]

15 to assist American allies and partners in cultivating their natural gas production potential (in other words to increase energy security through development of their shale gas formations).19 The initiative turned out to be controversial because of the enormous hazards shale fracturing posed to the environment. In an effort to counter China’s energy dimension of the in Asia, US President Trump came up with the ‘Free and Open Indo-Pacific Initiative’ in 2019, which had a separate chapter ‘Growth through Energy Program for Asia’.20 The Initiative triggered a US paradigm shift from Atlantic into Pacific regions, in terms of energy trade flows. The sustainable development dimension of France’s energy diplomacy has been boosted following the hosting of the UN Climate Change Conference and subsequent conclusion of the Paris Climate Agreement. In 2015, France’s Ministry of Europe and Foreign Affairs undertook ‘Green Embassy’ – a comprehensive initiative to cut down the environmental impact of France’s network of diplomatic missions abroad (160 embassies, 89 , 133 consular sections and 16 permanent representations). The three-phased project includes: impact assessment, defining and implementing an action plan, and stock-taking ofthe results. Paris has presented the initiative as a showcase of expertise and best practices in energy saving and efficiency. The operational dimension of the project is focused on promotion of renewable energy use (reasonable water and energy consumption), sustainable procurement, recycling waste, protecting the environment in and around the embassies.21 Formal energy negotiations may be held in a bilateral and trilateral format, at a government-to-government level (traditionally resulting in political MoU) and then supported by negotiations between private business entities [multinational energy enterprises] (resulting in legally binding commercial energy contracts). Energy dialogues take place at regional and global levels, usually involving multiple stakeholders (governmental and non-governmental) in predominantly multilateral formats, placed within different policy discussion platforms (e.g. energy-driven IGOs, multi-stakeholder policy networks, etc.) to debate specific energy related issues and agendas (renewables, climate change, nuclear energy

19 Sakmar, S. (2011). The Global Shale Gas Initiative: Will the United States Be the Role Model for the Development of Shale Gas Around the World? Houston Journal of International Law, Vol. 33, No. 2, University of San Francisco Law Research Paper 2011-27. online: https:// papers.ssrn.com/sol3/papers.cfm?abstract_id=1927593 [Accessed on 27th March 2020] 20 A Free and Open Indo-Pacific. Advancing a Shared Vision. online: https://www.state. gov/wp-content/uploads/2019/11/Free-and-Open-Indo-Pacific-4Nov2019.pdf [Accessed on 27th March 2020] 21 The ‘Green Embassy’ Project. France Diplomatie. Ministry for Europe and Foreign Affairs. online: https://www.diplomatie.gouv.fr/en/the-ministry-and-its-network/missions-and- structure/exemplary-administration-plan-pae/article/the-green-embassy-project [Accessed on 27th March 2020]

16 use for peaceful purposes, energy geopolitics, global energy efficiency, efficiency and stability of global energy markets, etc.). Environmental argumentation may be used to halt realisation of international energy projects, for example involving shale gas extraction, construction of a nuclear power plant or oil or gas pipelines. For instance, the trilateral Russian-Bulgarian-Greek oil pipeline venture ‘Trans-Balkan Pipeline’ [Burgas- Alexandroupolis, 280 km long], aimed at providing an alternative to the Black Sea-Mediterranean oil tanker route and avoiding maritime traffic congestion at the Bosphorus Strait, was mainly abandoned over environmental concerns in 2010 (apart from geopolitical motivations). An evolution of the US external energy strategy was witnessed during the Trump administration. Combatting climate change was no longer on the US foreign and energy policy agenda. International scientific argumentation on climate change has been questioned and as a result the US increased its reliance on fossil fuels for energy production. The Trump administration has been applying a considerable diplomatic effort to halt the realisation of the Nord Stream 2 gas pipeline project as a way of pushing transatlantic allies to reduce natural gas supplies from Russia.22 The US government went further by threatening to impose economic sanctions on foreign business enterprises participating in completion of the pipeline project. This led to a Swiss-Dutch offshore contractor (specialised in pipelay, heavy lift and subsea construction) suspending works in the project (which exemplifies the use of hard power in energy diplomacy). Soft power dimension of energy diplomacy is applied via exchange model. For instance, for a long period of time, Cuba-Venezuela relations have been driven by maximisation of relative advantages of the two Latin American nations. Karakas provided steady supply of oil in exchange of Havana helping in capacity building through supply of doctors, teachers, sport trainers. China also relies on soft power to advance its global energy interests. Through its resource-driven energy diplomacy, Beijing seeks to gain control over strategic energy and mineral assets on the African continent (e.g. Zambian mining assets or the Husab Uranium Mine in Namibia).23

22 Nord Stream 2, however, is not a purely Kremlin-owned venture, as apart from Gazprom, major Western European [German, French and Dutch] energy companies are sizable shareholders in the Nord Stream consortium: Winteshall Dea GmBH, PEG Infrastruktur AG [PEGI/E.ON subsidiary, N.V.Nederlandse Gasunie and ENGIE. 23 Exchange scheme is as follows: Chinese banks finance energy infrastructure projects with long-term loans with extended repayment periods. However, countries with weaker economies and governance often default on their loans. As a result, Beijing agrees to go in for debt-forgiveness in exchange of gaining control of strategic assets (incl. energy infrastructure and resources).

17 5. Architecture of Energy Diplomacy Energy diplomacy is not a reserved domain for state-to-state interaction only. Energy cooperation (incl. energy related dialogues, negotiation of energy agreements and coordination of energy policies) takes place at different layers of engagement with participation of both state and non-state actors, as shown below. (Figure 3)

Energy Diplomacy (through actors, levels of engagement, policy coordination and cooperation)

Global level: energy driven IGOs (e.g. the Organization of Petroleum Exporting Countries, the Gas Exporting Countries Forum, the Energy Charter Treaty, the International Renewable Energy Agency etc.) as well as high-level summits of G-20 and G-8.

Regional level: IGOs (e.g. Shanghai Cooperation Organisation, NAFTA, ASEAN etc.) where energy is not a principal area of cooperation (yet energy cooperation develop over realisation of international energy policy initiatives).

State level: National ministries (agencies, departments) involved in diplomatic negotiation on energy related issues (MFA and other ministries of energy/resources, economy, trade, environment, water etc.  Need for inter-agency coordination on energy policy and cross-cutting energy issues (e.g, use of clean/green energy in the context of environmental sustainability);  Special envoys/-at-largeon energy issues within MFA structures;  Staffing embassies with experts with a broad scope of energy related expertise and competences.

States-exporters States-importers Transit states: maximizing their geographical of energy of energy location to transit energy resources resources resources (seeking to be energy hubs)

Corporate level: (multinational companies- actors of corporate energy diplomacy (private, [publicly listed], state-run) - Saudi Aramco, Exxon Mobile, Shevron, Gazprom, Total, BP, Shell, PetroChina, Sinopec to name a few.

Think Tank Community: energy and environmental think tanks as policy actors; think tanks as generators and disseminators of energy related knowledge and expertise; think tanks as platforms for multi-stakeholder energy diplomacy.

Figure 3

18 5.1. Global and Regional Level of Engagement Negotiation frameworks of intergovernmental organisations at the global and regional levels provide a suitable platform for coordination of energy policies and interests of major groups of states. There is a set of examples in this direction. Created in 1960 by the Persian Gulf oil-exporting countries, the OPEC cartel is responsible for approximately 40% of the world’s crude oil production. Through the years, it has expanded geographically to include 14 Member States from the Middle East, Africa and South America. The cartel seeks to maintain a dominant market position by fostering common oil production and supply policy, underpinned by proactive energy diplomacy (together with Russia in the ‘OPEC Plus’ format). It has allowed OPEC to some extent to determine prices of global and regional markets of crude oil (indirectly of natural gas as well) and prevent drastic price fluctuations through setting oil production limits within the group. However, the US, which has turned from a major importer of energy resources from the Middle East into a leading oil and gas producer in recent years, has questioned the cartel’s position on the global oil markets. Washington does not miss the chance to accuse OPEC of price manipulation.24 Maintaining unity within the bloc also requires a great deal of diplomatic manoeuvring and balancing of often divergent energy interests of the Member States. Different interests of oil producers stem from the economic sustainability of their crude oil production (level of cost-effectiveness).25 The Gas Export Countries Forum (GECF), which was initiated in Teheran in 2001, formed as and IGO (with its own charter and organisational structure) with 11 Member States (major natural gas producers) at the seventh Ministerial High-level Meeting in 2008 in Moscow. It was created as a counter-point to OPEC (as a way of reducing the oil-producing countries cartel’s energy policy impact on developments in the natural gas markets). For a period of two years (2013-2105), Mohammad-Hossein Adeli, an Iranian and former head of the country’s central bank, was chosen to lead GECF, which highlights the

24 For instance, President Trump – via his ‘twitting diplomacy’ – describes as manipulative a price rise of up to $ 65-70 per barrel of Brent Crude oil, then directly demands OPEC members to increase production that would lead to cutting the oil prices down (see: Trump, OPEC Jawbone Oil in Opposite Directions. Oil Price. online: https://oilprice.com/Energy/ Energy-General/Trump-OPEC-Jawbone-Oil-In-Opposite-Directions.html 25 For Saudi Arabia, production becomes unprofitable below 80 USD a barrel while for Russia the oil production profitability is at the point of 42 USD a barrel. The cost-effectiveness of the US crude oil production stands at 50 USD a barrel. For the majority of OPEC members, it is around 65 USD a barrel. The latest round of OPEC crisis negotiation at the beginning of March 2020 has resulted in a modest oil production cut of 1.5 million barrels per day. It has been happening at a time when crude oil markets have experienced their worst period, since 1991, of 25% plunges). Russia has been reluctant to cut its oil supply to bolster prices. The coronavirus outbreak has slowed economic activity worldwide and as a consequence reduced the oil production demand.

19 importance of diplomatic skills and expertise in running the gas cartel. However, despite its ambitious goal of fostering wide-ranging energy cooperation between producers and consumers (with an emphasis on natural gas production, trade and transportation) GECF has not managed to match OPEC’s power over oil and NG markets. The multilateral diplomatic framework of the International Energy Agency (IEA) is an example of effective energy policy-making, exchange and coordination. The agency’s pool of experts gathers and processes relevant statistics and provides energy policy advice to members and non-members. IEA’s strength originates from its autonomous status within the framework of the Organisation for Economic Development and Cooperation (OECD). IEA’s energy policy approach has been based on energy security, economic and environmental sustainability. It is in this context that IEA seeks to promote alternative sources of energy and multilateral cooperation in renewable energy technologies. However, IEA is criticised for lacking representativity because it does not include some of the largest energy consumers (e.g. Brazil, China, India, Indonesia). The Consolidated Energy Charter Treaty (ECT) represents another example, this time of an international energy standard-setting institution which sets the legal and political framework for liberalisation of energy markets (in line with the principles of open and non-discriminatory markets). The ECT mainly addresses trans-border trade and transit of oil and natural gas, and has dispute settlement mechanism used by energy investors to protect their risks resulting from assets expropriation and nationalisation. Initially conceived through 1991 Hague political declaration as the European Energy Charter, now it encompasses more than 90 countries (55 as full members) from all over the world (described in the specialised literature as the ‘international energy community’). The ECT is supported by a Secretariat. The legal framework of ECT is being continuously updated, reflecting the changes in functioning of the regional and global energy markets (a process defined as the Energy Charter Process). The ECT-led conferences constitute the diplomatic negotiation framework where Charter’s legal instruments are being discussed and adopted.26 Recently, the European Commission has called for modernisation of the ECT legal base (to include revision of investor’s protection, climate change and renewable/green energy transition clauses). It has happened amid the Russian Federation’s first-time use of ECT to launch a legal proceeding against the EU (with regard to Nord Stream 2 implementation) in 2019.27 The examples of regionally geared Shanghai Cooperation Organisation

26 Energy Charter Secretariat (last updated: 2016) International Energy Charter. Consolidated Energy Charter Treaty with Related Documents. online: https://www. energycharter.org/fileadmin/DocumentsMedia/Legal/ECTC-en.pdf [Accessed on 3rd March 2020] 27 Gotev, G. (2019) Nord Stream 2, EU drifting towards legal arbitration. EURACTIV. online: https://www.euractiv.com/section/energy/news/nord-stream-2-eu-heading-towards- legal- arbitration/ [Accessed on 9th April 2020]

20 (SCO), North American Trade Agreement (NAFTA) and ASEAN offer a different perspective. These IGOs operate within particular geographic regions, provide opportunities for conducting multilateral and bilateral energy diplomacy. They traditionally cover cooperation in the fields of security (hard [counter-terrorism] and soft security aspects [migration, social and labour affairs, environment, energy]), trade and investment, to name a few. A great deal of diplomatic discretion was exerted to overcome the deadlock in NAFTA negotiations on investments regulations in the energy sector as Mexico initially opposed opening its oil and natural gas sectors for private investment.28 Energy related NAFTA negotiations have also addressed the interplay between energy and environment (e.g. hazardous environmental impact resulting from oil and gas pipeline construction, as well as exploitation and operation of coal- burning power plants). The SCO geographical area holds 25% of global oil reserves, over 50% of gas reserves, 35% of coal and about half of the world’s known uranium reserves. The region is also a crossing point of the largest and longest oil and gas pipelines.29 Not surprisingly, energy cooperation occupies a significant segment in the SCO multilateral diplomatic framework. Besides the commercial rationale, SCO’s energy relationship is geopolitically determined. The SCO energy negotiation framework involves both big energy producers and consumers. In 2015, the SCO Energy Club was initiated as a way of structuring the energy dialogue. The ASEAN covers a very diverse geographical region with diverse energy needs of the Members States (in terms of energy demand and availability of energy resources for individual MS). The ASEAN Plan of Action for Energy Cooperation (APAEC) is the guiding instrument of the bloc’s energy cooperation. This strategic document is being discussed and adopted periodically during high level meetings of ASEAN’s energy ministers (with the latest APAEC identifying challenges and outlining priorities in the energy cooperation for the period 2016-2025). The format of energy ministers meeting is the main diplomatic platform of the ASEAN multilateral energy cooperation platform. Integration and connectivity of regional energy markets have been outlined as key priorities for sustainable economic development of ASEAN, which has been experiencing demographic boom (population of 622 million and rising energy demands due to rapid industrialisation (ASEAN’s collective GNP accounts for 2.95 trillion US dollars in 2018).30 Therefore,

28 Congressional Research Service. (2020). NAFTA and the US-Mexico-Canada Agreement. CRC Report. online: https://fas.org/sgp/crs/row/R44981.pdf [Accessed on 4th March 2020] 29 InfoSCO Portal. (2015). SCO Energy Club. Structure ready for international interaction, not Shanghai Six’s elite club. online: http://infoshos.ru/en/?idn=13913 [Accessed on 4th March 2020] 30 Plecher, H. (2019) Gross Domestic Product of the ASEAN Countries from 2008 to 2018 (in Billion US Dollars). Statista. online: https://www.statista.com/statistics/796245/gdp-of-the- asean-countries/ [Accessed on 4th March 2020]

21 security of energy supply is of utmost importance for ASEAN. Under the latest APEAC, several energy cooperation initiatives have been triggered (e.g. realisation of ASEAN Power Grid in view of achieving multilateral electricity trading; Trans- ASEAN Gas Pipeline, incl. LNG regasification terminals as a way of enhancing natural gas connectivity and promoting clean coal technologies). Anna Fuenfgeld from the German Institute of Global and Area Studies notes that common ASEAN energy strategy approach should revolve around securing regional energy supply in a socially and ecologically sustainable manner in the long run (incl. raising the share of renewables in the energy mix). She emphasises a need for greater cooperation with multilateral banks (where funding should come from the banking sector and not from private companies’ sources).31 Other initiatives focus on renewable energy sources via building nuclear energy capabilities. ASEAN energy cooperation approach also includes expanding links with ASEAN Dialogue Partners (academic and business community members) as a way of tapping external expertise and contributing to capacity building in ASEAN. 32 It is in this context that the ASEAN Centre for Energy (ACE) should be mentioned. It acts as autonomous IGO within the ASEAN community. ACE works for synchronisation of ASEAN MS energy strategies, policies and programs. ACE serves as an indispensable think tank hub for ASEAN’s expert community (providing energy specific relevant information and expertise). ACE is run by a Governing Council, staffed with senior energy experts from MS and a representative from ASEAN Secretariat as ex-officio.

5.1.1. The EU Energy Policy-Making and Energy Diplomacy Under the EU Lisbon Treaty (2006), the Union has acquired full subjectivity under the international public law (e.g. an exclusive competence to conclude international agreements on behalf of the whole Union and Member States). Yet, its international subjectivity is exercised through the Union’s level of intergovernmentability and supranationality. In other words, the EU is not a quasi- state. It remains a union of nation-states with certain elements of supranational policy coordination and governance. For instance, the EU common foreign policy, security and defence are exclusive competence of the Union, managed by intergovernmental domain (the Council of the EU), while common policies in the field of trade, energy, environment, development, agriculture, etc., are managed through shared competences of intergovernmental and supranational domains (the Council of the EU and the European Commission, the European Parliament).

31 Fuenfgeld, A. (Jan, 2019). ASEAN Energy Connectivity: Energy, Infrastructure and Regional Cooperation in South East Asia. Indonesian Quarterly. pp. 315-334 online: https:// www.researchgate.net/publication/330521166_ASEAN_Energy_Connectivity_Energy_ Infrastructure_and_Regional_Cooperation_in_Southeast_Asia [Accessed on 4th March 2020] 32 ASEAN Plan of Action of Energy Cooperation (2016-2025). Phase I: (2016-2020). Published by ASEAN Centre for Energy, 2015. online: https://aseanenergy.org/2016-2025- asean-plan-of-action-for-energy-cooperation-apaec/ [Accessed on 4th March 2020]

22 Thus, the EU represents an interesting case study of an international energy diplomacy actor, as it is not a classical IGO. In fact, the energy dimension has played an important role in the EU’s formation (via the setting up of the supranational European Steel and Coal Community). Figure 4 illustrates the institutional setup in the EU energy policy-making (incl. conduct of common energy diplomacy).

EU Energy Policy-Making & Diplomacy Structures

European Institutions involved in Union’s energy policy-making Co-legislators and conduct of EU energy diplomacy in EU energy policy Foreign Affairs Council The European Commission Telecommunications and Energy Council The European

DG Energy DG Competition DG Development Parliament with strong focus used for antitrust and Cooperation on management legislation againstthe used for implementa- of natural Russian energy tion of energy related HR/VP, gas related issues monopolist, cooperation projects European Gazprom with third countries External (important for EU Action DG for Regional Policy energy supplies) Service as for application of 3rd Energy Package

Figure 4

The EU energy policy-making institutional set comprises of several Directorates General (DG) in the Commission, which are responsible for managing internal and external aspects of common EU energy at supranational level. The Commission is in close coordination with the two Council configurations (foreign affairs and energy) which insure coherence of the EU external energy policy-making at intergovernmental level. The European Parliament comes up with political declarations on energy related issues (e.g. on EU energy relations with third countries) and oversees budgetary aspects of energy policy implementation. The Lisbon Treaty reaffirmed the concept of an integrated EU energy policy which is still a distant goal. Solidarity principle in EU energy policy is difficult to implement because national energy interests of MS dominate the EU energy policy-making landscape. Key challenges of energy policy-making can be identified: low integration of energy markets across borders in the EU; urgency to combat climate change; introduction of renewable energy sources and movement towards carbon neutral EU.

23 During 2006-2019 a number of important policy instruments aimed at creating a competitive and resilient internal and promotion of external security of supply via diversification were adopted. Most relevant among them were: • Third Energy Package (to liberalise the EU internal gas and electricity markets through establishment of independent national regulatory authorities and increased role for Agency Cooperation of Energy Regulators, so far the agency has limited powers in decision making at EU level); • In 2010 the European Parliament passed Security of Gas Supply Regulation under which Gas Coordination Group was established to tackle Russian- Ukrainian gas crises; • In 2015 the Commission was instrumental in adoption of a key strategic document “A Framework Strategy for Resilient Energy Union with a Forward Looking Climate Change Policy” (supported by implementation of road map and concrete policy goals) which is believed to determine the future of EU energy policy development; • In line with the EU’s commitments under the Paris Agreement to lessen greenhouse gas emissions, ‘Clean Energy for All Europeans’ package was adopted in 2016. In conformity with the strategy of the EU Energy Union (2015), the EU and the MS have committed themselves to apply consistent efforts to move away from fossil fuel use to cleaner energy. This includes improving energy performance in buildings, bringing up 32% of renewables in the EU MS energy mix by 2030, setting up robust governance system for the energy union (under which MS have been required to set integrated 10-year national energy and climate plans for 2021-2030).33 As for the EU energy diplomacy (as a principal instrument of external energy policy) a breakthrough was achieved in 2015 with the adoption of Transport, Telecommunication and Energy Council Conclusions, which included action plans in the fields of energy diplomacy and climate diplomacy. EU’s Energy Diplomacy Action Plan emphasised on: • Foreign Affairs Council role in shaping EU external energy policy and coordinated work with the Transport, Telecommunication and Energy Council and other relevant EU institutions and structures; strengthening common messages and energy diplomacy capacities; • Energy cooperation and dialogue with third countries in a bilateral and multilateral formats (incl. international energy forums and initiatives) in support of diversification of sources, suppliers and routes;

33 European Commission (last update March, 2020). Energy. Clean energy for all Europeans package. online: https://ec.europa.eu/energy/topics/energy-strategy/clean-energy- all-europeans_en [Accessed on 10th April 2020]

24 • The development of the Southern Energy Corridor, acknowledgement of the strategic potential of the Eastern Mediterranean region; the Euro-Mediterranean energy cooperation in the Southern Neighbourhood; utilising potential of LNG; • Interaction with multiple stakeholders, incl. global and regional energy organisations, think tanks, academia, the energy industry, and international financial institutions (as elements of global energy architecture). The EU’s Climate Diplomacy Action Plan: • Identified climate as a strategic priority; • Encouraged EU’s cooperation with international energy agencies specialised in promotion of environmental sustainability (incl. clean policies and technologies); • Tasked the Commission to utilise EU external trade policy for securing EU access to clean energy technology markets. The European Commission’s Communication on the “Green Deal’ (adopted in 2019),34 has been aimed at making the EU climate neutral by 2050. Greatly ambitious goal that in the words of the High Representative for the Union Foreign Affairs and Security Policy, Josep Borrell, would make the EU ‘a leading global actor on climate action’. Brussels policymakers perceive the ‘Green Deal’ as an instrument of the EU environmental and renewable energy geopolitics (at times when the EU accounts for 7% of the global greenhouse emissions, non-EU G-20 countries contribute to more than 70% of these emissions).35 The High Representative for Foreign Affairs and Security Policy is the inter- institutional link between the Commission (as its vice-president) and the Foreign Affairs Council (as its permanent chair). As the head of the European External Action Service (popularly named the EU ) he or she plays an essential role in conduct of EU energy diplomacy and makes sure that the Union speaks with one voice on energy and climate in international relations.

5.1.2. G-20 High Level Format The G-20 is a unique high level diplomatic negotiation format that combines inter alia energy interests of developed and major developing states. In terms of energy statistics, the G-20 members altogether account for 80% of the global energy demand (incl. 95% of its coal demand, 75% of its oil and

34 Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions (2019). The Green Deal. Brussels. COM (11.12.2019) 640 final. online: https:// ec.europa.eu/info/sites/info/files/european-green-deal-communication_en.pdf [Accessed on 10th April 2020] 35 The Green Deal: Global Perspective. From the Blog. 12th Dec 2019. European Union External Action. online: https://eeas.europa.eu/headquarters/headquarters-homepage_ en/71928/The%20EU%20Green%20Deal%20%E2%80%93%20A%20global%20perspective [Accessed on 10th April 2020]

25 natural gas demand, and 85% of world’s investment in renewables, but despite that, 80% of primarily energy supply comes from fossil fuels).36 The G-20 format has been developing in the context of the changes that have taken place in the global energy landscape. Firstly, the world has been witnessing visible changes in the global energy balance (primarily in the production and consumption patterns). For instance, in 2018 the US has surpassed Saudi Arabia and the Russian Federation as the biggest producer of crude oil as the result of the unconventional shale oil extraction. Due to their rapid industrial development, China and India have become sizable energy consumers. Secondly, due to rising climate change awareness, the global energy sector has been welcoming a greater share of clean technologies, which will inevitably impact the global energy investment landscape. Contrary to other policy areas, such as finance and health, (which are globally managed by their respective inclusive international institutions – IMF and World Health Organization), there is not an overarching global energy institution/IGO. As explained above, the global energy architecture has been populated with various energy-driven IGOs, that often have conflicting agendas and goals (e.g. OPEC focuses on oil, GECF on natural gas; International Renewable Energy Agency on clean energy sources). Although IEA is believed to lack balanced representativity in terms of energy producers and consumers, in the context of G-20 there are two major working groups on energy sustainability and climate sustainability which coordinate with EIA policy dialogues on energy security, sustainable development, energy data, market transparency, renewable energy, energy access, energy efficiency and the phase-out of fossil fuel subsidies. Therefore, apart from utilising it as a forum for coordination of national energy policies of its members, the G-20 is well suited to play a lead role in global energy governance. Energy governance is perceived as a set of procedures, regulations and policies for management of energy markets (incl. energy security, access to energy resources and management of climate change consequences). The G-20 format could serve as a platform for improving policy coordination between various energy IGOs.

5.2. State Level (actors, instruments and policy coordination)

Inter-institutional/inter-agency energy policy coordination is crucial for successful planning and for conducting state-based energy diplomacy. Energy policy coordination takes place both at the expert level (in inter-ministerial working groups, involving experts from ministries of foreign affairs, energy, environment,

36 Downie, C. (2018). Australian Energy Diplomacy. Australian Journal of International Affairs. p.3 online: https://www.researchgate.net/publication/328361678_Australian_energy_ diplomacy [Accessed on 6th March 2020]

26 trade, natural resources, etc.) and at the level of government meetings (with participation of high level officials – ministers, deputy ministers, heads of directorates). Final outcome of inter-institutional coordination is the identification of national energy priorities and defining comprehensive policy framework for their accomplishment (incl. adequate set of policy instruments based on available domestic energy resources and energy production capacities). Energy envoys (posts created within the national systems of government in a considerable number of countries) contribute to greater inter-institutional external energy policy coordination. Usually, these are ambassadors-at-large assigned with specific powers to advise and assist the state and government on a broad range of energy related issues. They are also lead figures in pursuit of states’ foreign energy interests by proactive diplomatic engagement with foreign policymakers and officials. The Central and East European countries (CEEC) exemplify the above- mentioned modality of energy diplomacy coordination. For instance, ambassadors- at-large on energy matters are being appointed within the operational framework of a number of ministries of foreign affairs of the CEEC (e.g. Czech Republic, Hungary, Slovakia, Bulgaria, Ukraine). In Estonia, there is a combined position of energy diplomacy for climate and energy policy. Lithuania has employed a more targeted approach by appointing -at-large to take care of international energy cooperation related to management of a concrete nuclear energy project (Belorussian ‘Astravets’ Nuclear Power). The designated Lithuanian diplomat will be in charge of Lithuanian international coordination in relation to the Belorussian nuclear plant project, given its geopolitical energy dimension, etc. State-driven energy diplomacy is unthinkable without the participation of national diplomatic missions abroad. They contribute to the overall implementation of the countries’ external energy policy via levels of diplomatic representation, negotiation and energy diplomacy outreach. Diplomatic officers posted in embassies abroad (under the stewardship of the ambassadors) are responsible for building respective networks of contacts with officials, energy policy experts and shapers, with members of the business community (in particular with the corporate energy community) and energy specific think tanks, etc. There are different national approaches to staffing embassies with energy expertise. Many small and medium-sized countries (due to budgetary constraints) rely on so-called ‘generalists’ (diplomatic officers in embassies with broad expertise, assigned to cover various fields of cooperation with the receiving countries, where energy is one among them). There are governments that appoint as heads of diplomatic missions acting or former officials with professional background in energy (e.g. from the ministry of energy or from the country’s energy community at large). The following are some concrete examples. The UK Foreign and Commonwealth Office (FCO) offers an interesting

27 case for analysis given its non-traditional and inclusive recruitment policy. It staffs the British embassies overseas with job applicants from academia or/and professionals (incl. foreign nationals) with diverse set of knowledge and expertise (that come from outside the British diplomatic service). For instance, during the period of 2016-2020 the FCO opened a number of employment positions in its overseas diplomatic missions that can be grouped as: 1) Climate change and energy officers to join the political sections in the British Embassy in Denmark and Sweden, tasked to promote sustainable energy relationship between the UK and Denmark, incl. taking diplomatic action to support implementation of the goals of the UN Framework Convention on Climate Change; 37, 38 2) Policy advisors on energy and environmental issues as part of the Energy & Environmental Team in the Global and Economic Policy Group in the British Embassy in Washington and the British -General in San Francisco. The policy officers will have cross-cutting responsibilities ranging from economic, trade, financial, social policy issues, to energy and environmental security, transport, science, innovation and research. They will be tasked to develop strong understanding of the US energy, climate and environmental policies both at federal and state levels and provide strategic advice to the British government on these issues, incl. submission of policy recommendations on ways of intensifying UK-US cooperation on these issues (incl. on energy security and the transition to a low-carbon economy). Being credible interlocutors with the US business and investors’ community, state-level governments, NGOs sector has been considered an essential prerequisite for seeking employment with the UK’s diplomatic missions.39, 40 Externalisation of national energy policy priorities and interests is a prime task of state-driven energy diplomacy. It involves initiation of energy cooperation and negotiations with foreign counterparts (incl. initiation and implementation

37 Her Majesty Government. (2020). View Vacancy – Climate Change and Energy Officer. (DNK 19.662) online: https://fco.tal.net/vx/mobile-0/appcentre-ext/brand-2/candidate/so/pm/4/ pl/1/opp/11176-Climate-Change-and-Energy-Officer-DNK19-662/en-GB [Accessed on 16th March 2020] 38 Her Majesty Government. (2020). View Vacancy – Climate Change and Energy Officer. (SWE 20.046) online: https://fco.tal.net/vx/lang-en-GB/mobile-0/appcentre-1/brand-2/ candidate/so/pm/4/pl/1/opp/11535-Climate-Change-and-Energy-Officer-SWE20-046/en-GB [Accessed on 16th March 2020] 39 Her Majesty Government. (2018). View Vacancy – Energy & Environment Policy Advisor. online: https://fco.tal.net/vx/mobile-0/appcentre-ext/brand-2/candidate/so/pm/4/pl/1/ opp/4813-Policy-Advisor-Energy-Environment/en-GB [Accessed on 16th March 2020] 40 Her Majesty Government. (2016). View Vacancy – Energy & Environment Policy Advisor. online: https://fco.tal.net/vx/mobile-0/appcentre-ext/brand-2/candidate/so/pm/4/pl/1/ opp/1188-Energy-Environment-Policy-Advisor/en-GB [Accessed on 16th March 2020]

28 of international energy projects of mutual interest) aimed at creating favourable external energy conditions for development of national energy industry and economy as a whole. For instance, Greece’s geographical location of simultaneously an East Mediterranean and a Balkan country, and one that lacks large amounts of its own energy resources, has urged the Greek government to take full advantage of its position of a transit country for major energy routes. The country’s external energy cooperation has focused on supporting the realisation of several energy projects, incl. ‘EuroAsia Interconnector’, ‘EastMed Pipeline’ with Israel, ‘EuroAfrica Interconnector’ with Egypt. Similar to Bulgaria, Greece acknowledges the importance of the Southern Energy Corridor for EU’s overall security of energy supply. Athens utilises its energy diplomacy for becoming a transit hub for natural gas pipelines and LNG terminals. The Hellenic Ministry of Foreign Affairs and the Ministry of Environment and Energy work closely in implementation of national external energy policy goals.41 For a middle power such as Australia, energy diplomacy has been historically associated with ensuring external energy market access for its substantial deposits of coal and natural gas. However, following the significant impact of climate change over the years on the country’s eco- systems and the economy as a whole, the Australian government has taken strong international action in support of cutting down greenhouse emissions and moving towards low-emissions global economy.42 Canberra used 2014 Brisbane of G-20 to steer global energy governance reforms centred around energy efficiency, energy markets resilience, energy security, energy access and environmental sustainability (pushed through an adoption of G20 Energy Principles and the G20 Energy Efficiency Action Plan at the summit).43 Development and access to renewable energy sources and technologies have become an integral part of its external energy diplomatic action. As it has been outlined in the 2004 White Paper ‘Securing Australia’s Energy Future’ Canberra seeks energy security partnerships that promote clean energy generation44 (e.g. Australia launched the International Partnership for Blue Carbon at 2015 Paris Climate Conference and later Pacific Blue Carbon Initiative aimed at helping countries in the region to build capacity

41 Energy Diplomacy. Hellenic Republic. Ministry of Foreign Affairs (March 2020). online: https://www.mfa.gr/en/energy-diplomacy/ [Accessed on 7th March 2020] 42 As it has become evident that the Australian wildfires in 2019-2020 were linked to climate change. 43 Australian Government: Department of Industry, Science, Energy and Resources (2020). Government Priorities (International Activity: G-20 Working Groups). online: https:// www.energy.gov.au/government-priorities/international-activity/g20-sustainability-working- group [Accessed on 17th March 2020] 44 Commonwealth of Australia. (2004). Securing Australia’s Energy Future. Produced by the Energy Task Force. online: http://www.efa.com.au/Library/CthEnergyWhitePaper.pdf [Accessed on 17th March 2020]

29 to protect and manage their coastal eco-systems;45 initiated joint Australian- German energy transition partnership hub for research collaboration between industry, research community, government and civil society to help technical, economic and social transition to alternative energy systems, supported by both countries’ foreign ministries46). The Department of Foreign Affairs and Trade is the principal actor of Australia’s energy diplomacy. The Department coordinates its diplomatic action with other governmental departments responsible for the energy policy formulation such as the Department of Agriculture, Water and the Environment, the Department of Industry, Science, Energy and Resources, Department of Infrastructure, Transport, Regional Development and Communications. Japan’s dependence on external energy sources (80% of its primary energy supply) has determined the nature of the country’s energy diplomacy (described as securitisation of energy policy and diplomacy). Tokyo’s prime goal is the creation of sustainable oil stockpiling system (amounting to 167 days). In view of achieving this goal, Japan seeks energy partnerships with OPEC and with countries along the international shipping lines. It uses the regional cooperative frameworks, namely Asia-Pacific Economic Cooperation and ASEAN+3, to set up emergency response systems to cushion consequences of energy supply crises in the Asian region. Similarly to Australia, Tokyo focuses on development and use of alternative energy sources and technologies. This tendency has been reiterated following the Fukushima nuclear disaster. However, Tokyo continues to rely on nuclear power production to balance its energy mix. Japan utilises its bilateral (government-to-government) energy diplomacy with Russia, China, India and Australia to promote energy efficiency. It seeks to achieve environmentally sustainable economic growth. Tokyo cooperates closely with international energy organisations (in particular with the Energy Charter Treaty) aiming to expand its energy market legal principles in the energy sectors of Japan’s major energy partners in Central Asia. Tokyo utilises its bilateral diplomacy to build the energy infrastructures of countries it depends on for energy imports (e.g. the Sakhalin Gas Project in Russia).47 The examination of energy diplomacy structures, tools and coordination mechanisms at a country level (incl. of national external policy-making) will be incomplete without providing a comparative review of planning and practice of energy diplomacy by the major three (the US, China, the Russian Federation). Energy is considered an issue of and a significant factor in their

45 COPS23 Fiji. UN Climate Change Conference 2017-18. Pacific Blue Carbon Initiative. online: https://cop23.com.fj/pacific-blue-carbon-initiative/ [Accessed on 17th March 2020] 46 Energy Transition Hub. (2017). Australian-German Innovation Partnership. online: https://www.energy-transition-hub.org/ [Accessed on 17th March 2020] 47 Ministry of Foreign Affairs of Japan. (2004). Economic Affairs: Energy: Strategy and Approaches of Japan’s Energy Diplomacy. online: https://www.mofa.go.jp/policy/energy/ diplomacy.html [Accessed on 17th March 2020]

30 foreign policy-making. All three utilise diplomacy to gain and solidify their participation in the global energy governance. The US energy diplomacy is steered by the Energy, Independence and Security Act of 2007.48 In line with this, Congress adopted legislature under which an International Clean Energy Foundation has been established with an aim of promoting clean energy cooperation with foreign countries and securing external markets for US renewable technologies. The Act also specified the creation of the post ‘Coordinator for International Energy Affairs’ (CIEA) within the Department of State (who acts as under-secretary for economic, growth, energy and environment, currently headed by Francis R. Fannon). He/she heads and is assisted by the Bureau of Energy Resources (BER). CIEA plays a lead role in shaping the US external energy policy (at the level of the US diplomatic service). He/she is responsible for policy analysis and recommendations on how to promote US energy relations with foreign countries, and advance the US international initiatives and interests in oil, natural gas, renewable, nuclear and other sources of energy as well as on energy efficiency, transparency, energy resource governance, etc. The CIEA coordinates inter-agency US external energy policy-making by working closely with the Department of Energy (as the latter backs the US embassies with energy experts in countries critical for American energy interests). The CIEA simultaneously assumes the role of the President’s special envoy on international energy issues. During the Obama administration, in addition to the CIEA, Ambassador Richard Morningstar was assigned as the Special Envoy for Eurasian Energy, engaging directly with senior officials, political and business leaders of Central and East European, and Central Asian countries, with an aim of promoting energy security through development of an independent energy sector and energy diversification. China’s energy policy-making reflects the specificity of the country’s political system. At the centre is the National Development and Reform Commission – NDRC (a key department in the State Council), which acts as the principal planning and regulatory authority in the energy sector. The NDRS has an essential role in drafting five-year energy plans and oversees most of China’s international energy projects. Launched in 2008, National Energy Administration is a key energy regulator which implements central government energy policies. It is linked to the NDRC and is charged with coordination of China’s international energy cooperation, approval of foreign energy related investment in Chinese economy, approval of Chinese overseas oil fields investments, management of strategic petroleum reserves, oversight of national energy industry. In 2010 the Chinese government formed the National Energy Commission with the view of consolidating internal and external dimensions of the country’s energy

48 Public Law 110-140-DEC.19.2007. Energy Independence and Security Act of 2007. online: https://www.govinfo.gov/content/pkg/PLAW-110publ140/pdf/PLAW-110publ140.pdf [Accessed on 18th March 2020]

31 policy-making and improving inter-institutional coordination. The Ministry of Commerce, the Ministry of Land and Resources, the Ministry of Environmental Protection and the State Oceanic Administration oversee various components of the country's oil policy. China’s Ministry of Foreign Affairs is the operational platform for conducting the country’s energy diplomacy. The MFA is in charge of overall energy cooperation with individual countries, regional energy blocs and international energy organisations. Chinese embassies lobby and support overseas investments of China’s energy companies. They are closely involved in the implementation of the country’s increasingly energy-driven foreign policy. However, for instance, the MFA differs from the Ministry of Commerce. While the first has adopted a more cautious approach by taking into account the political and strategic risks resulting from China’s energy acquisitions abroad (especially in unstable and problematic for Chinese foreign policy regions), the latter has traditionally pursued more aggressively the realisation of overseas energy deals with Chinese participation. China’s external policy-making and energy diplomacy has been influenced by two recent trends. Firstly, China has turned into a major net energy importer (respectively consumer) since 2011. Secondly, increased levels of air, land and water pollution nationwide as a result of decades-long industrialisation has pushed the Chinese government to embrace the strategy of supporting the global energy transition in multilateral high level energy and climate change negotiation forums (incl. support for the country’s clean/renewable energy development). Internally, Beijing has been focused on the efficient management of national energy resources and restructuring of energy consumption patterns towards great energy efficiency. The environmental protection has been elevated to a major national security goal. Beijing has slowly started to increase shares of renewable energy sources in the country’s electricity production mix. The International Energy Agency forecasted in 2019 that 36-40% of the global growth in solar and wind energy in the next five years will originate from China.49 Yet, in the mid-term period, fossil fuels (namely coal and to a lesser extent natural gas) are expected to remain dominant source of national energy production.50 Externally, China is focused on securing its external energy supplies (incl. security of energy supplies and in particular diversification of crude oil external supply routes). In view of that, Beijing has adopted an aggressive going-out diplomatic strategy to secure access to overseas oil and natural

49 Chiu, D. (2019). The East is Green: China’s Global Leadership in Renewable Energy. Center for Strategic and International Studies. online: https://www.csis.org/east-green-chinas- global-leadership-renewable-energy [Accessed on 18th March 2020] 50 The share of coal in China’s primary energy mix declined to 58% in 2018 from 60% in 2017 and 72% just 10 years ago. It has hit historical low, but still remains dominant energy source. The coal share in the energy mix is expected to drop to 37% by 2050

32 gas resources (incl. facilitation of China’s major national energy companies in oil and gas acquisitions; extending also diplomatic assistance to ‘Major-3’51 in exploration & development of overseas oil and natural gas fields). Beijing takes an active part in the global energy governance (this includes energy related cooperation with international standard-setting energy organisations,52 major regional energy blocs53 and leading energy producers54). In line with the country’s external energy policy, the Chinese government seeks energy partnerships with energy multinationals (such as ConocoPhillips, Shell, Chevron, BP, Husky, Anadarko, ENI) to operate jointly both on the Chinese and overseas energy markets (via joint ventures or production-sharing contracts). The goal is to obtain needed operational know-how and technology for development of difficult off-shore oil prospects and technically challenging on-shore gas fields in China and to attract foreign technology investment for the realisation of renewable energy and energy-saving projects in China. It is in this context that China could enter into ‘tactical alliance’ with the EU to promote implementation of the Paris Climate Agreement and thus speed up the world’s transition to clean energy.

51 This also includes extending diplomatic assistance by the Ministry of Foreign Affairs to the ‘major three’ (China National Petroleum Corporation - CNPC, China Petroleum and Chemical Corporation – Sinopec, and China National Offshore Corporation) in E&D of oil and gas foreign fields. 52 Cooperation between China and International Energy Organisation (IEO) includes policy dialogues on energy security, renewables, energy efficiency, exchange of energy data and statistics. In 2015 Beijing hosted policy related workshop on oil and natural gas development, jointly organised by IEO and China’s National Energy Administration. 53 Beijing maintains equally active diplomatic communication on broad range of energy issues with OECD, consisting of mainly energy importers [consumers] and with the oil- producing OPEC cartel. It is in this context that Beijing supports the idea of comprehensive energy producer-consumer dialogue via the energy dialogues platform of the International Energy Organisation. 54 Beijing develops sustainable energy relations with Moscow. By 2020 the Russian Federation has been listed as the biggest oil exporter to China from non-OPEC countries. Currently, the non-OPEC group of countries account for 60% of world’s oil production. East- Siberia-Pacific-Ocean Pipeline (ESPO) is an illustration of Sino-Russian oil cooperation. It develops through loan-for-oil and oil-for-export schemes. China provides a portion of the funds in exchange for guaranteed supply of oil. CNPC and Sinopec farm several East Siberia blocks (Russia’s upstream partners). Rosneft sold to CNPC a 10% equity stake in the Vankor field, the largest oil field in North-East Siberia. Second example is the Sino-Russian NG cooperation underpinned by the realisation of the ambitious ‘Power of Siberia’ Pipeline Project (also known as China-Russia East-Route Pipeline, aimed at diversification of natural supply routes to China) which is 3,000 km long and stretches from Siberian fields to the North West coal- burning region of China. Third example is the Chinese participation in the Russian Artic Yamal LNG Project. CNPC and CNOOC have acquired a 10% stake each in an LNG production plant, thus securing sizable funding for its operation. The principal stakeholder in the project is Russia’s largest private natural gas company Novatek.

33 The energy sector is crucial for the Russian Federation’s economic development.55 It contributes to roughly a third of the country’s gross national product. This situation is unlikely to change soon despite pronounced ambitious national mid-term strategy for decreasing by almost 50% the dependence of the country’s economic growth on oil and natural gas revenues. Russia remains one of the leading producers and exporters of oil and natural gas on the global energy markets. Therefore, an essential component of Moscow’s external energy policy and energy diplomacy is linked to designing institutional and market-driven protective mechanisms on limiting the country’s exposure to volatilities and insecurities of the international energy markets. ‘Energy diplomacy’ as a separate field of study is featured prominently in the educational programs of major Russian universities (e.g. the Gubkin Russian State University of Oil and Gas). The International Institute of Energy Policy and Diplomacy, part of MGIMO University of Russia’s Ministry of Foreign Affairs, is focused on training the country’s future energy diplomats. The Russian diplomatic service also cooperates closely with the Union of Oil and Gas Producers of Russia (incl. with its analytical arm – the Center for Energy Diplomacy and Geopolitics)56 by exchanging information and expertise, preparing joint energy-related policy briefs and reports. The Ministry of Energy (Minenergo) plays an essential role in drafting and implementing the national federal energy policy (incl. Russia’s Energy Strategy-2030 and its external dimension). For instance, the Energy Ministry is responsible for the construction and functioning of major oil and gas pipelines, development of hydrocarbon fields on the basis of production-sharing agreements, and the development of petrochemical industry). This makes the ministry an indispensable factor in conducting Russia’s energy diplomacy (e.g. Russian Energy Minister Novak has been a chief negotiator in most of the country’s international energy negotiations). The Russian Ministry of Foreign Affairs plays a vital supportive role (as energy security is one of the priority areas in its diplomatic activity). The Russian diplomatic service, underpinned by its network of diplomatic missions worldwide, works to create favourable external conditions for advancement of Russian energy interests. There is a common understanding within the Russian expert and academic community about the domain of energy diplomacy. Russian energy diplomacy is perceived as an inter-institutional coordination (mainly between federal ministries of foreign affairs, economic development, energy, atomic energy) on issues of

55 Russia stands as the world’s single biggest oil producer, the second largest natural gas producer, sixth biggest coal producer. It ranks as the fourth biggest nuclear power and hydro power producer. 56 An influential, non-profit organisation of Russian oil and gas industrialists that represents and lobbies for their corporate interests with executive and legislative authorities (at national and international levels).

34 energy policy strategising. Ministries also liaison at operational and strategic levels with the country’s leading state-run and partially privately-owned energy corporations (e.g. Gazprom, Rosneft, Lukoil, operating primarily in oil and natural gas sectors with sizable market capitalisation). Energy diplomacy as a set of policy tools helps the Russian government to advance the county’s interests with regard to production, supply and consumption of energy resources on international markets (incl. strengthening the country’s position on the global energy markets). This is accomplished through difficult high level energy negotiations in the format ‘OPEC Plus’ and with sizable non-OPEC oil producers/exporters, as well as by maintaining regular energy dialogues with the International Energy Agency (as a major global energy policy shaper) and within the format G-20 Energy Community. The Kremlin is an active participant in the sessions of the International Energy Forum (which acts as an intergovernmental neutral high level negotiation platform bringing under one roof energy producers and consumers to discuss energy issues [such as ensuring energy security via market stability, transparency and predictability] and get deeper understanding of each other’s energy concerns in the context of the evolving global energy markets). Given the immense overall decision-making powers of the presidential institution, the Russian head of state, by default, performs a vigorous high level energy diplomacy. President Putin, being a regular key note speaker in high profile international energy forums (held in Russia), utilises them to articulate his position on his country’s energy relations with foreign counterparts. For instance, during his address at ‘Russian Energy Week’ in 2019, he tried to downplay the geopolitical rationale behind Russia’s energy policy towards the EU by reiterating that his country will continue to exhibit a responsible, businesslike approach in relations to its long-standing partners in Europe.57 Europe remains the biggest Russian gas export market, satisfying 25% of EU’s growing energy needs despite worsening EU-Russian political and economic relations since 2014. The Kremlin is currently on diplomatic offensive to have its two flagship energy projects completed (namely, the Nord Stream 2 and TurkStream gas pipelines). Diplomacy remains the only available tool to manage the complex EU-Russia energy relations (despite periods of energy disputes and often conflicting perceptions and approaches on how to develop their energy cooperation). Simultaneously, Moscow pursues an active ‘pipeline diplomacy’ in relation to Asian energy markets (e.g. planned completion of the ‘Power of Siberia’ gas pipeline to China by the end of 2020). Intensifying energy relations with China should be viewed as part of the Kremlin’s strategy of market diversification. As for the post-Soviet space, which falls within the Kremlin’s prime sphere of influence, the energy diplomacy is used to secure

57 Simes, D. (2019) Russia’s Energy Diplomacy Brings Geopolitical Dividends. The national Interest. online: https://nationalinterest.org/feature/russia%E2%80%99s-energy- diplomacy-brings-geopolitical-dividends-87586 [Accessed on 22nd March 2020]

35 Russia’s position as a ‘gatekeeper’ to export energy markets of C.I.S. countries (in other words, transiting as much as possible gas exports of C.I.S. countries to international markets via Russian pipeline systems and preventing construction of alternative gas pipelines bypassing Russian territory, such as the Southern Gas Corridor). Russia uses its energy diplomacy to position itself on nuclear energy markets for peaceful purposes (incl. resources, infrastructure, technologies). The Russian state atomic corporation ‘Rosatom’ is Moscow’s principal tool for realisation of the country’s nuclear power plant projects abroad. Realisation of these projects is dependent on Rosatom’s successful interaction with a wide network of state institutions, corporate actors and R&D centres.

5.3. Corporate Level Corporate energy diplomacy is a relatively new domain of policy research and fits within the wider framework of international business diplomacy. Transnationally operating energy companies constitute actors of corporate energy diplomacy. In Clingendael Institute Policy Brief (sponsored by Saudi Aramco through its subsidiary Aramco Overseas Company, based in The Hague), senior visiting fellow Shaun Riordan outlines the geopolitical dimension of business/corporate diplomacy. Operation of multinational energy enterprises in the regional and global energy markets makes them vulnerable to geopolitical and non- commercial risks (incl. social, political, economic and environmental ones). Thus, they need to develop effective corporate diplomacy tools/capabilities to meet these risks. Top executives of energy multinationals, firstly, should analyse the geopolitical risks at global and market specific levels; secondly, should identify stakeholders (governmental and non-governmental) that form those risks; thirdly, should design multi-level networks of information and influence; fourthly, should create coalitions of shared interests among stakeholders and engage with problematic actors who refuse to join; finally, integrate the above steps into holistic diplomatic strategy to promote the strategic objectives of the corporation.58 The two-fold function of corporate energy diplomacy includes: capacity of an energy multinational to operate successfully on a global scale and to be well- received in the foreign country it operates. This is accomplished, firstly, by nourishing working and pragmatic relationships (by top executives of the company) with foreign government

58 Riordan, S. (2014). Business diplomacy: shaping the firm’s geopolitical risk environment. Clingendael Policy Brief. Netherlands Institute of International Relations. online: https://www. clingendael.org/publication/business-diplomacy-shaping-firms-geopolitical-risk-environment [Accessed on 24th March 2020]

36 and non-governmental stakeholders (economic and non-economic, incl. from the NGO sector, think tank community, media outlets); secondly, by building and sustaining legitimacy (in other words safeguarding corporate image and reputation) in the receiving country.59 Thus, the corporate energy world cannot be exclusively driven by the forces of markets and profit maximisation. Since a great deal of energy multinationals are also national energy champions, it is the governments that help secure corporate interests in the global energy markets. They also utilise the public diplomacy outreach networks of their countries’ diplomatic missions in foreign lands (to gain access to key decision and policymakers). G. Sarfati defines a successful multinational company as the one which is able to integrate its market activities and objectives within the governmental policies and interests of the organised society. He outlines the need for a separate domain of ‘corporate external/foreign policy’ and ‘corporate diplomacy’, to complement state-driven foreign policy and diplomacy.60 Based on the above presumption, three dimensions of corporate-driven external/foreign energy policy and corporate diplomacy can be identified: • State of play of energy markets: identification of market-driven and geopolitical factors that impact a multinational company’s operations in the global, regional and local production and supply chains (and designing respective corporate diplomacy strategy to assess the influence of these factors, as well as analyse current and future potential corporate competitors); • State regulatory policies in the energy sector: identification of a state’s regulatory framework (set of policies) that determines an operation of transnational energy corporation in the receiving country (and developing respective lobbying and corporate public diplomacy strategy to influence implementation of governmental policies in favour of the corporation and aligning those strategies with the official state policies); • Societal dimension: identification of civil society’s concerns (NGO sector at large) with regard to operation of multinational energy corporations in the receiving country (incl. work conditions, environmental standards and employment practices enforced) and designing effective operational policies to meet these concerns, incl. adhering to Corporate Social Responsibility. In other words, this is linked to the usage of corporate diplomatic channels to obtain a ‘licence to operate’ (earn its corporate reputation and legitimacy). However,

59 Ruel, H., Wolters T., Loohuis, R. Business diplomacy in multinational corporations (MNCs). An exploratory study. Working Paper. online: https://www.diis.dk/files/media/ publications/import/extra/business_diplomacy_in_mncs_-an_exploratory_study_final.pdf [Accessed on 23rd March 2020] 60 Sarfati, G. (2012). Corporate diplomats: global managers of 21 century. Revisita de Econommia Internacionais p. 141. online: https://pesquisa-eaesp.fgv.br/sites/gvpesquisa.fgv. br/files/arquivos/sarfati_-_corporate_diplomats.pdf [Accessed on 23rd March 2020]

37 big energy conglomerates may incur reputational damage as a result of their operations.61

5.4. Think Tank Community Dimension The term ‘think tank’ was initially attributed to a ‘war planning room’62 where military strategy and tactics were discussed. In the 60s and 70s of the 20th century, from military planning labs, think tanks were transformed into broader incubators of policy brainstorming, policy research, strategic policy consultancy. Think tanks expanded their policy-driven activities to include research and analysis of general politics, security, economy, conflict management, energy, environment, etc. Think tanks of the 21st century represent a diverse group of organisations (namely policy institutes, foundations, policy associations and networks, etc.) which differ in terms of mission goals, organisational structure, political affiliation, policy environment in which they operate, and policy related activities they engage in. As policy actors, think tanks deliver public policy goods in a form of policy research, expertise and information. In theory, all think tanks claim professional independence and impartiality of their policy analysis and recommendations. However, in practice they depend on their funding patrons and engage in subtle levels of policy advocacy and lobbying for certain policy- related agendas. Think tanks are staffed with policy analysts and researchers with various professional backgrounds – from political science, law, international relations and diplomacy, defence, intelligence and strategic security issues, to energy, environment, anthropology, culture, to name a few. Think tanks are created to serve policy-making communities. Think tanks can be structured into the following categories: a) state-driven or quasi-state (with robust links to governmental structures and institutions); b) academic (university policy research centres, knowledge-driven); c) politically motivated (serving particular partisan interests and ideological agendas); d) IGO affiliated

61 Modern technology makes it much easier to access strategic resources (oil, natural gas, minerals) placed in the continental shelf. This opens the way to greater exploitation of natural resources (in the form of drilling and excavation works) which may result in devastating natural disasters. Such was the case with British Petroleum (one of the biggest multinational energy conglomerates) whose oil drilling in the Gulf of Mexico in 2010 turned into a major ecological catastrophe with marine life stifled and seaside communities in the region ruined. The consequences were felt beyond the geographical region. Despite BP’s poor corporate crisis diplomacy and incurred worldwide reputational damage following the disaster, the interests of the global energy multinational prevailed over public indignation. BP did not lose the licence to operate. However, under the US Court Supervised Settlement Program, BP had to satisfy 330,000 compensation claims amounting to 65 billion USD. (see: BP’s Deepwater Horizon bill tops $65bn. The Guardian. online: https://www.theguardian.com/business/2018/ jan/16/bps-deepwater-horizon-bill-tops-65bn [Accessed on 28th March 2020]) 62 Pozgar, G. (2204) Chapter 25. Journey to Excellence: The Health Care War Room. Legal Aspects of Health Care Administration. Ninth Edition. Jones and Bartlett Publishers Inc.: Sudbury Massachusetts. p. 523

38 (advancing the causes of the IGO that created them, engaging in network diplomacy on behalf of an IGO); and d) industry-driven (serving policy needs of particular industry sector – energy, manufacturing, etc.) The classification above shall be illustrated further via examples from the US energy think tank community. The Global Energy Institute, created under the auspices of the US Chamber of Commerce, serves as a policy platform for articulating common sensible energy strategy with participation of American policymakers, energy sector regulators, top business executives and civil society. This state-backed policy actor engages in policy development, training and advocacy. The institute seeks support for its causes through network diplomacy at local, state, national and international levels.63 The Environmental and Energy Study Institute developed as a bi-partisan caucus within the US Congress in 1984 and since the time of its establishment is dedicated to promoting environmental sustainability based on energy efficiency and renewable energy (incl. promotion of sustainable livelihoods). The institute aims at providing access for policymakers to fact-based information on energy and environmental issues. It does so by coalition building, policy development and providing technical assistance. Thanks to its public diplomacy, its messages are well perceived beyond the boundaries of the American energy and environmental policy-making community.64 The Columbia University’s Center on Global Energy Policy (CGEP) provides an inter-disciplinary platform for knowledge-sharing, data-driven analysis and research, policy recommendations on key drivers of the current and future global energy system (incl. energy markets, energy for development, energy security, energy diplomacy, etc.). The centre’s policy energy research has a global reach. CGEP has developed a sizable expertise on global energy dialogues. CGEP prides itself for its ‘Energy Journalism Initiative’ training program.65 The United States Energy Association is a national energy industry driven network which includes major movers and shakers in the industry grouped into categories: a) energy and trade companies, manufacturing and engineering companies; b) professional societies and firms, educational institutions, federal and state governmental agencies. The Association provides synergy between public and private interests and agendas in the energy industry sector. Under the auspices of the Association, training programs are conducted in which its members share best practices with counterparts in the developing countries.66

63 Global Energy Institute. US Chamber of Commerce. online: https://www. globalenergyinstitute.org/ [Accessed on 25th March 2020] 64 EESI: Environmental and Energy Study Institute. online: https://www.eesi.org/about [Accessed on 25th March 2020] 65 Columbia University|SIPA. Center on Global Energy Policy. online: https://energypolicy. columbia.edu/ [Accessed on 25th March 2020] 66 United States Energy Association. online: https://www.usea.org/content/useas- membership [Accessed on 25th March 2020]

39 The US-based Energy and Policy Institute acts as non-governmental watchdog organisation (not funded by state, corporate or trade association sources) whose activity is focused mainly on counterbalancing (via international information and advocacy campaigns, investigative research and analysis and use of front groups network partners) industry interests of major fossil fuel companies which play down the benefits of decarbonisation of the global economy.67 It should be also noted that the US energy-related policy expertise is generated not only by specialised energy policy think tanks but also by think tanks with more diverse policy portfolios. For instance, the RAND Corporation, the Center for Strategic and International Studies or the Brooking Institution examine energy issues alongside other important areas of policy research (e.g. international relations and diplomacy, trade, technology, finance, geopolitics and geo-strategy). China illustrates a different approach to the think tank community’s involvement in the energy policy-making process. Generation of energy-related expertise (relevant to the level of macro-economic planning) is concentrated in few influential state-affiliated think tanks. For instance, the Energy Research Institute (ERI) of the National Development and Reform Commission (also interlinked with the Academy of Macroeconomic Research of the NDRC) makes wide-ranging studies of energy policy issues (e.g. energy industry development, energy supply and demand projection, relationship between energy and environment, energy conservation and efficiency improvement) in the context of the country’s social and economic development priorities. With regard to external energy policy development, the ERI examines issues of energy security and alternative energy technologies.68 Its researchers are among those in China who argue for the country’s radical shift away from coal-based production of energy. The Development Research Institute (DRI) acts as key policy advisor to the State Council. The Market Institute of Economy within the DRI has been participating in drafting China’s oil security strategies. Its researchers advocate for the country’s solid involvement in global energy markets. China’s foreign policy research think tanks (e.g. the China Institute for International Studies, a research arm of the MFA and Shanghai Institute for International Studies) also focus on energy security by putting their analyses in a wider geopolitical perspective. At the EU level there is a diverse spectrum of policy research institutes (providing energy-related expertise and analysis). Most evident is the example of the European Energy Institute (EEI) which acts as a high level European think tank and training centre. Its educational centre offers multidisciplinary training backed by in-depth policy research. The EEI is focused on providing technical

67 Energy and Policy Institute. online: https://www.energyandpolicy.org/about/ [Accessed on 25th March 2020] 68 Energy Research Institute of the National Development and Reform Commission. online: http://en.cctp.org.cn/m5/product/35982.html [Accessed on 25th March 2020]

40 and economic expertise in relation to liberalisation of energy markets in Europe. It gets access to EU policymakers, legislators and regulators.69 However, at present, one cannot identify an integrated European think tank community since these policy research actors differ in terms of size, organisational structure, mission, funding mechanisms, and most importantly, in the level of access to key policy-making institutions (mainly Brussels-based leading EU institutions – the Council, the Commission and the Parliament). However, despite the diversity, pan-European think tanks (e.g. the Centre for European Reform, the European Council on Foreign Relations, the European Policy Centre, the EU Institute for Security Studies) share common argumentation in their policy briefs and reports, in support of the European Energy Union and ‘greening’ of EU’s economic landscape, etc. They have turned into policy arenas for EU-based energy policy dialogues (on pressing issues of the EU energy security and energy transition) and in so doing, they contribute to the EU common energy policy and diplomacy. EU think tanks (with high environmental profile, such as the Mercator Foundation, the Ecologic Institute) have organised a series of climate and energy think tanks policy debates with the purpose of sharing experience, operational and policy research practices.70 Through these policy discussions, they seek to reverse the trend of growing opposition among European elites to turning the Union climate-neutral by 2050. In the UN system of accredited think tanks one can acknowledge the role of the influential World Energy Council, which encompasses all aspects of global energy agenda. It has acted since its foundation in 1923 as a highly representative multi-stakeholder body of 3,000 members from 90 countries (representatives of governments, leading private and state-run energy corporations, academia and civil society organisations). Its annual World Energy Congress is a platform for synergy of global, regional and national energy strategies. The Council’s research facility produces comprehensive empirical studies and strategic forecasts supported by reliable and up-to-date data.71 Another prominent UN-based think tank in the energy field is Sustainable Energy for All (SEforALL), whose Chief Executive Officers serve as Special Representatives of the UN Secretary General in this area. SEforALL high level fora provide an intersection between three major policy areas: energy, climate change and international development.72 The think tank’s engineered policy dialogues are also a suitable platform to conduct

69 The European Energy Centre. online: https://www.euenergycentre.org/ [Accessed on 26th March 2020] 70 Kraemer, R. (2018) Climate Action and the Future of Europe - EU Climate Think Tank Round Table. Ecologic Institute. Stiftung Mercator. online: https://www.ecologic.eu/15559 [Accessed on 26th March 2020] 71 World Energy Council. online: https://www.worldenergy.org/ [Accessed on 26th March 2020] 72 Sustainable Energy For All (SEforALL). online: https://www.seforall.org/ [Accessed on 26th March 2020]

41 sustainable energy diplomacy by high level decision and policymakers working in UN multilateral policy fora. Bulgaria also offers examples of productive think tank cooperation in energy policy research and diplomatic education. The institutionalised partnership between the Diplomatic Institute to the Minister of Foreign Affairs of Bulgaria (BDI) and the Energy Management Institute (EMI) is a case in point. While BDI is the country’s principal diplomatic training institution (providing in-house training for Bulgarian diplomatic service officers, as well as holding tailor-made trainings for foreign diplomatic staffs), EMI is a non-governmental energy policy actor, focused on generation and dissemination of public knowledge on energy topics (incl. study of the EU Energy Union’s formation, sustainable energy development, Bulgarian energy sector’s integration in the EU, etc.) to energy industry experts and academia. The institute provides a neutral platform for energy policy dialogues and exchange of expertise.73 Based on their individual fields of expertise, as well as operational/institutional/network/training capacity, BDI and EMI successfully co-organise once a year International Energy Diplomacy Seminar for diplomats from the countries of the EU, South East Europe and the Black Sea region. They have also jointly executed US State Department commissioned Energy Security Training Project for Ukraine in 2019.

6. Conclusion Energy diplomacy turns out to be a complex part of the policy research terrain. Although it is predominantly state articulated and driven (following the position of national governments as the principal policy actors and agents of diplomatic representation and negotiations in the global energy system), the energy diplomacy domain offers a wide interplay of state, inter-state and non-state policy actors in the external policy-making and diplomatic fora. The architecture of energy diplomacy is indicative of the multi-faceted and multi-layered nature of energy diplomacy’s planning and conduct. Despite the difference in institutional profile, area of operation and expertise, power and influence in the global energy space, listed actors in energy diplomacy (states, intergovernmental energy organisations, energy multinationals and energy policy think tanks) could primarily realise their interests and agendas through energy policy coordination and cooperation. Various dimensions of energy diplomacy show the types of diplomacy that states employ to achieve their overall strategic and foreign policy goals. The dimensions also turn out to be major energy policy areas over which political and international energy related consultations and negotiations take place.

73 Energy Management Institute. online: https://www.emi-bg.com/en/about/mission [Accessed on 26th March 2020]

42 The division of policy tools into conventional and non-conventional illustrates the complex geopolitical environment in which energy diplomacy is operationalised. Grouping the states into energy exporters, importers and transit countries was made to show that each category employs different diplomatic tools to accomplish its energy security (internal and external dimensions). The present and future dilemmas of the energy diplomacy domain revolve around accommodating two major conflicting trends: keeping the dominant position of traditional resource-driven energy diplomacy, and/or promoting newly emerging energy diplomacy of sustainability in times of global energy transition. The raging coronavirus crisis has not escaped the attention of the international energy policy-making and think tank community (and in particular those providing strategic forecasts). They monitor consequences of the pandemic on the global energy sector and emergence of new geopolitical configurations as a result. There is a common agreement that the world will be quite different once the pandemic is over. The pandemic is believed to reshape relationships between producers and consumers in the global energy system. In this unstable geopolitical environment, the role of energy diplomacy in fostering new energy partnerships is expected to increase. The study of energy diplomacy is important in the context of training a new generation of diplomatic cadres in skills and competences needed for them to work successfully within the structures of national diplomatic services, intergovernmental energy organisations, globally operating energy corporations or in think tanks and energy policy providers.

Assoc. Prof. Valentin Katrandzhiev, PhD has been working with the Bulgarian Diplomatic Institute (BDI) in the areas of strategic research and diplomatic training since 2008. He holds MA in International Relations from Kyiv National University “Taras Shevchenko” (1989) and a PhD from Peoples’ Friendship University of Russia (2000). During 2001-2002 he has been a researcher with the Mediterranean Academy of Diplomatic Studies (MEDAC) in Malta in the field of crisis diplomacy. During 2002-2007 he has worked for the DiploFoundation (a leading e-training provider) as a knowledge management coordinator. Dr. Katrandzhiev is a member of the editorial board of a Bulgarian journal “Geopolitics and Geostrategy”. Within the training programme of the Bulgarian Diplomatic Institute he is a regular lecturer on the topics of EU diplomacy, energy diplomacy, foreign policies of the Russian Federation and of China. He is also a visiting professor to Sofia University “Kliment Ohridski”, where he teaches the EU foreign policy-making.

43 GREEN DEAL FOR THE EAST74 Julian Popov

1. Introduction The European Green Deal75 is an economic stimulus package. The history of such interventions could be traced at least back to the theory of the British economist John Maynard Keynes (1883-1946) and the US New Deal (1933- 1939) at the time of US President Franklin D. Roosevelt. Following the Second World War, Western Europe went through the Marshal Plan.76 Since the war, governments around the world have applied numerous economic stimulus policies. The latest, and probably the biggest in history, international wave of stimulus packages is the one triggered by the Covid-19 pandemic. The European approach to the pandemic recovery has already been referred to as a new Marshal Plan.77 The basic idea of a stimulus package is that at a time of an economic crisis, the Government steps in to correct the economic downturn. The interventions are never purely financial, even when they are dominated by monetary measures. Governments usually apply sets of complex regulatory measures, employ fiscal policies in specific directions and take more active roles in selected sectors. In other words, the stimulus packages always play several roles at the same time. In the aftermath of the 2008 economic crisis, the idea of green stimulus started gaining popularity. A number of economists proposed to link the recovery interventions to the global and European climate mitigation agenda. The Grantham Research Institute on Climate Change and The Centre for Climate Change Economics and Policy published the policy brief An outline of the case for a ‘green’ stimulus,78 co-authored by Nicholas Stern. The concept of a green stimulus was not necessarily new. A sectoral example is the development of the Danish wind industry. Following the Arab oil embargo of 1973, the Danish government strengthened its support for domestic energy sources, including wind. Later, Denmark became world leader in the wind energy sector. State support for industrial transition after closing coal mines could also be seen as green stimulus. Such was the case of the Netherlands’ coal mining sector which declined sharply in the 60s. With government support, the main

74 In this text, “East” is used as a general term without strict geographic definition. It refers mostly to the new EU member states and to some extent to the Western Balkans and the rest of the Energy Community member states. Some of the ideas developed could also be applied to a wider “East”, including Russia, Turkey or Central Asia. 75 https://ec.europa.eu/info/sites/info/files/european-green-deal-communication_en.pdf 76 https://www.history.com/topics/world-war-ii/marshall-plan-1 77 https://ec.europa.eu/commission/presscorner/detail/en/AC_20_602 78 http://eprints.lse.ac.uk/24345/1/An_outline_of_the_case_for_a_green_stimulus.pdf

44 coal region in the south of the country was transformed into new industrial and education centre.79 Economists, as expected, are divided in their opinions on almost every aspect of the stimulus packages, including on whether there is any link between the theory of John Maynard Keynes and Roosevelt’s New Deal and whether the New Deal had a real contribution to the recovery of the US economy after the Great Depression.80 Despite these differences of opinions, stimulus packages have evolved not only as major economic policy packages but also as key foreign policy instruments and respectively as important tools in international diplomacy. The purpose of this article is not to make a contribution to the economic debate on economic stimulus but to explore some diplomatic aspects of the European Green Deal, a complex policy stimulus package with the long-term objective to bring the European economy in line with the Paris climate agreement goal to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre- industrial levels.”81 The article will look into the ways the New Green Deal could be negotiated with the new EU member states. The approach suggested here could be also relevant to negotiations with countries outside the EU. The European Green Deal is often presented as a new economic policy that the new European Commission has suddenly proposed to the governments of the European Union. While the European Green Deal comes indeed from a new EC leadership and with a new brand, it is hardly something entirely new let alone unexpected. It follows a long list of global, EU and national climate and energy agreements and policies, it is a logical step following the Paris agreement, and its ambition, while high, is a logical consequence of previous policies.82 One can also trace some of the policies proposed by the European Green Deal back to the response of several European countries to the already mentioned 1973 Arab oil embargo83 or to even earlier events. The perception of the European Green Deal as a new shock to the system is spread mostly among public and political groups in the new EU member states (Central and Eastern Europe or CEE). This view is often accompanied by two critical arguments. The first one suggests that the lower level of economic development of the CEE countries requires more intensive economic activity in order for them to catch up with the West. The second one states that the dominant position of coal power generation in the CEE makes the principles of the

79https://nowa-energia.com.pl/wp-content/uploads/2013/03/raport_uniwersytet_w_ maastricht_en.pdf 80 For instance: How the New Deal Went Down, The New Yorker, and many others 81 Text of the Paris Agreement 82 European Climate Change Programme 83 1 energy crisis, 2 futures: How Denmark and Texas answered a challenge

45 European Green Deal more difficult to implement.84 In this article both arguments shall be discussed as to illustrate that – while they have some foundation - they are often exaggerated and misinterpreted. This article will also look into the need to devise a specific approach in agreeing the New Green Deal with the CEE countries. Such approach will have to overcome the misperceptions and misinterpretations of the European Green Deal. It will also raise the question whether the European Green Deal could, and should, be expanded further East, beyond the EU borders, and whether this expansion could, and should, be extended even further. All the arguments will try to take into account three factors: (a) the economic interest of the individual countries, (b) the economic interest of the European Union as an economic and political bloc, and (c) the impact the agreed measures would have on progress towards the Paris agreement goal.

2. Background

The EU East (CEE) has earned a reputation of an active or passive break to the EU climate ambition. In the best case, most of the 11 new member states act as policy takers or followers.85 The three countries that remained last in their opposition to the 2050 climate neutrality, Poland, Hungary, Czech Republic,86 are in the East. (Hungary and the Czech Republic accepted it, Poland continued with its reservations.) For a long time, Bulgaria has been refusing to join the Coal Regions in Transition Platform, an EU initiative established to assist EU countries in their energy transition.87 Romania was planning to replace its coal power plants with gas equivalent, position that gradually evolved88 towards partial replacement with gas power plants. While nuclear energy offers low carbon power generation, nuclear projects are very expensive, their cost and completion date are highly uncertain and they often distract policy makers from more realistic approaches to lowering greenhouse gas emissions and guaranteeing energy supply security for their countries. Nevertheless, several CEE countries are spending significant public resource in pursuing economically questionable expansion of their nuclear capacity. Natural gas is seen as a dream solution by many governments in the region which support expansion of cross-border pipelines and LNG import capacity and distribution network. The recent sharp increase of public awareness about poor air quality also often leads to transition to gas in heating and transport.

84 Why Poland couldn't sign up to Green New Deal 85 Central and Eastern Europe in the EU: Challenges and Perspectives Under Crisis Conditions, Routledge, 2018 86 Central European countries block EU moves towards 2050 zero carbon goal, The Guardian, 20/6/2019 87 EU Coal Regions 88 Romania’s CE Oltenia to close four units in coal power plants by 2025, Balkan Green Energy News, 29/1/2020

46 Gas however brings a number of issues including import dependency, price uncertainty, carbon price and lock-in and, yes, its own contribution to air pollution. The CEE countries have also very low R&D spending.89 That contributes to the much slower reaction to innovation and forward looking policies as well as to the significant brain drain from the East to the West.90 The European Green Deal could have a significant contribution to addressing all these issues.

3. The green lesson from 2008 The European Green Deal will have to be redefined in the context of the Covid-19 crisis. Public resources will be redirected towards fighting the pandemic and mitigating the dire economic consequences of it. This will last long. It is unlikely that new resources will be made available for the European Green Deal, it is more likely that resources that were planned to support the European Green Deal will now be channelled towards the pandemic crisis. A wave of economic stimulus packages will be introduced during and after the Covid-19 pandemic. The European Green Deal is very likely to be treated by some as a drain of public resources or as an austerity measure at a time when the economy needs a catalyst, not a break. This view is more likely to be found in the East European countries. The European Green Deal, however, could also act and be designed as an economic boost.91 The question is what would be the best way to interweave the measures of the European Green Deal and the pandemic and post-pandemic recovery policies.92 The reaction to the 2008 economic crisis offers good lessons. Then China spent $221bn on a green stimulus. US spent $112bn and the EU $54bn. That was at a time when the cost of renewable energy, battery storage, electric cars and other technologies of the low carbon economy was still high. The green stimulus packages then supported mainly development of products that could not have advanced without a significant financial government support. Fast forward and one can see the spectacular advance of China in the almost full range of low carbon technologies. It will be incorrect to suggest that this advance is solely a result of the green post-2008 stimulus, but it has certainly played a role. South Korea is another example of using the stimulus in 2009 to propel its low carbon technology and industry progress. The South Korean green stimulus was followed by introducing in 2009 the Green Growth Five Year Plan.93 South Korea is today a leader in battery technology and production and a range of other

89 R&D expenditure in the EU increased slightly to 2.07% of GDP in 2017 90 Migration raises brain drain concerns for many CEE countries as regional economy slows, Emerging Europe, 14/10/2019 91 EU Green Deal: carbon austerity or economic boost, Foresight, 9/1/2020 92 https://foresightdk.com/eu-green-deal-in-a-time-of-pandemic/ 93 http://keia.org/sites/default/files/publications/LeeJK.pdf

47 related industries. US and some EU countries have also supported significant low carbon developments with green stimulus in 2009. Studying the impact of the green component of the stimulus packages of 2009, as well as the criticism they attracted, could provide a valuable guidance in designing and negotiating the new European Green Deal. One key difference between the situation in 2009 and that of today is the maturity and the cost of technologies. The graph below illustrates the dramatic decline of cost of wind and solar generation over the last decade. Similar trends of cost decline are observed in batteries and other energy storage technologies, hydrogen, lighting, digital solutions and other carbon reduction technologies.

Levellzed Cost of Energy Comparison—Historical Renewable Energy LCOE Declines In light of material declines in the pricing of system components and improvements in efficiency among other factors, wind and utility-scale solar PV have exhibited dramatic LCOE declines; however, as these industries mature, the rates of decline have diminished

Unsubsidized Wind LCOE Unsubsidized Solar PV LCOE

LCOE LCOE Version Version

Wind LCOE Mean Crystalline Utility-Scale Solar LCOE Mean

Wind LCOE Range Crystalline Utility-Scale Solar LCOE Range Source: Lazard estimates. (1) Represents the average percentage decrease of the high end and low end of the LCOE range. (2) Represents the average compounded annual rate of decline of the high end and low end of the LCOE range. Decline of levelized cost of electricity since 2009 in $, Graph, source: Lazard

These differences are particularly relevant for Central and Eastern Europe. One can argue that it might be too luxurious for the region to spend large part of its stimulus on fundamental scientific research that has uncertain short-term employment and general economic impact. However, when it comes to already advanced and commercially tested technologies that could provide low-cost energy supply and expansion of industrial capacity, then the argument would look very differently. Central and East European countries could clearly benefit from innovation through well-tested technologies.

48 4. Approaches from the West So far, ambitious climate action countries and the European Commission have tried, with some success, several approaches to bring the CEE countries on board with their climate policies. In some cases this is based on simple political trading, securing higher level of funding, CEE governments indifference to climate policies, pressure or last minute heads of states phone calls. Support for ambitious climate commitments is often kept as a bargaining chip by CEE governments. Most of these deals do not lead to a sustainable emissions reduction support, do not employ the significant potential the CEE countries could offer and, subsequently, do not present a clear economic offer to the countries in the East. During the EU accession process, the pressure and strict conditions used to be sufficient. The closure of part of the Bulgarian nuclear power plant is one example for that.94 The Cooperation and Verification Mechanism for Bulgaria and Romania95 is a different example of a comprehensive approach for post accession controlling mechanisms. However, the efficiency of these types of measures start to fade once the CEE countries gain sufficient confidence and competence in the European negotiations. In recent years, the idea of imposing the criteria of “rule of law” in distributing EU funds has been enthusiastically discussed. So far, the main impact of this suggestion has been the hardening of the anti-EU language among some politicians in the CEE countries. An illuminating story is that of the South Stream natural gas pipeline. There is a wide spread view that the European Commission, and some commentators add to it the US administration, blocked the project in order to prevent the Russian influence in South East Europe. The truth is different – the project was initiated and consequently negotiated in a highly inconsistent way by most parties. Without open and collective negotiations, the project started generating massively unrealistic financial expectations among circles with no understanding of the energy sector. The predicted price for the Bulgarian section quadrupled. When Austrian and Italian96 politicians expressed doubts in the economic viability of the project, the days of the South Stream were numbered. Had it been negotiated in an open manner and respecting the economic interests of all parties, the fate of the project would have been different. It is another question whether South Stream in principle was an economically justifiable project. This is just one example that teaches us the lesson that we need to negotiate complex international projects with a clear understanding of the interests of the parties.

94https://www.reuters.com/article/uk-eu-candidates-nuclear/bulgaria-fumes-as- eu-demands-nuke-reactor-shutdowns-idUSL0585015220061227 95https://ec.europa.eu/info/policies/justice-and-fundamental-rights/upholding- rule-law/rule-law/assistance-bulgaria-and-romania-under-cvm/cooperation-and-verification- mechanism-bulgaria-and-romania_en 96https://www.euractiv.com/section/energy/news/italy-south-stream-pipeline-is-no- longer-a-priority/

49 5. Alternative approach When it comes to the European Green Deal, as well as the post-Covid-19 EU wide economic recovery measures, the CEE countries need an engaging offer based on clear mutual interest, economic benefit and convincing narrative that could be accepted by the electorate. In the corridors of the various institutions involved in negotiations with the CEE countries, one often hears that what the CEE governments want is money. This view is followed by references to the Cohesion Funds and some other financial instruments. There are two problems with this view. First, the CEE governments want the EU funding for projects that would bring them highest public and political support, including through distribution to political allies. Second, the money is not enough. The coronavirus crisis is likely to exacerbate these problems. There is a need to find alternatives that are much more attractive to the CEE governments and economies than the appeal to spend the EU funds on renewable energy and energy efficiency, instead of on new motorways and water treatment plants. What might be a better way in negotiating the Green Deal with the CEE is to approach the negotiations exactly as a deal, as a contract, rather than as a vision that would later be transformed into a directive. The CEE countries could benefit from such an approach, and in that it is more likely that they would engage as drivers rather than reluctant passengers in the process. At the same time, the EU climate, digital and industrial transformation goals will also benefit. The “progressive” countries will achieve more in their negotiations with the CEE while the CEE countries will benefit from the accelerated modernisation of their economies. In order to achieve that goal, the level of backdoor diplomacy should be reduced or at least balanced with open and inclusive negotiations on complex benefits. In these negotiations, the available assets and contributions forthe transition should be clearly identified, recognised and awarded. The award should not take the form of a “payment for service” or “bribe for silent support” but of political recognition and policy support for contribution for joint action. The CEE countries could offer a wide variety of valuable and economically attractive contributions to the European climate goals – with their cost competitive renewables energy, potential in increasing energy opportunities, hydro storage, competitive labour force, forestry, land, bioeconomy potential and others. The following section presents some selected areas for possible negotiations that could be explored, developed and expanded.

6. A template for a Green Deal step by step negotiation

The deal with the CEE countries could include a number of points where the West and the East could find mutual interest. The following suggestions could be included in the “negotiation package” with the CEE governments. This is not

50 an exhaustive list and it also might include areas that could be abandoned or ignored. It should however illustrate one possible approach. а. Turning the CEE coal regions into zero carbon industry hubs will respond to the idea of building the so-called European industry transition “super- labs”. This policy was proposed in the Final Report of the High-Level Panel of the European Decarbonisation Pathways Initiative97 set up by the European Commission’s Directorate-General for Research and Innovation in 2016. The coal, and especially lignite regions offer valuable assets for the transition.98 The European Green Deal could explore each individual CEE coal region and offer a plan for its transformation into a low carbon industrial zone. b. State Aid for transforming coal regions into low carbon industry clusters. As part of the coal regions transformation, the European Green Deal could offer special state aid allowances. In order to secure and accelerate this process, the CEE could be supported with a set of standardised state aid rules developed specifically for the coal regions. Such approach could turn the CEE coal regions from victims of the transition into drivers of the transition. The CEE countries will benefit significantly. c. Research and Development (R&D) funding. Currently R&D spending of the EU is just above 2% of GDP, lagging significantly behind Japan and the US. It is now on the level of China and far below the EU R&D spending target of 3% of GDP.99

Gross domestic expenditure on Research and Development, 2006-2017 (%, relative to GDP)

EU-28 (4) China (except Hong Kong) (3) Japan (1) United States (2)

Source: Eurostat

97 Final report of the High-Level Panel of the European Decarbonisation Pathways Initiative, European Commission, 2018 98 Coal regions could drive European competitiveness, Foresight, Climate and Energy, 18/11/2019 99 Working together for growth and jobs, A new start for the Lisbon Strategy, 2/2/2005, Brussels

51 A key reason for this poor position is the low R&D funding in the CEE countries most of which spend less than 1% of their GDP on research. The European Green Deal is an opportunity to reduce this imbalance. In case the European Commission increases its R&D funding for the region while in exchange the CEE governments commit to higher spending on research, the gap will narrow and the overall EU R&D spending will rise. The R&D agreement should target specifically low and zero carbon research and innovation and could be combined with the development of new carbon neutral economic zones in coal regions. This move will attract new investors, develop stronger research capacity in lower income EU countries and will help in reducing, and in some cases even reversing, the brain drain and the demographic crisis in the CEE.

R&D intensity in the EU Member States, 2017 (R&D expenditure as % of GDP)

EU = 2.07%

* 2016 data instead of 2017

Czech Republic and Slovenia are the only two NMS with R&D expenditure above 1.5% (but still below 2%) of GDP. Source: Eurostat

d. Education. Spending on education in most of the CEE countries is low. The education system in many cases is not sufficiently reformed and does not cater for the new economic realities. This is one of the reasons why so many young people leave their homes and migrate to the West – to study or to educate their children. The European Green Deal could address and mitigate this problem. The EU could provide targeted support for relevant learning streams (physics, maths, new industries and , skills for energy efficiency improvement) while CEE

52 countries should commit to increased education spending and education sector reform. Vocational training and lifelong learning should be a key part of this deal.

Public expenditure on education (excluding early childhood educational development) as a share of GDR, 2015

7

6

5

4 (%) 3

2

1

0

FI NL PL SI LT IT IE IS SE BE CY UK FR AT MT LV EE PT SK DE HU ES BG LU CZ EL RO NO CH RS

EU-28

Source: Eurostat

e. De-risking of capital. One of the barriers to expanding renewable energy in the CEE is the higher cost of capital. That makes RES power more expensive than in most western countries even when the RES potential in the CEE is significantly higher. De-risking facility for renewables and energy efficiency projects in CEE, supported by an EC risk guarantee mechanism, could unlock investments.100 Such support could be extended to countries outside the EU. f. External investment support. President of the European Commission Ursula von der Leyen has said: “In the next long-term budget, I want Europe to spend 30% more on external action than we do today.”101 The EC has developed the external investment fund. The EIB, now turned also into “the climate bank”, has offices in Ukraine, South Africa, India, Tunisia, Turkey, Kenya, Morocco and other key countries for development of RES. EBRD, active in a number of countries outside the EU, should also follow suit. This is an excellent base for global European clean investment, where CEE could play an important role as well. Bulgarian solar engineering companies have developed at least five times larger solar capacity around the world than the total installed capacity in Bulgaria.102 Low labour cost and long tradition in working in Africa and the Middle East could make many CEE renewables and low carbon industry companies successful and agile participants in global markets where they would have to battle with limited political and logistical support.

100 Ian Temperton (2016): Reducing the cost of financing renewables in Europe. Study on behalf of Agora Energiewende 101 Speech by President-elect Ursula von der Leyen at the 2019 Paris Peace Forum, 12/11/2019 102 Solar export, Capital newspaper (Slanchev iznos, Capital), 9/4/2015

53 g. Air quality divide. Air in the East is more polluted than in the West. This finding led to many commentators talking about “air quality iron curtain”.103 Cleaning the air in the East requires effort across the EU for a number of reasons. Part of the air pollution has trans-border nature. Air pollution depends partly on the established EU standards and enforcement measures. Large number of old polluting cars from richer western countries end up on the streets of the CEE countries. The CEE could expand its infrastructure for the new electric vehicles, creating larger potential market for new models. CEE countries are also major producers of parts for the automotive industry. The EU countries need a special clean air negotiating agenda that will address the full complexity of the air quality divide and reach an agreement on coordinated measures. h. Low carbon energy security. Energy security, in its various definitions, is a key concern for governments. Memories of severe blackouts in some CEE countries and gas dependency on Russia are major political policy motivators. How low carbon and carbon neutral energy systems would guarantee security of supply, decrease import dependency and affect energy cost should be better understood and communicated. Some CEE countries, particularly in South East Europe, could provide significant contribution to the EU clean energy security. This potential should be recognised and included in a more adequate way in the European energy security debate.104 i. Supergrids. The European Union needs to re-examine the role of long- distance high-voltage lines in the context of the European Green Deal and the 2050 climate neutrality goal. It is technically possible to connect electricity demand areas with generation centres over thousands of kilometres. Several organisations are even examining the possibility to build a global grid in order to connect renewables power sources and overcome the burden of intermittent generation.105 Whether the most ambitious plans will materialise remains to be seen. However, covering distances of one or two thousand kilometres could be both more realistic and economically viable – and in this aspect CEE could play a key role, especially in connecting the renewables potential of Turkey, Ukraine or the offshore potential of the Black Sea. Similar approach could be applied to the potential of the CEE countries in the field of geothermal energy, biofuels, bioeconomy, hydrogen production, broader EU energy security, energy poverty and others. What EU governments and negotiators need is an extended list of areas which could be included in the European Green Deal negotiations with the CEE countries. These areas should

103 There’s an iron curtain dividing Europe into safe and dangerous places to breathe, Quartz, 30/1/2018 104 South East Europe could make or break the Paris Agreement, Energy Transition, 23/07/2018 105 For instance, the Global Energy Interconnection Development and Cooperation Initiative (GEIDCO)

54 offer clear benefit to all negotiating parties. In this way all governments and the employees and companies that they represent will be able to find the right agreement for the specific national contributions and economic benefits. Such approach is particularly relevant for the CEE countries that tend to obstruct or distance themselves from most of the EU climate measures.

7. The European Green Deal beyond the EU borders

The European Green Deal presents also a good opportunity for negotiating coordinated ambitious climate action with countries that are not members of the EU. This article will only briefly mention some relevant for the EU neighbourhood areas as well as the opportunity to extend the European Green Deal principle globally. There are good reasons to consider the inclusion of the members of the Energy Community, especially from the Western Balkans, into the European Green Deal negotiating process.106 During the Bulgarian Presidency of the Council of the European Union107 it was a frequent practice for the respective ministers of the Western Balkans countries to attend the informal EU ministerial meetings. The Central and South Eastern Europe energy connectivity group (CESEC),108 the Regional Cooperation Council,109 the Berlin Process110 and other established regional cooperation formats could serve as a good base for the Western Balkans integration into the European Green Deal. The benefits will be mutual. The Western Balkans are increasingly integrated into the European Energy system. They can also offer significant hydro storage and dispatchable hydro power capacity that would make the integration of larger share renewables easier and more economic. The Western Balkans, being outside of the EU, are not part of the EU Emissions Trading System (EU ETS)111 which creates a potential problem with products of the energy intensive industries.112 This disparity will be much easier to negotiate in the framework of the European Green Deal. The ambition of the European Green Deal will need significant supply of renewable energy. Natural source of it could be the vast wind power potential of Ukraine and to a lesser extent Moldova. The Black Sea offshore wind potential of Ukraine and Turkey is another valuable asset for the European Green Deal. Separately, Turkey, a country with high share of renewables in its electricity mix,

106 European Green Deal: Bring in the Western Balkans, ECFR, 20/12/2019 107 https://eu2018bg.bg/en/news/news 108 https://ec.europa.eu/energy/topics/infrastructure/high-level-groups/central-and-south- eastern-europe-energy-connectivity/Past-and-upcoming-CESEC-meetings_en?redir=1 109 https://www.rcc.int 110 https://berlinprocess.info 111 https://ec.europa.eu/clima/policies/ets_en 112 https://ember-climate.org/project/interconnectors-and-coal/

55 could offer a range of clean energy supply and balancing benefits to theEU countries. In order to advance this energy cooperation, the EU and Turkey would need to develop a new energy cooperation framework.113 Similarly, many of the components of the European Green Deal could become points of negotiations with the rest of the world.114 The energy relationship with Russia cannot continue in the same way. Russian companies are already exploring the opportunities to export carbon neutral fuels.115 The Ministry of Economic Development of the Russian Federation has developed a draft strategy for long- term low carbon development of Russia.116 A new negotiation format between the EU and Russia on the basis of the European Green Deal is certainly needed. The global transformation of the energy systems will also require a rethinking of all energy diplomacy formats and will probably require a new international energy governance system.117 The European Green Deal could be the basis of such rethinking and foreign affairs ministries will have to play a key role in this process.

8. Conclusions

The European Green Deal is a climate, industrial modernisation, and economic stimulus policy framework. It provides an opportunity for accelerating the economic recovery after the Covid-19 crisis, getting the European economy on track for meeting the Paris agreement goals and strengthening the European competitiveness in the world. In order to maximise the impact of the European Green Deal, it should be negotiated between the EU governments and the European Commission on a country by country basis, taking clearly into account the national economic profiles, the benefits for and the potential contributions by each individual country. This approach is particularly relevant to the countries in Central and Eastern Europe which are traditionally passive and often obstructive in development of EU climate related policies. At the same time, the European Green Deal offers a good platform for international climate, trade and industry negotiations beyond the EU borders.

113 Energy could ‘energize’ the degenerating Turkish-EU partnership, Mehmet Ogurcu and Julian Popov, 26/3/2018, Hurriyet Daily News 114 Can Europe offer Green Deal to the World, CEPS, 16/12/2019 115 Russia Looks to Hydrogen as Way to Make Gas Greener for Europe, Bloomberg, 8/11/2018 116 Минэкономразвития России подготовило проект Стратегии долгосрочного развития России с низким уровнем выбросов парниковых газов до 2050 года, 23/3/2020 117 Navigating the Energy Revolution, Abdullah M. Al-Sherhri, Julian Popov, Project Syndicate, 3/11/2015

56 Julian Popov is Fellow of the European Climate Foundation, Chairman of the Building Performance Institute Europe and Former Minister of Environment of Bulgaria. He was the good will Bulgarian Ambassador for energy and climate policy and energy security adviser to the President of Bulgaria. Julian is the founding Vice Chancellor and current Board Member of the New Bulgarian University and cofounder of the Tunisian School of Politics. He was voted as one of the 40 most influential voices on European energy policies (N24) and also as one of the 40 most influential voices in the European energy efficiency policies (N25) by EurActiv. His articles on European and energy policy have been published by Financial Times, Project Syndicate, the Independent, Al Jazeera, Huffington Post, EurActive and others. He is author of two books and co-author of the book The European Supergrid.

57 ENERGY TRILEMMA IN SOUTH EAST EUROPE – SEEKING THE BALANCE BETWEEN ENERGY SECURITY, ECONOMIC AND ENVIRONMENTAL GOALS, IN TIMES OF ENERGY TRANSITION Velislava Dineva

Disclaimer. The opinions expressed in this publication belong solely to the author, and not necessarily to the Ministry of Energy of Bulgaria.

Introduction Throughout history, the notion of economy (national and global) has evolved alongside with society – from focusing on accumulating resources/capital, to a more comprehensive approach where different factors are interrelated with it.118 One example of that is the interrelation between Energy, Economy, and Environment, identified as the “3E” or in a more energy-focused sense –the Energy Trilemma.119 It has been attracting the attention of the global community and subject to intensive research over the last few years. According to the 2019 Global Energy & CO2 Status Report of the International Energy Agency (IEA), rising electricity demand in 2018 was one of the key reasons why global energy-related CO2 emissions rose to a historic high of about 33 Gt CO2.120 With energy responsible for about two-thirds of total greenhouse gas121 and the power sector accounting for nearly two-thirds of emissions growth,122 it is not surprising that efforts to reduce emissions and mitigate climate change are directed mainly to the power sector. The UN Sustainable development goals 2030 devoted directly or indirectly to energy and climate, as well as the EU legal framework in this area adopted in the recent years, demonstrate the global commitment to sustainable development. However, with so many efforts in this direction, it seems that the energy sector and economy are expected to passively conform with the new rules.

118 Uribe-Toril J., Ruiz-Real J.L., Milán-García J., de Pablo Valenciano J., Energy, Economy, and Environment: A Worldwide Research Update. Energies. 2019; 12(6):1120. Available at: https://www.mdpi.com/1996-1073/12/6/1120/htm 119 A trilemma index developed by the World Energy Council displaying how countries manage trade-offs between the three dimensions – Energy security, Energy equity and Environmental sustainability. 120 IEA Global Energy & CO2 Status Report 2019. Available at: https://www.iea.org/ reports/global-energy-and-co2-status-report-2019/emissions 121 Climate change: The energy sector is central to efforts to combat climate change, IEA. Available at: https://www.iea.org/topics/climate-change 122 Op. cit. 3

58 At the same time, most governments prioritize economic growth, job creation and security of energy supply rather than environmental protection. Therefore, in order to have realistic and achievable results, efforts should be directed to balancing the interests of economy, energy security and climate change mitigation. This is especially valid for vulnerable regions with high energy poverty and countries for which a rapid transition to a low-carbon economy could prove to be overwhelming. Here we are going to examine the challenges and possibilities for balancing the Energy trilemma in South East Europe (SEE) by analyzing the possible impact of the recent updates in the EU energy and climate policy on achieving an optimal energy mix in the countries in the region, taking into account their economic development and energy security concerns.

Brief overview of the South East Europe Energy power scene Geographically, South East Europe lies between two parts of the world, both of which play an important role in the global energy economy – the Black Sea region, Central Asia and the East Mediterranean, with their rich energy resources and potential, and the vast energy markets of Western and Central Europe. Thus, the region is becoming an increasingly important energy resources transit center. Nevertheless, insufficient attention is paid to the development of the energy potential of South East Europe itself and its significance for the socio-economic development of countries there. For the purpose of this study, South East Europe comprises six Contracting Parties to the Energy Community Treaty – Albania, Bosnia and Herzegovina, Kosovo, Montenegro, Serbia and the Republic of North Macedonia, as well as five members of the EU – Bulgaria, Greece, Croatia, Romania and Slovenia. The main reason for such grouping, apart from geographical proximity, are the common challenges for the energy sector. However, treating South East Europe as one whole, in the meaning of a homogeneous regional entity, is not easy since the constituent parts are far from uniform in terms of defining characteristics. Countries in the region are neither main energy producers, nor large consumers. Although there are some deposits of fossil fuels, these resources are not significant. The region depends on imports and limited local resources such as hydropower, lignite, as well as biomass energy. The diverse energy scene is characterized not only by market disparities in terms of population, economic development and energy infrastructure (e.g. installed electricity capacity, gasification, oil consumption), but also by the region’s dependence on energy imports. According to IEA statistics, local sources provide about 85% of lignite, 20% of oil and 50% of natural gas. Lignite is widely available in the region, providing a cheap but polluting energy

59 resource and being key for the functioning of the economy for many countries in the region. Although a number of companies have been actively involved in the exploration processes in the region, especially in Albania and the offshore zones of the Adriatic Sea, oil production in South East Europe remains low. Most of the proven oil reserves are in Romania, followed by Albania, Serbia and Croatia. As a result of low production levels, countries in the region remain net oil importers. Import dependency is in the order of 80% of the region’s oil needs. Nevertheless, it is well supplied through pipeline connections, as well as port facilities on the Adriatic coast. Domestic gas production and demand are relatively low in South East Europe. The region has total proven gas reserves of about 186 billion cubic meters, 105 billion of which are in Romania, 48 billion in Serbia and 25 billion in Croatia. However, only Romania produces some significant amounts of gas and satisfies up to 80% of its needs. The total dependence of the region is about 50% and most gas imports come from Russia. The main gas consumers in the region are Greece and Romania, followed by Croatia, Bulgaria, the Republic of North Macedonia, Serbia and Slovenia. The gas market of Bosnia and Herzegovina is insignificant. In terms of power generation, the picture is quite diverse, and each country has a distinctive energy profile.

Source: Author’s own calculations based on IEA Energy Statistics

Fig. 1. Electricity production in SEE countries by source, %, 2017

60 Three countries – Romania, Greece and Bulgaria – are the largest producers of electricity and possess two-thirds of the region’s power plants. Electricity supply is diversified the most in Bulgaria, Romania and Slovenia: they produce electricity from natural gas, coal, oil, biofuels, hydropower and other RES, including nuclear. Montenegro has only two types of power plants: thermal and hydro. Only Albania produces all of its electricity in its three main hydropower stations. Looking at South East Europe as a whole, coal-fired thermal power plants prevail in the electricity production mix with more than 40%.

RES 9% Coal Hydro 42% 21%

Nuclear 13% Biofuels Oil 1% Natural gas 12% 2%

Source: Author’s own calculations based on IEA Energy Statistics

Fig. 2. Electricity production in the region by source, %

The second most used source in electricity production is hydropower (21%). The largest share of hydro power plants is distributed among three countries: Croatia, Montenegro and Albania. The latter has almost 100% hydropower in its electricity production mix. The total share of nuclear energy is about 13%, as capacities are located only in Bulgaria, Romania and Slovenia (operating jointly with Croatia). Renewable sources still make up a small part of the electricity production in the region (9%), although some expansion has been observed in recent years in the five EU member states, mostly due to introduction of support schemes in the past decade. Key elements of SEE energy infrastructure (thermal and hydro power plants) were built more than 50 years ago. Aging, combined with insufficient maintenance in the 1990s, is now creating serious technical and policy

61 challenges. Therefore, there is an urgent need for widespread rehabilitation and replacement of the infrastructure. This, in combination with the new EU energy and climate requirements, leads to serious discussions on future energy mixes in the region.123

Towards a cleaner energy sector – Energy transition challenges and the possible way forward All countries in South East Europe are subject to the EU legal requirements in the field of energy – Bulgaria, Greece, Croatia, Romania and Slovenia as member states, and Albania, Bosnia and Herzegovina, Kosovo*, Montenegro, Serbia and the Republic of North Macedonia as Contracting Parties to the Energy Community Treaty. The key objective of the Energy Community is to extend the EU internal energy market rules and principles to countries in its scope, including South East Europe on the basis of a legally binding framework. Under the treaty, Contracting Parties have agreed to implement core parts of the EU acquis communautaire, both sector-specific and general, and to adopt development plans with a view to bringing their energy sectors in line with generally applicable standards of the EU.124 Even though energy matters were considered very important since the emerging of the European Community, member states hesitated to delegate essential responsibilities in the energy field to the Community (and later to the EU) for many years. However, in the last decades the Union managed to expand its legislation concerning the sector, based on different other competences. Today, the EU energy law and policy is a complex area which comprises a number of layers concerning different aspects of the energy field.125 Nevertheless, the EU energy competence is still far from universal. It should be noted that according to Art. 194(2) TFEU,126 member states have the right to determine the conditions for exploiting their energy resources, their choice between different energy sources and the mix of their energy supply (beyond the mandatory national targets for renewable energy, for example). However, this is to a great extent in theory – in practice, the EU has other instruments to further limit these rights.

123 COST-COMPETITIVE RENEWABLE POWER GENERATION: Potential across South East Europe, IRENA, 2017. Available at: https://www.irena.org/-/media/Files/IRENA/Agency/ Publication/2017/IRENA_Cost-competitive_power_potential_SEE_2017.pdf 124 Energy Community official website: https://www.energy-community.org/aboutus/ whoweare.html 125 Kruger Heiko, European Energy Law and Policy: an introduction, Edward Elgar Publishing Limited, 2016, p.30 126 Consolidated version of the Treaty on the Functioning of the European Union, OJ C 326, 26.10.2012, p.47-390

62 Besides ensuring security of energy supply, two other priority overall objectives of the European energy policy are ensuring availability of affordable energy (based on an integrated energy market) and decarbonizing the economy. The EU was a pioneer on clean energy: back in 2009, the EU was the first to set ambitious energy and climate targets. The 2020 objectives of achieving a 20% greenhouse gas emission reduction, 20% in renewable energy and 20% energy efficiency were ground-breaking at the time. The latest update of the EU energy policy framework came with the Clean energy for all Europeans, which in the words of the previous Commissioner for Climate Action and Energy, Miguel Arias Cañete, is “the most ambitious set of energy proposals ever presented by the European Commission.”127 The new rules are expected to facilitate clean and fair Energy transition. In May 2019 the Council of Ministers of the EU formally adopted the last pieces of this new legislation. The new targets envisage at least 40% cuts in greenhouse gas emissions, at least 32% renewables in energy consumption and at least 32.5% energy efficiency by 2030.128 Moreover, as an integral part of this Commission’s strategy to implement the United Nation’s 2030 Agenda, the Green Deal has been agreed in December 2019. It envisages additional increasing of the climate ambition for 2030 and 2050. By summer 2020, the Commission will propose further increase of the greenhouse gas emission reductions target for 2030 to at least 50% and towards 55%, compared with 1990 levels. For this purpose, by June next year, the Commission will have to review and amend accordingly all relevant climate- related policy instruments.129 Becoming “the first climate-neutral continent by 2050”130 will require considerable investment from both public and private sectors. The Commission is expected to develop this year a Sustainable Europe Investment Plan for meeting the extra funding needed. As part of the Plan, a Just Transition Mechanism, including a Just Transition Fund, would be proposed. The Just Transition Mechanism is supposed to focus on regions and sectors that are most dependent on fossil fuels or carbon-intensive processes. However, the Commission expects

127 Clean energy for all Europeans package completed: good for consumers, good for growth and jobs, and good for the planet, European Commission news, 22.05.2019. Available at: https://ec.europa.eu/info/news/clean-energy-all-europeans-package-completed-good- consumers-good-growth-and-jobs-and-good-planet-2019-may-22_en 128 Clean energy for all Europeans, Luxembourg: Publications Office of the European Union, 2019. ISBN 978-92-79-99835-5, p.3 129 The European Green Deal, COMMUNICATION FROM THE COMMISSION, Brussels, 11.12.2019, COM(2019) 640 final. Available at: https://eur-lex.europa.eu/legal-content/EN/TX T/?qid=1576150542719&uri=COM%3A2019%3A640%3AFIN 130 Investing in a climate-neutral and circular economy, European Commission Factsheet, 14.01.2020, Brussels. Available at: https://ec.europa.eu/commission/presscorner/detail/en/ fs_20_40

63 that besides the EU budget, national budgets will have to play a key role in this transition. It is assumed that public investment and taxation will be shifted towards clean energy priorities and away from subsidies.131 Another instrument for reducing the environmental impact of energy and energy-intensive industrial sectors in the EU is the review of the Best Available Techniques (BAT) Reference Document for Large Combustion Plants (LCP132), the so-called LCP BREF,133 issued by the Joint Research Centre. Conclusions were published on 17 August 2017 in the Official Journal of the EU and for the first time at the EU level set limits for emissions into the air of mercury, hydrogen chloride and hydrogen fluoride from combustion of solid fuels in LCPs. They also tighten the existing emission limits for pollutants including sulphur dioxide (SO2) and nitrogen oxides (NOx). Within four years, national authorities must ensure that the permit conditions for the plants concerned are reviewed based on the new environmental standards.134 All these new measures are great news for the clean energy future. At least in conceptual terms. But what do they mean in practice for the countries in South East Europe? If the new requirements are going to be challenging even for the strongest and most advanced European economies, would they be achievable for the SEE countries, and if yes, would that be at the expense of on the account of the other two aspects of the Energy trilemma? Taking a step back, it is interesting to bring up some statistics: the International Energy Agency has estimated that the EU as a whole (excl. UK) is responsible for about 8.6% (~ 2 850 MtCO2) of the global carbon dioxide emissions from fuel combustion in 2017 (about 32.8 billion tons of CO2).135 Five countries caused two-thirds of all EU emissions for 2017 – France, Germany, Italy, Spain and Poland. For comparison, all 11 countries in South East Europe together account for equal to not more than 10% of all EU emissions. If looking at the evolution of CO2 emissions in Europe, the above mentioned five countries have reduced theirs, on average, by only 14% since 1990, while the SEE countries have decreased their emissions, on average, by 33%. Nevertheless, the new EU energy framework is a fact and must be implemented by all – sooner for some, a bit later for the others. The European Commission has also considered a case where non-EU

131 Op. cit. 12 132 ≥ 50 MW total rated thermal input 133 COMMISSION IMPLEMENTING DECISION (EU) 2017/1442 of 31 July 2017 establishing best available techniques (BAT) conclusions, under Directive 2010/75/EU of the European Parliament and of the Council, for large combustion plants (notified under document C(2017) 5225) 134 New EU environmental standards for large combustion plants, European Commission. Available at: https://ec.europa.eu/jrc/en/news/new-eu-environmental-standards-large- combustion-plants 135 IEA Atlas of Energy. Available at: http://energyatlas.iea.org/#!/tellmap/1378539487

64 countries are reluctant to increase its climate ambitions so quickly (and this is also relevant for the Energy Community Contracting parties). According to the new Green Deal, should it be the case, the Commission will propose “a carbon border adjustment mechanism”, for some sectors, in order to reduce the risk of “carbon leakage”.136 This is to ensure EU competitiveness and introduces a new “carbon” component in the price’s determination. Nonetheless, it would be interesting to follow how this measure would comply with international trade obligations such as the World Trade Organization rules. Before trying to identify the possible options for the way forward in balancing the Energy trilemma in South East Europe, let’s see some important aspects of the region which differentiate it from Central and Western Europe in facing the challenges of the Energy transition: – Energy systems evolution/revolution? If for the Western European countries the envisaged changes are more or less the next step in their energy sector development, for the South East European countries these changes would rather mean skipping some steps in their own energy development, and would be more like an “imported energy revolution”. Most of the countries in the region have not yet finalized the “first” Energy transition (their energy sector is still in the process of being liberalized) and now they are expected to enter the new Energy transition era. – Lack of financial capacity to perform the transition Probably the most obvious and trivial fact, but still one of the most relevant. It is not a secret that the economic and financial indicators like GDP and average salaries in the region are still a far cry from their Western and Northern neighbors. And the Energy transition will be costly. Even if some of the countries in the region are going to be able to make use of the future opportunities eventually offered through European financial programs (like the proposed Just Transition Fund), they would hardly cover most of the required investments. – Energy poverty Even though a single definition of energy poverty does not exist, it is widely accepted that it is a set of conditions where “individuals or households are not able to adequately heat/cool or provide other required energy services in their homes at affordable cost.”137 Energy poverty is usually associated with a combination of low household incomes, high energy prices

136 Op. cit. 12 137 Bouzarovski S., Thomson H., Transforming Energy Poverty policies in the European Union: Second Annual Report of the European Union Energy Poverty Observatory, p.6. Available at: https://www.energypoverty.eu/sites/default/files/downloads/observatory-documents/20-01/ epov_pan-eu_report_2019_final.pdf

65 and low levels of residential energy efficiency. Although energy poverty in most SEE countries is not clearly defined and systematically monitored, it is well known that the shift to a liberalized energy market, without the right protection mechanisms in place, has been particularly burdensome for people in the countries in the region, making them vulnerable and lacking tools for coping with price increases after many years of regulated and heavily subsidized energy prices.138 According to the EU Energy Poverty Observatory,139 even the EU members Bulgaria, Greece and Romania perform much worse than the EU average on the household-reported indicators of energy poverty. While exact numbers are hard to find due to differences in the definition of the term, it is estimated that up to 40% of the regional population may suffer from energy poverty, compared to 10% in the EU.140 It is questionable whether the energy transition will make the situation better, especially regarding energy prices. If we move away from South East Europe for a moment and think of the reliable low-carbon power system of the future in a global perspective, probably it would ideally comprise renewable energy sources, storage and baseload sources. However, a substantial link in this configuration is still missing – energy storage. The widespread usage of energy storage is considered a game changer for the sustainable future as it may compensate the shortcomings of renewable power. However, while there is plenty of visionary thinking, a recent report of the World Energy Council141 concludes that there is limited progress in developing daily, weekly and even seasonal cost-effective storage solutions, which are essential for a global dependence on intermittent renewable energy sources. So, achieving the ideal possible energy mix in the current conditions is challenging for all countries in the world. And there is not a one-size-fits-all solution. Then what are the possible steps for South East Europe – apart from increasing energy efficiency, which is a must – in order to change its energy systems according to the new realities? Let’s try to summarize the main advantages and disadvantages of the feasible measures:

138 Robić S., Energy Poverty in South East Europe: Surviving the Cold, 2016, p.8. Available at: https://www.researchgate.net/publication/316668228_Energy_Poverty_in_South_East_ Europe_Surviving_the_Cold 139 Member State reports for 2019. Available at: https://www.energypoverty.eu/observatory- documents 140 Bouzarovski S. (Ed.), Energy poverty in Southeast Europe: surviving the cold, SEE Change Net, 2016. Available at: http://seechangenetwork.org/wp-content/uploads/2016/10/ Energy-Poverty-in-South-East-Europe_Surviving-the-Cold.pdf 141 Five steps to Energy Storage, Innovation Insights Brief, World Energy Council, 2020. Available at: https://www.worldenergy.org/assets/downloads/Five_steps_to_energy_storage_ v301.pdf

66 Action Pros Cons

Add more - Clean energy sources - Still expensive for the economic Renewables to standard of the region - Untapped renewable the grid energy potential - Requires providing strong support (especially solar and wind) schemes by governments exists in the region - Can’t meet electricity needs entirely on their own as they don’t produce energy all the time, so require installation of other baseload sources - Too fast and unregulated expansion may pose threats to the balance of the energy systems and may increase electricity cost - RES also have environmental impacts, some of which significant (land use issues, challenges to wildlife and habitat, use of hazardous materials in and expansion of mining for manufacturing)

Close thermal - Cleaner air and - Threatens energy security as thermal power plants environment power plants play essential role as baseload sources in the region - Reducing CO2 emissions - Threatens social stability due to the - Ceasing expenses for large number of people working CO2 emissions in the plants and the associated sectors, like coal mining - Likely negative economic aftereffects considering the interrelation with other local industries and services

Intensify - Viable alternative in the - Requires substantial investments by gasification transition period when the government and by consumers replacing more polluting - More expensive for consumers fuels compared with coal/wood - Possibly gas will get - Further increases gas import cheaper, considering the dependency expected diversification options in the region

67 Action Pros Cons

Install more - Zero-carbon energy - Large upfront capital investments nuclear source - More suitable option for countries capacities - Large baseload source already operating nuclear power plants - Complex projects that may boost other industries and - Complex and long-term projects create many jobs - Science-intensive industry - All electricity sources carry - Negative public opinion and safety a degree of risk for the concerns in some countries in the people or the environment. region Nuclear is one of the most highly regulated - Limitations regarding Spent fuel/ Radioactive waste management - Mixed signals from the EU regarding nuclear – neither classified as RES, nor denied as such

More - Still the most economically - Other physical impacts on the hydropower viable RES environment - Many years of operating - Concerns regarding recent drought experience in SEE problems in the region - Potential for more capacities in the region

Based on these and many other considerations, SEE countries will have the difficult task to make technology choices for balancing their Energy trilemma – to achieve the new energy and climate targets on time, to keep continuously the lights on, and to fight energy poverty.

Conclusion Looking at South East Europe, countries in the region are neither main energy producers, nor large consumers. Although there are some deposits of fossil fuels, these resources are not significant. The region depends on imports and limited local resources such as hydropower, lignite, as well as biomass energy. The coal-fired thermal power plants prevail in the electricity production mix with more than 40%. The new EU legal framework in the field of energy and climate is bringing new challenges for all countries concerned, but it would be especially difficult for the countries in South East Europe to map the pathway that will enable them

68 to meet climate and air quality goals, while keeping a strong focus on energy access and affordability, along with reliability of the energy systems. Characterized by high percentage of energy poverty, lower economic and financial abilities compared to Western Europe, and jumping from one energy system transformation (from state-owned to liberalized energy sector) to another (towards a climate-neutral economy), regardless of their specifics, all countries in South East Europe will have to find solutions for achieving more or less the same set of objectives over the next decades. Probably all countries will try to pursue “a smooth, socially and economically equitable transition to achieving climate neutrality”,142 but no national Energy transition will be the same. It will be a responsibility of each government to decide on how to balance the technologies they use to reduce emissions so that it is acceptable for their economy. However, the fact that each country in the region has a distinctive energy profile could be a good base for future regional energy cooperation, exchange and trade. Following Bulgaria’s efforts during its Presidency of the EU Council in 2018, it is essential to maintain good neighborly relations and work towards deepening the regional integration and increasing the interconnectivity in the region. It is important also to increase the efforts to overcome various obstacles which may delay the construction of the necessary new energy infrastructure. It could be in the interest of all SEE countries to promote a regional approach to the common energy challenges, speak with one voice at supra-regional level and insist that the forthcoming EU initiatives on energy and climate consider the national specificities of the individual countries which will have to implement them. However, we should not forget that energy diplomacy in the modern world is based less and less on economic principles143 and more on geopolitics and lobbying.

142 Speech of Prime Minister of Bulgaria Boyko Borissov at a meeting with President of the European Commission Ursula von der Leyen on 5 February 2020 in Brussels. Available at: https://www.mbs.news/a/2020/02/borisov-to-ursula-von-der-leyen-our-transition-to-climate- neutrality-will-require-more-resources-politics.html 143 Energy Diplomacy in Contemporary World: Less Economy, More Geopolitics. Interview with Stanislav Zhiznin, Professor of MGIMO-University, President of the Center of Energy Diplomacy and Geopolitics, Vestnik RUDN. International Relations, 2019 Vol. 19 No. 3 472- 479.

69 BIBLIOGRAPHY

Bouzarovski S. (Ed.), Energy poverty in Southeast Europe: surviving the cold, SEE Change Net, 2016. Available at: http://seechangenetwork.org/wp-content/ uploads/2016/10/Energy-Poverty-in-South-East-Europe_Surviving-the-Cold.pdf Bouzarovski S., Thomson H., Transforming Energy Poverty policies in the European Union: Second Annual Report of the European Union Energy Poverty Observatory. Available at: https://www.energypoverty.eu/sites/default/files/ downloads/observatory-documents/20-01/epov_pan-eu_report_2019_final.pdf Clean energy for all Europeans package completed: good for consumers, good for growth and jobs, and good for the planet, European Commission news, 22.05.2019. Available at: https://ec.europa.eu/info/news/clean-energy-all-europeans- package-completed-good-consumers-good-growth-and-jobs-and-good-planet-2019- may-22_en Clean energy for all Europeans, Luxembourg: Publications Office of the European Union, 2019. ISBN 978-92-79-99835-5 Climate change: The energy sector is central to efforts to combat climate change, IEA. Available at: https://www.iea.org/topics/climate-change COMMISSION IMPLEMENTING DECISION (EU) 2017/1442 of 31 July 2017 establishing best available techniques (BAT) conclusions, under Directive 2010/75/ EU of the European Parliament and of the Council, for large combustion plants (notified under document C(2017) 5225) Consolidated version of the Treaty on the Functioning of the European Union, OJ C 326, 26.10.2012 COST-COMPETITIVE RENEWABLE POWER GENERATION: Potential across South East Europe, IRENA, 2017. Available at: https://www.irena.org/-/media/ Files/IRENA/Agency/Publication/2017/IRENA_Cost-competitive_power_potential_ SEE_2017.pdf Energy Community official website: https://www.energy-community.org/aboutus/ whoweare.html Energy Diplomacy in Contemporary World: Less Economy, More Geopolitics. Interview with Stanislav Zhiznin, Professor of MGIMO-University, President of the Center of Energy Diplomacy and Geopolitics, Vestnik RUDN. International Relations, 2019 Vol. 19 No. 3 472-479. Five steps to Energy Storage, Innovation Insights Brief, World Energy Council, 2020. Available at: https://www.worldenergy.org/assets/downloads/Five_steps_to_ energy_storage_v301.pdf IEA Atlas of Energy. Available at: http://energyatlas.iea.org/#!/tellmap/1378539487 IEA Energy Statistics, Available at: www.iea.org/data-and-statistics IEA Global Energy & CO2 Status Report 2019. Available at: https://www.iea.org/ reports/global-energy-and-co2-status-report-2019/emissions Investing in a climate-neutral and circular economy, European Commission Factsheet, 14.01.2020, Brussels. Available at: https://ec.europa.eu/commission/ presscorner/detail/en/fs_20_40

70 Kruger Heiko, European Energy Law and Policy: an introduction, Edward Elgar Publishing Limited, 2016 Member State reports for 2019. Available at: https://www.energypoverty.eu/ observatory-documents New EU environmental standards for large combustion plants, European Commission. Available at: https://ec.europa.eu/jrc/en/news/new-eu-environmental- standards-large-combustion-plants Robić S., Energy Poverty in South East Europe: Surviving the Cold, 2016, p.8. Available at: https://www.researchgate.net/publication/316668228_Energy_Poverty_ in_South_East_Europe_Surviving_the_Cold Speech of Prime Minister of Bulgaria Boyko Borissov at a meeting with President of the European Commission Ursula von der Leyen on 5 February 2020 in Brussels. Available at: https://www.mbs.news/a/2020/02/borisov-to-ursula-von-der-leyen-our- transition-to-climate-neutrality-will-require-more-resources-politics.html The European Green Deal, COMMUNICATION FROM THE COMMISSION, Brussels, 11.12.2019, COM(2019) 640 final. Available at: https://eur-lex.europa.eu/ legal-content/EN/TXT/?qid=1576150542719&uri=COM%3A2019%3A640%3AFIN Uribe-Toril J., Ruiz-Real J.L., Milán-García J., de Pablo Valenciano J., Energy, Economy, and Environment: A Worldwide Research Update. Energies. 2019; 12(6):1120. Available at: https://www.mdpi.com/1996-1073/12/6/1120/htm

Velislava Dineva is a Senior Expert at the Energy Projects and International Cooperation Directorate of the Bulgarian Ministry of Energy. She has a strong educational background in the field of energy from different scientific perspectives and her professional experience includes several positions in the nuclear and conventional energy sectors. Her research interests are focused mainly on energy security and planning, energy cooperation as well as the role of nuclear energy in the energy system and economic development.

71 MORE THAN MEETS THE EYE? EU ENERGY AND CLIMATE DIPLOMACY TOWARDS THE GULF COOPERATION COUNCIL (GCC) COUNTRIES Dimitar Ivanov

I. Introduction

The global challenge to tackle climate change takes a central place in the external energy relations of the European Union (EU). The EU strives to support and ensure an energy transition in which carbon-producing fossil fuels will gradually be replaced by zero-carbon renewables. Brussels and the Member States have become crucial leaders in the response to climate change, through domestic policies and international aid and through multilateral and bilateral diplomacy, thus raising the necessity for joint action. As the EU is responsible for approximately 10% of the worldwide greenhouse emissions, swift steps need to be undertaken by other players as well, in order to constructively address the global climate challenge. In this sense, the bloc is investing a vast amount of political capital to strengthen its energy and climate dialogue with third countries. Despite being heavily dependent on revenues from oil and gas sales as well as being among the largest emitters of carbon emissions per capita, the Gulf Cooperation Council (GCC)144 countries are putting a lot of effort into diversifying their economies away from fossil fuels. Through the implementation of various programs and policies on national and supranational level, concerning renewable energy, energy efficiency, carbon capture and storage (CCS), artificial intelligence, ‘smart cities’, etc., the EU and the GCC have the financial tools and necessary institutional buildup to strengthen their joint actions in climate change and sustainable energy. In addition, the Gulf monarchies are deeply interested in integrating more renewables into their national energy mix, as well as adopting energy efficiency measures, due to their growing populations, over-reliance on oil and gas, insufficient access to water, desertification, the expected ‘peak oil demand’, etc. The current paper examines the instruments of the EU Energy and Climate Diplomacy and the way it is conveyed towards large carbon emitters, such as the GCC countries. It analyses to what extent this partnership is able to move forward the EU objectives, in line with the recently adopted Green Deal and on the background of other global players being actively involved in the Gulf region. The first part of the analysis emphasizes on the link between energy and climate policies of the EU, as well as the historical development of their

144 Secretariat General of The Cooperation Council for the Arab States of the Gulf (GCC), available at: https://www.gcc-sg.org/en-us/Pages/default.aspx

72 external dimension, leading to EU Energy and Climate Diplomacy Action Plans. The second part is focused on the EU-GCC relations in this critical domain. The paper concludes by addressing the consequences of the recently instigated oil price war between Russia and Saudi Arabia on the GCC countries’ efforts to decarbonize their economy.

II. The link between EU Energy and Climate Diplomacy – a historical perspective

1. The formation of the EU’s common approach towards energy and climate The relationship between environmental degradation and climate change on one hand, and the rise of renewable energy, energy efficiency and clean energy technology on the other, has been increasingly recognized in EU foreign and security policy. Supporting the decarbonization process itself is a core foreign policy requirement and the EU can use a range of instruments to promote exchange and dialogue on climate friendly solutions in the field of energy production and beyond.145 For more than a decade, Brussels has demonstrated significant progress in making its energy and climate policy more coherent and comprehensive, both internally and externally. It could be argued that even tough energy has been at the heart of the European integration since its inception in the 1950s, the framework for a common EU energy and climate policy was beginning to form in the late 1990s and the first decade of the 21st century. In 2007, the EU Commission published a Communication titled “An Energy Policy for Europe”146, being mainly driven by the belief that the EU had to face - for a long time to come - two intertwined crises: - energy crisis, with human activity consuming more resources than nature can provide, lack of domestic fossil resources and growing dependency on imports and - environmental crisis, with climate change calling for a radical shift in the way energy is produced, transported, distributed, stored and consumed.147

145 Tänzler, D., Oberthür, S., Wright, E., Give me five! - key blocks to guide a European Green Deal for EU foreign policy on the geopolitics of decarbonisation, adelphi Climate Diplomacy Policy Brief, Berlin, December 2019, p. 9, available at: https://www.adelphi.de/de/ system/files/mediathek/bilder/Geopolitics%20of%20Decarbonisation%20-%20Climate%20 Diplomacy%20Brief%20%2800000002%29.pdf, last accessed on: 26/03/2020 146 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM%3Al27067 147 Andoura, S., Vinois, J., From the European Energy Community to the Energy Union: A Policy Proposal for the short and the long term, Notre Europe, Jacques Delors Institute, Paris, 2015, p.25, available at: http://www.institutdelors.eu/media/energyunion-andouravinois- jdi-jan15.pdf?pdf=ok, last accessed on: 26/03/2020

73 Thus, the strong link between climate and energy is identified in the very beginning of the EU’s common approach towards these important areas. Moreover, the objectives laid out by the new policy remain the same today - ensuring energy at affordable prices, guaranteeing the security of supply and promoting a sustainable development and transition towards low-carbon society and economy. Currently, this ‘policy triangle’ between affordability, security and sustainability continues to dominate the EU energy and climate agenda. However, it seems that the sustainability dimension has been given more attention and bigger emphasis and has progressively become the main platform for cooperation on energy and climate both between the EU Member States and in relations with third countries. The evolution of EU energy and climate policy is also partly dictated by the shifting dynamics in the global energy landscape. Energy experts, such as Jean- Michel Glachant148, contend that the EU approach regarding the ‘policy triangle’ is driven by three key developments - the commitments taken by Brussels within the Kyoto protocol149 (sustainability), the Russia-Ukraine gas crisis (security) and the new position and rank of energy, as part of the primary EU legislation - the Lisbon Treaty (affordability). Accordingly, between 2007 and 2013, major international events, originating outside the EU, have affected its newly launched energy strategy. The economic crisis in 2008, combined with a rapid deployment of renewable energy sources (RES), based on national support schemes, resulted in a substantial price increase for the consumers. On the other hand, the shrinking economy and decline in energy demand contributed to the fulfillment of greenhouse emissions (-20%, compared to the 1990 levels) and energy efficiency targets (+20%, compared to the 1990 levels), endorsed in the 2020 Climate and Energy Package. The EU adopted these measures in December 2008, largely motivated by the desire to play a leading role in the upcoming renegotiation of the Kyoto . The 2009 United Nations Climate Change Conference (UNCCC), also known as the Copenhagen Summit, had to establish framework for climate change mitigation beyond 2012, due to the expiration of the first commitment period of the Protocol. The European Union wanted to develop as quickly as possible a common position in the fight against climate change, and thus implemented its own measures to deal with it. However, it did not succeed in leading the negotiations and the summit was largely evaluated as ineffective. The end of the meeting saw leaders

148 de Jong, J., Glachant, J-M., Hafner, M., Policy Brief: Lisbon vs. Kyoto vs. Moscow, edited by Robert Grant, Fondazione Eni Enrico Mattei (FEEM), Milano, April 2010, available at: https://www.feem.it/m/publications_pages/20104291649642010.4_Policy_Brief.pdf 149 The Kyoto Protocol is an international agreement that has aimed to reduce carbon dioxide (CO2) emissions and the presence of greenhouse gases (GHG) in the atmosphere. The essential tenet of the Kyoto Protocol was that industrialized nations needed to lessen the amount of their CO2 emissions. It was adopted in Kyoto, Japan, on December 11, 1997, and became international law on February 16, 2005.

74 of the U.S. and the BASIC group of countries (Brazil, South Africa, India and China) hammering out a last-minute backroom deal. Brussels has chosen to accept the agreement, in the belief that a weak deal would be better than no deal. This approach was particularly driven by French and British efforts, as the two countries had invested large amount of political capital to come up with an agreement at the end of the summit. Still, there was significant progress in consolidating the internal energy market and setting common energy rules inside the EU. However, the external dimension of the EU energy and climate policy was still underdeveloped. Brussels was not able to speak with ‘single voice’ on the international stage, due to the concerns of the Member States to delegate jurisdiction in such a sensitive area as energy. There were exceptions, for example the mandate given to the Commission to negotiate, on behalf of the Member States, the agreements with Azerbaijan and Turkmenistan concerning the construction of the Trans-Caspian pipeline. Nevertheless, bilateral national deals with external energy suppliers continued to prevail over a comprehensive EU approach, making the EU an easy target for divide-and-rule policies by third-country suppliers, and especially Russia.150

2. The equilibrium between climate and energy - the Energy Union and the Paris Agreement Despite being originally conceived with a strong emphasis on energy security, as a consequence of the Russia-Ukraine crisis in 2014 and the possibility of suspension of Russian gas deliveries to the EU, the Energy Union did eventually expand its focus to include not only security of energy supply but also the energy market, energy efficiency, decarbonization and research and innovation, as outlined in the Framework Communication.151 The Energy Union was the main tool through which the internal mechanisms and external projection of the EU on climate and energy have been strengthened. The European Commission and in particular Maroš Šefčovič, the Vice-President in charge of the Energy Union, did significant work on all dimensions - encompassing extensive investments in energy diplomacy on the north-eastern border, actively participating in the trilateral talks between the EU, Russia and Ukraine, and focusing on the Eastern Mediterranean, by working on strengthening the connection between the EU and the large new gas discoveries in the area.152 So far, there are four reports showing the progress made on the Energy Union since its establishment in 2015. The last

150 Andoura, S., Vinois, J. Ibid., p. 92 151 European Commission, A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, February 2015, available at: https://eur-lex. europa.eu/resource.html?uri=cellar:1bd46c90-bdd4-11e4-bbe1-01aa75ed71a1.0001.03/ DOC_1&format=PDF, last accessed on: 01/04/2020 152 Colantoni, L., Europe’s Green Wave and the Future of the Energy Union, Istituto Affari Internazionali, Rome, May 2019, available at: https://www.iai.it/en/pubblicazioni/europes- green-wave-and-future-energy-union, last accessed on: 28/03/2020

75 report was published in April 2019 and reflects the main accomplishments made by the initiative, underscoring the climate leadership of the EU, in line with its firm commitment to multilateralism. Another important building block of the Energy Union is the Energy Diplomacy Action Plan, developed by the Commission and the European External Action Service (EEAS) and adopted by the EU Foreign Affairs Council in July 2015. The plan includes joint action in five principal areas – strengthening the strategic guidance through regular high-level engagement; the establishment and further development of energy cooperation and dialogues; supporting efforts to enhance the global energy architecture and multilateral initiatives; strengthening common messages and energy diplomacy capacities. The conclusions emphasize the need to achieve common positions in multilateral institutions and frameworks, such as the G20, IRENA, Sustainable Energy for All (SE4ALL), in order to speak with one voice on major topics. In terms of Climate Diplomacy, the 2015 UNCCC Summit in Paris (COP21) was a major success for the EU. Even though the bloc has pledged new binding targets within the second commitment period of the Kyoto Protocol, agreed in 2012 in Doha, the new amendment did not come into force, as it required ratification by 144 state parties. As of February 2020, 137 states have endorsed it.153 Major economies and greenhouse gas emitters, such as the U.S., Canada, Japan and New Zealand, remain outside of the accord. The Doha Amendment expires in 2020 and requires negotiating climate change measures after this period. This resulted in the adoption of the Paris Agreement, which is a separate instrument under the United Nations Framework Convention on Climate Change (UNFCCC) rather than an amendment of the Kyoto Protocol. However, the Paris Agreement will replace the Kyoto Protocol, after its expiration in 2020. COP21 can be considered a success for multilateralism and a historic breakthrough in international climate policy, establishing the EU as a leader in the fight against climate change. The French capital hosted 195 countries, which agreed to take measures to reduce the global temperature to well below 2°C through the adoption of Intended National Determined Contributions (INDC). These are domestic mitigation plans, aiming to reduce the greenhouse gas (GHG) emissions, but also taking into account national capabilities and specifics. In order to ramp up the efforts to achieve as high-reaching agreement as possible, the EU, together with the Marshall Islands, headed the so-called “Ambition Coalition” – consisting of 79 African, Caribbean and Pacific countries, the U.S. (under the Obama administration) and all EU Member States. Notable exceptions included developing countries like China and India. Nevertheless, the grouping could be regarded as one of the EU’s diplomatic accomplishments

153 United Nations Framework Convention on Climate Change (UNFCCC), The Doha Amendment, available at: https://unfccc.int/process/the-kyoto-protocol/the-doha-amendment, last accessed on 27/04/2020

76 in international climate negotiations – building bridges and coalitions between diverging interests. However, the Paris Agreement process faces a make-or-break moment within the next five years. Its original pledges were insufficient to deliver a stable climate, but it was designed with a “ratchet mechanism” where countries take stock of progress and ratchet up ambition accordingly. The initial enthusiasm, surrounding the High Ambition Coalition, has significantly declined – in fact, it is now faced with criticism, due to its inability to reduce greenhouse gas emissions, in compliance with the Paris Agreement.154 The first chance to update national commitments will be in 2021, after the COP26 in Glasgow was postponed by a year, due to the coronavirus pandemic. Nevertheless, it will be a key moment for governments to show that the ambition mechanism is working. A failure to increase aggregate global climate ambitions over the next five years would dangerously undermine the Paris Agreement as a whole, as well as global climate security. According to the latest report by the Intergovernmental Panel on Climate Change155 (IPCC), recent trends in emissions and the level of international ambition, indicated by INDCs within the Paris Agreement, deviate from a track consistent with limiting warming to well below 2°C.156 Without increased and urgent mitigation ambition in the coming years, leading to a sharp decline in greenhouse gas emissions by 2030, global warming will surpass 1.5°C in the following decades, leading to irreversible loss of the most fragile ecosystems, and crisis after crisis for the most vulnerable people and societies.157 This would mean that immediate and extensive transitions must be made in key sectors, including energy, agriculture, afforestation, construction, heavy industry, transport, etc., which contribute to GHG emissions rise.158

154 More information at: https://climateactiontracker.org/countries/ 155 IPCC is an intergovernmental body of the United Nations, dedicated to providing objective, scientific information, relevant to understanding the scientific basis of the riskof human-induced climate change, its natural, political and economic impacts and risks, and possible response options. 156 IPCC, 2018: Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield (eds.)]. In Press. Available at: https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Full_Report_ High_Res.pdf, last accessed on: 01/04/2020 157 IPCC, 2018. Ibid. 158 Warne, I., Effectiveness of the Paris Agreement, Research Gate, August 2019, available at: https://www.researchgate.net/publication/335383949_Effectiveness_of_the_Paris_ Agreement, last accessed on: 01/04/2020

77 In this regard, the EU aims at making the Paris Agreement ‘work in practice’ by assisting partner countries to fulfil their INDCs under the agreement.159 In addition, in 2015 the EU adopted Climate Diplomacy Action Plan which outlines the three main tracks through which the bloc will pursue its climate agenda: – advocating climate change as a strategic priority in its external relations; – supporting the implementation of the Paris Agreement in the context of low emissions and climate resilient development; – aiming to increasingly address the nexus of climate, natural resources, prosperity, stability and migration.160 In this way, the EU is advancing the scope of its actions on Climate Diplomacy, by emphasizing on the direct and indirect international security impacts of climate change - migration, access to resources, health and food security, economic growth, etc.

3. The EU Green Deal – does climate security trump energy security?

With the election of new MEPs in May 2019, the initial expectations that much of the seats would be taken by far-right populist parties did not fully materialize. Instead, Europe witnessed a green wave, as the Greens/ European Free Alliance (EFA) grouping secured 69 seats in the European Parliament, up from 52 in the previous 2014 elections.161 Accordingly, these developments had an impact on the newly appointed Commission and the priorities of its mandate. Its president, Mrs. Ursula von der Leyen, made no secret during her hearing before the Parliament that climate will be a first concern, and this has been reflected in the specific policy areas of the newly assigned commissioners. Just like the Energy Union was governed by a vice-president during the Juncker Commission, now the Green Deal is in the hands of Executive Vice-President of the EC Frans Timmermans. His main tasks will include the work on the EU’s first European Climate Law, which will enshrine that climate neutrality is to be achieved by 2050. Thus, climate becomes the main comprehensive priority with respect to the organization of the Commission and no longer a separate pillar of the Energy Union. Accordingly, this shows that other aspects of the Energy Union - for example

159 Bremberg, N., EU Foreign and Security Policy on Climate-Related Security Risks, Stockholm International Peace Research Institute, Stockholm, November 2019, available at: https://www.jstor.org/stable/pdf/resrep20070.pdf?ab_segments=0%252Fbasic_SYC-5055% 252Fcontrol&refreqid=excelsior%3A2b458d17af2e2bc63d771b4b7da73bce, last accessed on: 30/03/2020 160 Westphal, K., The EU: In the Midst of Crisis - Downgraded Sustainable Energy Ambitions, Institute for Advanced Sustainability Studies, Potsdam, December 2016, available at: https://publications.iass-potsdam.de/rest/items/item_1910888_2/component/file_1910889/ content, last accessed on: 30/03/2020 161 Colantoni, L. Ibid.

78 energy security and dialogue with third countries - seem to have been given less attention. It can be argued that the European Green Deal, published in December 2019, will be the main platform for both internal interactions between Member States and external projections of EU energy and climate policy. Even more - the Green Deal is the ultimate concept for deeper integration and building relations with third countries. It is a new growth strategy that aims to transform the EU into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use.162 The intent of the new Commission is to place climate and decarbonization as focal points which link all sectors in the economy and society – industry, agriculture, taxation, energy, transport, etc. Energy alone, and especially determining the national energy mix and security of energy supply, is a more sensitive issue for Member States, while at the same time it is not so appealing to the public. The fight against climate change, on the contrary, is increasingly a reason for participation and interest in European politics, enjoying broad popular support - at 93% according to the most recent Eurobarometer surveys.163 Despite the EU’s high ambitions and numerous political declarations on its climate trajectory, underscoring that its energy and climate policies, both internally and externally, are also covering the issue of social and economic justice in the transition towards zero-carbon economy, there are rifts on horizontal (between Member States), vertical (between different layers of society) and interstate (between EU and third countries) levels. In Poland for example, where 80% of the generated electricity is based on coal, the goal of carbon neutrality by 2050 is widely dismissed. According to the country’s energy minister, Krzysztof Tchórzewski, the costs of such undertaking could reach €1 trillion.164 The ‘yellow vest’ protest movement in France was inspired, among other things, by the rising taxes on fuels. In this way, the Green Deal could exacerbate the already tense political climate within the EU. On top of issues like migration, Brexit, relations with Russia, and the recent outbreak of COVID-19 in Europe, the lack of broader consensus on local, national and supranational level, on how this new initiative is to be carried out, has the potential to critically divide the EU.

162 European Commission, The European Green Deal, Brussels, December 2019, available at: https://ec.europa.eu/info/sites/info/files/european-green-deal-communication_ en.pdf, last accessed on: 31/03/2020 163 Bianchi, M., Energy and climate in the Von Der Leyen era: From Jean-Claude Juncker to Ursula Von der Leyen, the heritage of the “Energy Union”, ENI Global Energy Scenarios, February 2020, available at: https://www.eni.com/en-IT/global-energy-scenarios/europe- climate-change-policy.html, last accessed on 02/04/2020 164 Leonard, M., The Green Deal will make or break Europe, European Council on Foreign Relations, December 2019, available at: https://www.ecfr.eu/article/commentary_the_green_ deal_will_make_or_break_europe, last accessed on: 01/04/2020

79 Furthermore, to achieve such profound transformative change, Brussels needs to establish enhanced global cooperation, well beyond its borders. The withdrawal of the U.S. from the Paris Agreement has made this task difficult. According to the director of the U.S. National Economic Council, the IPCC reports are way too difficult and the authors overestimate the likelihood of environmental disasters. U.S. President Donald Trump is openly stating that climate change is not man-made and there is a political agenda behind it. Countries like Russia and Saudi Arabia, the world’s second and third oil producers, publicly stated that they do not trust the findings of the IPCC report. In this sense, the EU approach in convincing large carbon emitters to follow a carbon-neutral agenda should be more focused on economic diversification and minimizing the reliance on oil and gas sales, thanon underscoring the anthropogenic (man-made) causes of climate change. In a scenario where big importers of energy from Europe and Asia are on a path to decarbonize their economies in the coming decades, the energy exporting countries will face enormous challenges in finding markets for their goods and therefore they might turn into stranded assets165. Thus, a differentiated approach is necessary when it comes to dealing with countries which suffer directly from climate change (e.g. island states) and those more focused on the consequences of decarbonization on their economies.

III. EU Energy and Climate Diplomacy towards the GCC countries – challenges and perspectives for bi-regional dialogue

1. National plans and strategies of the GCC countries towards economic diversification – prerequisites and targets The Gulf monarchies have identified the need to restructure their economies in a way which will significantly reduce their overreliance on income from oil exports. What drives these countries to follow such a path? Firstly, oil prices fluctuate widely and are highly volatile. Therefore, reliance on oil revenue does not generate a stable or predictable source of income, which also means that in some countries with large populations, oil rents might not be big enough to provide sufficient income or a sufficiently extensive welfare system to support growing populations and their need for infrastructure, healthcare and education.166 In addition, the oil industry is capital-intensive –

165 In the context of upstream energy production, the IEA defines stranded assets as "those investments which are made but which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return, as a result of changes in the market and regulatory environment." 166 Shehabi, B., Fattouh, B., The Long Road towards “Better” Diversification, World Energy (WE) Magazine, ENI, №42, April 2019, available at: https://www.eni.com/static/en-IT/world- energy-magazine/gulf-vision/ABO_OilMagazine_42_EN.pdf, last accessed on: 07/04/2020

80 thus it could not offer employment for the ever growing number of young people entering the labor market, which is the case in the GCC countries. The proportion of people, employed in the sector is below 10%. The rising living standard and demographic growth are increasing the demand for energy, especially in the electricity sector, where it is much needed for water desalination and residential cooling. This puts a mounting pressure on the welfare system, which is very generous and includes housing support, guaranteed public sector employment, energy subsidies and other allowances. These measures are energy intensive and contribute to positioning the Gulf countries at the top of energy usage per capita. Last but not least, global trends show that oil demand will peak in the coming decade, driven by technological improvements, acceleration in efficiency measures and changing social preferences and government policies aimed at addressing climate change and air pollution. There is a recognized need to plan the functioning of the economy and society in a post-oil era, to draw innovative ways to maintain the social contract, while providing the usual social benefits. In times when there is social discontent at hand, high revenues from oil sales could help to mitigate a potential political unrest. This was evident during the Arab Spring, when generous social schemes were able to build consensus. However, oil price volatility does not guarantee that this would always be the case, especially when there is a drive towards significant reduction of fossil fuels usage and at the same time abundance of oil, as a result of the shale revolution in the U.S. Although renewables are a relatively recent entrant to the GCC energy landscape, they hold vast potential to cut fuel costs, reduce carbon emissions, conserve water and create jobs. Each Gulf state has come up with a national plan to diversify its economy by adopting energy efficiency measures and renewables in the energy mix. These measures contribute to the region’s commitments towards the 2030 Agenda for Sustainable Development. For example, the UAE strive to transition towards a less carbon-intensive energy system, both as part of its Nationally Determined Contribution (NDC) within the United Nations Framework Convention on Climate Change (UNFCCC), and through a number of investments in green research and development, technology and power generation. On the other hand, Saudi Arabia’s reform plan is the most significant, visible and consequential, given its weight in the world’s energy and financial markets and its geopolitical role in a highly volatile region. In fact, all the other Gulf countries are facing similar challenges and carry out plans to adjust to a world in which their current economic and political model is untenable. It would be difficult to determine the speed of the energy transition, because it has its own national characteristics; however, the transition itself seems an irreversible and steady process (as illustrated below).

81 Source: International Renewable Energy Agency (IRENA) (2019)

The GCC countries are located in the so-called Global Sunbelt, where sun irradiation is the highest. They have a considerable potential for development of solar energy, in particular solar photovoltaic (PV) generation. The UAE is the regional leader in the deployment of PVs, accounting for 79% of the total amount. The country has succeeded in attracting low-cost PV projects without offering subsidies, making solar PV the cheapest source of electricity generation in the region. It is also the most used renewable technology, comprising roughly 75% of all deployed renewables. Although the Gulf region is characterized by lower wind speeds, technological improvements in the industry provide the conditions for wind farms deployment, particularly in Kuwait, Oman and Saudi Arabia. At the end of 2017, the region had some 146 GW of installed power capacity, of which renewable energy accounted for less than 1% (867 megawatts, MW), with the UAE comprising 68% of the total installed capacity in 2018, followed by Saudi

82 Arabia (16%) and Kuwait (9%).167 At first glance, these numbers appear quite humble and unsatisfactory, but on the other hand the growth for the last four years has been fourfold.

2017 – 2018 2016 2015 2014

Biomass Total Share of Total Total Total Country PV CSP Wind and RE (in RE in total waste MW) electricity RE RE RE capacity

Bahrain 5 0 1 0 6 0.1% 6 6 6

Kuwait 19 50 10 0 79 0.4% 20 1 0

Oman 8 0 0 0 8 0.1% 2 2 1

Qatar 5 0 0 38 43 0.4% 43 42 42

Saudi 89 50 3 0 142 0.2% 74 74 24 Arabia

United Arab 487 100 1 1 589 2.0% 144 137 137 Emirates

Total 613 200 14 39 867 0.6% 289 262 210

Source: IRENA. 2018a; IRENA estimates.

Note: 2018 data are available only for Kuwait and the UAE. Oman’s 7 MWth solar enhanced oil recovery plant and the newly finished first phase of 1 GWth, Miraah Solar EOR is not in- cluded because this table addresses only electricity. PV = photovoltaic; CSP = concentrated solar power; RE = renewable energy. Totals may not add up due to rounding.

The increase in RES deployment could be explained by the collapse of oil prices in 2014-2016, instigated by Saudi Arabia. In an attempt to secure market share and counter U.S. shale producers, Riyadh boosted crude oil production, which resulted in oil price below $30 in the end of 2015. Export losses are estimated to be around $287 billion for 2015, with losses in Kuwait, Qatar, Oman and Saudi Arabia estimated at more than 20% of GDP.168 The Gulf monarchies were able

167 IRENA (2019), Renewable Energy Market Analysis: GCC 2019, IRENA, Abu Dhabi, available at: https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2019/Jan/IRENA_ Market_Analysis_GCC_2019.pdf, last accessed on: 07/04/2020 168 IRENA (2016), Renewable Energy Market Analysis: The GCC Region, IRENA, Abu Dhabi, available at: https://www.irena.org/DocumentDownloads/Publications/IRENA_Market_ GCC_2016.pdf, last accessed on: 07/04/2020

83 to experience the exposure of their socioeconomic model and the urgent need to diversify their economies. The oil price fall in 2014 was a wake-up call for the GCC governments to speed up the process of economic diversification. The rentier model, dependent on revenues generated from the extraction and sale of state-owned natural resources, and its redistribution mechanisms, upon which Arab economies were built, has unraveled.169 In response to these threats, the Gulf states have announced ambitious plans to reform their economies and modernize their institutions and policies. Although differing in substance, they all emphasize new economic activities and the private sector as engines of sustainable growth and development in the future of these economies, and call for the GCC states to become centers of excellence in tourism, finance or other services.

National Economic Strategies of the GCC countries

Bahrain’s Economic Vision 2030 Kuwait’s New Kuwait National calls for a “shift from an economy Development Plan and current Five- built on oil wealth to a productive, Year Development Plan aim to globally competitive economy, position the country as a regional shaped by the government and driven trade and financial hub, and focus on by a pioneering private sector.” Much economic diversification. The plans emphasis is placed on attracting focus concentrate on infrastructure foreign direct investment to create investment, including transportation, a jobs. By 2030, the financial services new port and the planned development sector is to be the main pillar of the of the “Silk City” business hub in economy, together with oil and gas, Subiyah. complemented by tourism, business services, manufacturing and logistics.

169 Bahout, J., Cammack, P. et al., Arab Political Economy: Pathways for Equitable Growth, Carnegie Endowment for International Peace, October 2018, available at: https:// carnegieendowment.org/2018/10/09/arab-political-economy-pathways-for-equitable-growth- pub-77416, last accessed on: 08/04/2020

84 Oman’s Vision 2020 and the Qatar’s National Vision 2030 aims to subsequent Five-Year Development strike a balance between an oil-based Plan (2016–2020) call for economic and a diversified, knowledge-based diversification, and aim to set economy. The plan includes economic, objectives, policies and mechanisms social and environmental components, to raise non-oil revenue through with emphasis on responsible increased private activity and human exploitation of the country’s oil and resource development. Industries gas resources, and on the creation of targeted for expansion include a diverse set of economic sub-sectors fertilizer, petrochemicals, aluminum, capable of promoting innovation, power generation and water technical specialization and education. desalination, but also tourism, with its Qatar’s Second National Development high relevance for local job creation. Strategy 2018–2022 further sets out a plan for natural resource management that includes a call for an increase in the use of renewable energy.

The Saudi government’s Vision The United Arab Emirates’ Vision 2021, 2030, launched in early 2016, UAE Energy Strategy 2050, UAE Green is a comprehensive strategy for Growth Strategy, UAE Future Strategy systematically restructuring the Saudi and UAE Centennial Plan (2071), all economy away from its reliance on oil. highlight economic diversification and Under the three themes of “A vibrant technological innovation as pivotal society”, “A thriving economy” and “An to future development. Besides a ambitious nation”, the plan targets the focus on tourism, aviation, advanced development of new industries and manufacturing and services, the business sectors, in part through a UAE’s plans place great emphasis on boost for private enterprise. Among knowledge creation and technology the national strategy’s key vehicles are in green energy, among other areas. so-called vision realization programs, The country is positioning itself as a one of which - the newly empowered regional hub for research, innovation Public Investment Fund program - is and sustainable energy, with the latter tasked with investing in sectors that recognized as a new growth sector aspire to diversify the Saudi economy. with vast potential. Expo 2020 in Dubai Saudi Arabia and the UAE were the is expected to attract more than 25 first countries in the GCC to introduce million visitors and to have a positive Value Added Tax (VAT) in January impact on tourism, travel and real 2018. estate.

Source: International Renewable Energy Agency (IRENA) (2019)

85 2. EU-GCC relations – origins, structure and objectives

The GCC’s national plans have much in common with the EU’s 2030 climate and energy framework and the 2050 long-term strategy. They share common goals, such as the increase in renewables in the energy mix and the implementation of energy efficiency measures, in parallel to ensuring the competitiveness of the economy and the social security of the citizens. In parallel, it appears that the two parties’ main motives in implementing these policies are different - while the EU’s chief concern is the fight against climate change, caused by man-made activities, the GCC countries are taking steps to reduce their dependency on revenues from oil exports and diversify their economies, in order to face the post-oil era. Nevertheless, there is a room for strategic dialogue on how to carry out the energy transition in a manner which is acceptable to the broadest circle of the community. In fulfilling their mid and long-term targets, the EU and GCC should work together by strengthening their transregional cooperation, exchanging expertise and good practices on clean energy technologies, sustainable policies, etc. The European presence in the Gulf dates back to the days of the British Empire, when the Arabian Peninsula was mainly a transit region for trade between Europe and Asia. After major hydrocarbon discoveries in the beginning of the 20th century, the Middle East, and in particular the Gulf region, gained more strategic importance. According to BP Statistical Review of World Energy, by the end of 2018, the GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) account for 30,6% of global oil reserves and 19,8% of gas reserves, and in terms of production - 23,4% for oil and 10,9% for gas, respectively.170 The first attempts to establish a certain direction in the relations between the EU (at that time called European Communities) and the Gulf monarchies, were as a result of the oil crisis in 1973. This was advocated by France, which pushed for the creation of the so-called Euro-Arab Dialogue, following the Arab-Israeli war in 1973 and the first oil shock. The partnership included not only the Gulf monarchies but all the countries from the Arab League. The initiative could not gain traction and de facto collapsed for two reasons: after the accord in Camp David in 1979 between Egypt and Israel, some Arab countries left the dialogue and even though France tried to revitalize the relations, the First (1991) and internal Arab discords put an end to it. The logic behind the creation of the GCC was chiefly dictated by security concerns emanating from the in 1979, and its potential spread in the Middle East, and the Iraq-Iran war (1980-1988). Two years after the establishment of the GCC, the EU sought to create contacts with the organization, which started in 1983 and were soon fortified by a Cooperation

170 BP Statistical Review of World Energy, 68th edition, 2019, available at: https://www. bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical- review/bp-stats-review-2019-full-report.pdf, last accessed on: 03/04/2020

86 Agreement, signed in 1988. It was a fairly general document providing for the institutional framework in which cooperation should be achieved in a number of fields of interest to both parties. These included the traditional sectors of the economy: energy, industry, trade, investment, agriculture, science, technology and the environment.171 The principal aims were to improve economic relations between the two regions, intensify trade and investment exchange, strengthen inter-regional interdependence and initiate loose political dialogue. It also intended to encourage GCC regional integration, contribute to strengthening stability in a region of strategic importance to Europe, secure European energy supplies and strengthen the process of economic development and diversification of the GCC economies. One of the goals that the Cooperation Agreement set up was the signing of a free trade agreement between the two parties. After the initial enthusiasm, the negotiations began rapidly to lose their intensity and were unilaterally suspended by the GCC in 2008. Even though they started in 1990, the real perspective for an eventual free trade agreement became achievable in 2003, after the GCC Customs Union was established. The lack of progress was due to several facts - the EU insisted that the GCC removed the restrictions on investments in services, as well as that it should increase the costs for energy to a level which is approximate to those in the EU. For its part, the GCC did not approve the EU’s protectionist measures in the petrochemical industry. In addition, the smaller GCC countries expressed their negative attitude towards the fact that the EU enforces its own model of regional integration, without taking into account the differences in the internal and regional dynamics. The EU’s insistence for the development of a strategy based on region (EU) to region (GCC) approach was at that time considered by the smaller GCC states as an obstacle for the bilateral relations in strategic spheres, such as energy. After the Lisbon Treaty came into force in 2009, the relations between the EU and the GCC were passed on from the EU Presidency of the Council to the European External Action Service (EEAS). Initially, there was only one EU delegation, based in Saudi Arabia, which was accredited to all other GCC countries. In 2013, the EU opened its second delegation in Abu Dhabi, which shows the desire for emancipation by the smaller states from Riyadh. Even though it could be considered that Saudi Arabia and the UAE are the closest allies in the GCC, creating a joint bilateral cooperation committee inside the organization, still there are divergences in their approach towards regional issues, external relations, etc. A third EU delegation was opened in Kuwait in 2019, underscoring

171 Official Journal of the European Communities, Council Decision of 20 February 1989 concerning the conclusion of a Cooperation Agreement between the European Economic Community, of the one part, and the countries parties to the Charter of the Cooperation Council for the Arab States of the Gulf, of the other part, Volume 32, available at: https://eur-lex.europa. eu/legal-content/EN/TXT/PDF/?uri=OJ:L:1989:054:FULL&from=EN

87 its peace building and mediating role. The opening of the Kuwaiti delegation is a result of the ongoing diplomatic rift within the GCC between Qatar on one side, and Saudi Arabia, UAE, Bahrain and Egypt (the Arab Quartet)172 on the other. Kuwait has taken upon the role of mediator and peace builder between the two parties. On its part, in 2019 the EU has opened a delegation in Kuwait, which is also responsible for the relations with Qatar. The dispute began in 2017, when the Quartet cut diplomatic ties with Doha, enforcing full naval, aerial and land blockade on the country. Qatar's neighbors accused it of supporting terrorists and forging closer ties with Saudi Arabia’s main adversary in the region - Iran. As far as energy is concerned, Doha and Tehran are sharing the world’s biggest gas field. Thus, the small emirate tries to balance its relations with Iran, to the extent to which its gas industry and LNG exports would be secured. From an EU perspective, Qatar is the fourth largest exporter of natural gas, accounting for 5,2% of total EU gas imports. It is an important trade partner for countries like Spain, Italy and Poland. The current rift in the GCC is impeding the possibility of comprehensive inter-regional dialogue with the EU. Since the eruption of the crisis, the EU-GCC ministerial meetings and joint cooperation committees have been suspended. The last such meetings took place in 2016 and provided a platform for the two sides to exchange views and draw conclusions on common issues in their shared neighborhood and address the crises in various countries in the region - Iraq, Syria, Lebanon, Yemen, etc. There is obvious complementarity of trade and flows of investments between the EU and the GCC. Between 2009 and 2015, overall trade has been increasingly growing, reaching €128 billion. In 2019 that estimate is €121 billion, making the EU second trading partner of the GCC after China. However, the EU is top importer in the GCC - €89 billion, followed by China with €76 billion. For the EU, the GCC is ranked 7th after the U.S., China, the U.K., Switzerland, Russia and Turkey. From a sector-based perspective, trade in energy products between EU and GCC countries follows traditional complementarity criteria between consumption and production patterns.173 Even though the EU has a positive trade balance, its dependence on energy imports is quite heavy. Fuels represent over 70% of the imports, while machinery and transport equipment constitute 44% of the exports. Cooperation has been broadened to include additional activities linked to the energy sector and decarbonization, such as the development of new technologies,

172 Kinninmont, J., The Gulf Divided: The Impact of the Qatar Crisis, Chatham House, May 2019, available at: https://www.chathamhouse.org/publication/gulf-divided-impact-qatar- crisis#, last accessed on: 18/04/2020 173 Tenti, D.M., Europe and the Gulf: New dialogue opportunities between the E.U. and GCC countries, against the background of shared concerns and goals, ENI Global Energy Scenarios, April 2019, available at: https://www.eni.com/en-IT/global-energy-scenarios/trade- routes-europe-gcc.html, last accessed on 01/04/2020

88 regional integration of energy markets, renewables, energy efficiency, CO2 capture and storage (CCS) and sustainable use of natural gas.

3. Instruments for cooperation on climate and energy issues

The common framework for cooperation in the energy sphere is set in the EU-GCC Cooperation Agreement. It underlines the importance of joint analyses on trade in oil and gas between the two parties, as well as information exchange on energy policies. When it comes to renewable energy, the commitments are rather general, mentioning the necessity for a common work on ‘studies, notably on new and renewable sources of energy’.174 In the 1990s, the intensity of the overall political and economic dialogue was relatively weak. The EU was focused on the post-communist states in Central and Eastern Europe and their eventual integration within its structures, while the GCC had to deal with the consequences of the First Gulf War. After the Eastern enlargement in 2004, the Union started its Neighborhood policy, in which the GCC countries were not included. After the negotiations for FTA were suspended in 2008, two years later, as an attempt to revitalize their bilateral dialogue, the two sides adopted a Joint Action Programme for the implementation of the Cooperation Agreement of 1988. It covered a three-year period (2010-2013) and was negotiated during senior officials’ meeting in Riyadh. Within the Joint Action Programme, particular attention is paid to the issue of energy diversification through the development of alternative energy innovations (such as renewable energy technologies and the development of energy efficiency ones for conventional energy) as well as the issue of development of energy infrastructure.175 Other areas of mutual strategic cooperation include technical cooperation in all stages of electricity and water production, including technology transfer, as well as nuclear safety and security. Within the framework of the Programme, a number of joint actions were undertaken. A highlight of these efforts is the establishment of the ΕU-GCC Clean Energy Network (CEN). It aims to act as a catalyst for the development of cooperation on clean energy, including the related policy and technology aspects among various stakeholders in the EU and GCC countries - energy- related research entities, universities, administrations, utilities, industry, policy makers and relevant stakeholders from the energy and climate change sectors, as appropriate. The network is structured around five working areas and each contributes to the formation of a strong partnership in the sphere of clean energy:

174 Official Journal of the European Communities. Ibid. 175 Al-Shalabi, A., Cottret, N., Menichetti, E., Bridging the Gulf: EU: GCC Relations at Crossroads, edited by Silvia Colombo, IAI Research Papers, Edizioni Nuova Cultura, Rome, 2014, p. 158

89 1. Renewable Energy Sources; 2. Energy Efficiency & Demand Side Management; 3. Clean Natural Gas & related Clean Technologies; 4. Electricity Interconnections & Market Integration; 5. Carbon Capture & Storage.176 After the Joint Action Programme ended in 2013, a decision was taken to extend its duration for the period 2013-2016. However, the negotiations have taken too long and the Programme was not renewed. Instead, in the end of 2015, the two sides agreed to extend only the CEN, by initiating its second phase Clean Energy Network II (CENII), covering the period 2016-2018. In 2017, at request of the GCC, the network was renamed EU-GCC Clean Energy Technology Network. The fact that only this partnership was restored shows that the ‘green’ energy policies have taken a central place in the overall energy relations between the two sides. The timing for the restart of the Programme is also quite telling - the Paris Agreement, to which the GCC countries are also parties, was signed at the same time of the year. Another important element of the CENII is that climate change has been addressed as a horizontal issue cutting across all five working areas. The overall objective of the CENII is to enhance EU-GCC energy relations by developing new appropriate structures and instruments and by maintaining existing ones for practical cooperation activities of mutual interest in the area of clean energy. In this way, CENII is the main tool for implementing the EU energy and climate diplomacy towards the GCC countries. Representatives of CENII were present at different international events - such as the Dubai Solar Show, which is the biggest solar exhibition in the region; the annual Dii Desert Energy Leadership, together with the Arab-German Energy Forum, held in Berlin, and many other conferences, workshops and exhibitions. Therefore, the CENII liaises between different stakeholders from the EU and the GCC, facilitating their mutual dialogue. Since 2016, more than 60 successful initiatives in the areas of clean energy technology and policies have been completed by the network. After CENII expired in 2018, a proposal for an additional phase of the project for а period of 30 months, starting in mid-2019, was submitted to the EU Commission. The document states that “through the promotion of clean energy technology and policies, the action will contribute to the external dimension of the EU Energy Union, help strengthen the EU’s position as a global leader in the ‘clean energy transition’ and promote the use of sustainable energy in the GCC.”177 The project is to be funded by the Partnership Instrument for cooperation with third countries, established in 2014, and is part of the second Multiannual Indicative Programme

176 EU-GCC Clean Energy Technology Network, available at: http://eugcc-cleanergy.net/ aboutnetwork, last accessed on 11/04/2020 177 European Commission, Action Document for EU-GCC Clean Energy Technology Network III, Brussels, May 2019, available at: https://ec.europa.eu/fpi/sites/fpi/files/annexe_2_ eu-gcc_clean_energy_technology_part1_v2.pdf, last accessed on: 11/04/2020

90 for the Partnership Instrument for the period 2018-2020. It should also be noted that having in mind the political situation within the GCC and the ongoing rift between its members, the network has progressively included more initiatives at bilateral level with individual GCC countries, besides continuing to support regional cooperation and offering a mediating role. Apart from CEN, another project, which contributes to the EU energy and climate diplomacy in the GCC region, is the EU-GCC Dialogue on Economic Diversification. The implementation period is three years - 2018-2021. It should be highlighted that the EU has attracted two consulting firms - German and French - as main partners in implementing this undertaking. It is a strong example of the unity and leadership by Berlin and Paris in conveying the dialogue with the GCC and their ability to act as interlocutors between the GCC and the EU. The purpose of this project is to promote climate-friendly trade, investment and economic affairs related policy analysis, dialogue and cooperation between stakeholders from the EU and the GCC at both regional and country levels in the context of the GCC economic diversification process.178

VI. Conclusion – the impacts of the coronavirus pandemic oil price war on the GCC countries’ economic diversification.

The ongoing initiatives between EU and the GCC show that the two sides have developed a dialogue on climate and energy going beyond the traditional trading relations between energy consumers and suppliers to cover areas such as market integration, renewable energy, energy efficiency, and sustainable use of gas179. It is evident that the two blocs have overlapping agendas in restructuring their economies and societies as well. Albeit delayed at times, the EU continues to extend its diplomatic outreach in promoting its energy and climate policies in the GCC countries. Brussels is striving to position itself as a partner of choice in the ongoing national transformation processes in the Gulf monarchies. Even though the crisis within the GCC has made it imperative that in parallel with EU- GCC work at the regional level, bilateral cooperation projects with individual Gulf countries are also carried out, the EU strongly supports an intra-Gulf negotiated solution. Climate change mitigation and the necessary transition towards low- carbon economy are global issues, which require multilateral response. The two sides have strong institutional, financial and knowledge capacity to work together in coping with the challenge.

178 GFA Consulting Group, EU-GCC dialogue on economic diversification, available at: https://www.gfa-group.de/projects/EU-GCC_dialogue_on_economic_diversification_3898058. html, last accessed on: 11/04/2020 179 European Commission. Ibid.

91 The outbreak of the coronavirus has put downward pressure on energy demand, pushing oil prices down. For more than three years their level has been maintained by the so-called OPEC+ Agreement, with Russia and Saudi Arabia at the forefront. The agreement was signed as a response to the previous collapse in oil prices in 2014. Essentially, it is a joint pledge to cut production between 1.2 and 1.7 million barrels per day (mb/d). It was extended several times between November 2016 and December 2019. However, when the accord had to be renegotiated in March 2020, amid the decline in oil demand, Saudi Arabia and Russia were not able to agree on new production cuts, thus leading to the deal’s de facto collapse. This saw an unprecedented decline in Brent for the last 30 years (the First Gulf War), plunging by 24% to $34 per barrel on March 9. In addition, the two sides vowed to increase crude production, which instigated the oil price war. Even tough Riyadh and Moscow accused each other of starting it, during the extraordinary OPEC+ Ministerial Meeting on 9 April, a joint decision was taken to adjust downward the overall oil production by 9.7 mb/d, starting on 1 May 2020 until 30 June 2020. For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 8 mb/d followed by a 6 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022. However, the damage has already been done. According to Daniel Yergin, a leading energy scholar, the collapse in demand will be bigger than any recorded since oil became a global commodity, forecasting a seven times bigger decline in consumption than the biggest quarterly decline, following the 2008 financial crisis180. On 20 April, for the first time since oil became a commodity, the price for the May futures contract for West Texas Intermediate (WTI) oil dropped below zero, reaching as low as minus $40 per barrel. Even though these contracts expired on 21 April, what these negative prices signaled is not that oil was valueless, but that storage in Cushing, a major trading hub for crude oil and a price settlement point for West Texas Intermediate on the New York Mercantile Exchange), was fully (or nearly fully) contracted181. Meanwhile, sustained low oil prices could damage the competitiveness of renewable energy projects, which may also find financing increasingly difficult to obtain as investors flee emerging markets to safe haven assets. The oil price war, coupled with the global pandemic, might further feed nationalism or at least the perceived need to concentrate resources to sustain the national economy, distracting effort from tackling global problems such as climate change. While the two objectives are not necessarily incompatible, carbon-intensive stimulus packages might deliver more immediate benefits than supporting early-stage

180 Yergin, D., The Oil Collapse, Foreign Affairs Magazine, April 2020, available at: https:// www.foreignaffairs.com/articles/2020-04-02/oil-collapse, last accessed on: 12/04/2020 181 Stein, K. Negative Prices Should Not Lead to Negative Policies, Institute for Energy Research, April 2020, available at: https://www.instituteforenergyresearch.org/fossil-fuels/gas- and-oil/negative-prices-should-not-lead-to-negative-policies/, last accessed on: 29/04/2020

92 clean technologies. Furthermore, prominent GCC and OPEC members, such as Saudi Arabia, Kuwait and the UEA, would be more focused on dealing with the oil price collapse and the subsequent fiscal deficits and social security schemes, than on concentrating their efforts to diversify their economies. Indeed GCC oil exporters have introduced fiscal measures averaging 3.8 per cent of GDP, as well as liquidity supports of about 2 per cent of GDP. The extent to which those policies can be sustained over time will depend on the strength of the buffers that those countries hold, such as the level of diversification of the economy and the availability of Sovereign Wealth Funds. Without the big oil rents, the GCC countries will not be able to find the necessary capital to finance their ambitious plans in the long-term. In this situation the EU should continue to invest in its dialogue on sustainable policies, because the Green Deal and its external dimension is a long-term investment. If Brussels wants to keep its role as an indispensable partner in the fight against climate change and the transition towards zero-carbon economy, in times of struggle it should double its efforts.

Dimitar Ivanov is junior fellow at the Bulgarian Diplomatic Institute, where, inter alia, he coordinates the annual International Seminar on Energy Diplomacy. He has also worked as a liaison officer during the Bulgarian Presidency of the Council of the European Union. He has completed internships at the Bulgarian National Bank and the United Nations Association in Bulgaria. Dimitar holds an MA in European integration and diplomacy of the EU from Sofia University ‘St. Kliment Ohridski’ and is a PhD student in the same educational institution.

93 SOUTH EAST EUROPE CARBON ROADMAP – ENERGY TRANSITION IN THE ELECTRICITY SECTOR Emmanuel Manov

The region of South East Europe (SEE) comprises of 10 countries on the Balkan Peninsula. The region consists of the so-called Western Balkans countries, all of which aspire to but have not yet joined the EU - Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro and Serbia (WB6), and countries which are members of the EU - Bulgaria, Croatia, Greece and Romania. The Western Balkans countries are parties to the Energy Community. The focus of the paper is on assessing what type of long-term scenarios are plausible for the electricity sector development in the region if they follow the transition process of the EU. A recent study by OECD on the competitiveness of South East Europe (OECD, 2018) also underlines the need for regionally integrated electricity markets, as well as the importance of strong policy frameworks both in electricity market reforms and in the environmental field, in order to attract investment to the WB6 countries that is sustainable over the long term. The main questions concerning the long-term development of the region can be formulated as follows: Can deployment of renewable energy sources (RES) enable cost- effective decarbonization, and which types of RES technologies could support the energy transition process of the region? What are the most important system- wide impacts of high renewables deployment – e.g. concerning adequacy of generation, and security of supply? To what extent can the electricity sectors of the SEE region contribute to the decarbonization targets set by the EU and the Paris Agreement?

A SNAPSHOT OF THE ELECTRICITY SECTOR IN SEE The power systems of the SEE countries are characterized by rather old and emission-intensive power plants, with predominantly state-owned energy supply monopolies. Lignite plays a significant role in the power system of the region with its total production being close to the level in Germany, the single- largest producer of lignite in the EU. The electricity network of the region is well connected. A brief summary of the structure of the energy sector in each country in the region is as follows: Kosovo is the most lignite dependent country in the region, generating 97% of its electricity from lignite. Albania is the only country in the region which does not have any coal-fired power plants, and its domestic power mix is almost completely comprised of hydro power. In North Macedonia most of the electricity comes from lignite, with a 65-70% share in the power generation mix. Depending on the precipitation conditions, the hydro share varies between 30-35%. Some 50% of the Greek power mix come from hard-coal and lignite, some 30% from

94 gas. The remaining 20% are from oil, hydro, wind and solar. Solar and wind still play a very small role in the SEE region. Croatia has some 50% hydro in the mix. Nuclear, coal, wind and some solar make up the remaining part. Serbia, similar to North Macedonia, generates more than 60% of its electricity from coal and the remainder mainly from hydro power. Montenegro’s power generation mix comprises mainly hydro power and some 30% coal. Bulgaria and Romania have nuclear power in their mix while hard-coal and lignite represent the largest generation source in Bulgaria and hydro power in Romania. Bosnia and Herzegovina produce power mainly from coal and hydro, the latter with a share of some 20%. The region is facing high level of energy poverty (estimated at 40% of the households in the entire region), high energy intensity (around three to four times higher than the EU average) and heavy air pollution.182 Currently the countries are at a crossroads how to replace ageing coal-based generation. There is a vast potential for developing renewable energy at regional level (especially solar and wind) as well as significant opportunities for enhancing energy efficiency. One of the most important challenges for the SEE region will be replacing more than 30% of its presently installed fossil fuel generation capacity by the end of 2030, and more than 95% by 2050 if its age structure is considered. This requires a strong policy framework to incentivize new investments in a region currently lacking investors, but also presents an opportunity to shape the electricity sector over the long term according to the broader energy transition strategy of the EU and the Energy Community.

A LOOK AT THREE SCENARIOS The replacement of aging power plants across most of SEE in the coming years presents affordability, security of supply, and decarbonization related challenges, but there are several potential long-term capacity development strategies that can meet these requirements. To assess the effects of different policy decisions, three standard scenarios shall be assessed: 1. The “No target scenario”, in which everything is business as usual. 2. The “Delayed” scenario uses the officially confirmed future fossil fuel investment plans, followed by a change in policy direction from 2035 onwards. 3. The “Decarbonization” scenario, which shows the impact of strict EU regulation and large investments in RES technologies. The table below summarizes the main assumptions driving these scenarios:183

182 https://www.electricitymap.org/?page=map&solar=false&remote=true&wind=false 183 https://rekk.hu/analysis-details/238/south-east-europe-electricity-roadmap---seermap

95 No target Delayed Decarbonization

CO2 target No target 94% reduction by 2050 94% reduction by 2050

Fossil plants National plans: National plans: al PPs National plans: only al PPs PPs with Fral Invest- ment Decision

SEERMAP Phase out of Coihnuahon of curent More ambitious RES RES target support after 2025 support pokes ti M3S deployment from 2020 and then hgh uptake to to reach the 2050 reach the 2050 target target

Shared Demand, technology costs, CO2 and fossd fuel prices, gas nfrastnictue, assumptions WACC, network infrastructure

The scenarios differ with respect to CO2 emission reduction targets and the new fossil fuel based generation capacities. Installed RES capacity is an important assumption in the scenarios mentioned. As the other drivers of CO2 reductions (energy efficiency, nuclear power) are kept constant across scenarios, it is the RES expansion that will achieve the targeted emission reduction. However, the RES capacity distribution – amongst countries and amongst technologies – is an important result of the assumption. The distribution is based on each country’s specific geographic and climate fundamentals. For example Romania and parts of Bulgaria have big potential for wind generation, and Greece and North Macedonia can expand their generation in photovoltaics (PV). This will result in different energy mixes for each country and a need for different network developments, respectively. The ‘no target’ scenario projects the implementation of current energy policy without CO2 emission reduction targets in the EU and the Western Balkans. Although a CO2 target is not imposed, producers face CO2 prices. The scenario assumes countries meet their 2020 renewable target, then gradually phase out support for renewables between 2021 and 2025. EU policy sets a long-term indicative emission reduction goal of 93-99% for the electricity sector by 2050. The ‘decarbonization’ scenario, representative of a sustained effort to reach significant reductions in CO2 emissions, assumes an emission reduction target within this range, which is 94% for the EU28 + WB6 region. Targets are not fulfilled nationally, but are set at a regional level, with separate targets for the SEE region and for the rest of the EU. This implies that emission reductions will vary among individual SEE countries depending on where emissions can be reduced most cost-efficiently.

96 The ‘delayed’ scenario involves an initial implementation of current (fossil fuel) investment plans followed by a change in policy direction from 2035 onwards, towards larger RES instalment. Due to distinct generation capacities, the scenarios result in different power production mixes - from the different CO2 emission levels per country, investment needs, wholesale price levels, patterns of trade, and macroeconomic impacts. Investment costs for new generation technologies are taken from EIA (2017). WACC (Weighted Average Cost of Capital) has a significant impact on the cost of investment, with a higher WACC leading to lower net present value and limiting the scope of profitable investment. The country-specific WACC values are assumed to vary between 10% and 15% in 2016 for the countries in the region, decreasing to between 9.6% and 11.2% by 2050. Other studies184 verify the high WACC values in the region: estimated at 7-14% for onshore wind and 7-13% for PV, and IRENA and University of Ljubljana (2017) assumed 8-10% for SEE countries for 2016. Future natural gas prices are estimated to grow between 66% and 93%, from 20 to 30-35 €/MWh in the SEE region. The price of coal is taken from EIA (2017) and is expected to grow by close to 15% from 2016 to 2050. Presumably, carbon price is applied across the entire period for EU Member States and from 2030 onwards for the entire SEE, as it is assumed that all candidate and potential candidate countries will implement the EU Emissions Trading Scheme (ETS), or a corresponding scheme, by 2030. For 2030 the assumed carbon price level is 43 €/tCO2, which rises to 88 €/tCO2 by 2050, in line with the EU Reference Scenario 2016 (European Commission, 2016).185 This EU Reference Scenario reflects the impacts of the full implementation of existing legally binding 2020 targets and EU legislation, but does not result in the ambitious emission reduction targeted by the EU as a whole by 2050. This price is therefore a medium level estimate compared with other estimates of EU ETS carbon prices by 2050. So to enable comparison with these impacts of the carbon price, when constructing an RES, generally taken into consideration is the principle of least cost deployment, whereby rational investors choose the best locations (with lowest cost) first, and the levelized cost of electricity (LCOE) for new capacities increases over time due to limited resource availability.

184 IRENA, Joanneum Research, & University of Ljubljana. (2017). Cost-competitive renewable power generation: Potential across south east Europe. Abu Dhabi: International Renewable Energy Agency (IRENA). 185 https://ec.europa.eu/energy/sites/ener/files/documents/ref2016_report_final-web.pdf

97 Long-term cost and potentials of renewable technologies (€/MWh) in the SEE region:186

200 180 160 140 120 100 80 60 PV 40 Wind

Specific cost in € per MWh 20 Hydro 0 0 20 40 60 80 100 120 140 160

Potential in TWh

Projected electricity demand is based – to the extent possible – on data from official national strategies. Where official projections do not exist, electricity demand growth rates are based on the EU Reference scenario (European Commission, 2016) for 2013 or 2016 (for non-MS and MS respectively).187 The EU Reference scenario assumes low levels of electrification of transport and space heating and low levels of energy efficiency compared with a decarbonization scenario. The average annual electricity growth rate for the SEE region as a whole is 0.75% between 2015 and 2050 but annual demand growth varies significantly between countries (e.g. 0.2% in Greece compared to 1.7% in Bosnia and Herzegovina). While the growth rate across all SEE EU countries is below 0.7%, the WB6 countries foresee above 1% rates, with the exception of North Macedonia, where this rate is 0.8%. It is necessary to mention that the gas infrastructure follows the ENTSO-G development, and TAP (Trans Adriatic Pipeline) and TANAP (Trans-Anatolian gas pipeline) are constructed between 2016 and 2021, and the Revithoussa and Krk LNG (liquefied natural gas) terminals are also built. This results in higher access to natural gas in the region: currently two WB6 countries completely lack access to natural gas connections.

186https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/epng/pdfs/ transformation_of_europes_power_system.ashx 187 https://ec.europa.eu/energy/sites/ener/files/documents/ref2016_report_final-web.pdf

98 Installed capacities in the assessed scenarios, aggregated SEE region :188

In all three scenarios the capacity mix shifts away from fossil fuels towards renewable capacities, driven by increasing carbon prices and decreasing renewable technology costs. Coal and lignite capacity falls from 24 GW in 2016 to 6 GW by 2050 in the ‘no target’ and ‘delayed’ scenarios, and to 1.2 GW in the ‘decarbonization’ scenario. By 2050, most of the remaining coal capacities are located in Bosnia and Herzegovina, Kosovo and Serbia, in both the ‘no target’ and ‘delayed’ scenarios, with 2,000, 1,100 and 1,400 MW capacity, respectively. Of this capacity, 600 MW in Kosovo is equipped with carbon capture and storage (CCS). In the ‘decarbonization’ scenario the entire remaining coal capacity in the SEE region is based in three countries: Bosnia and Herzegovina, Bulgaria and Greece. Nuclear capacity investment decisions are based on the confirmed projects which are part of the national strategy of Romania for expansion of the existing “Cherna voda” NPP with additional 1,400 MW capacity by 2028.

188https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/epng/pdfs/ transformation_of_europes_power_system.ashx

99 Renewable capacity becomes dominant in all three scenarios. The uptake of wind capacity from 2016 to 2050 is significant across scenarios, tripling from 6 to 20 GW in the ‘no target’ scenario. In the two scenarios with a decarbonization target for 2050, the growth is even more substantial, with wind capacity reaching above 40 and around 36 GW in the 2050 ‘delayed’ and ‘decarbonization’ scenarios, respectively. Solar capacity expansion is comparable to wind capacity in the region by the end of the period in all scenarios. Although photovoltaic is more expensive than wind generation, investments in small scale photovoltaic installations are incentivized by participation in retail electricity markets, whereas wind and large scale PV farms compete against the wholesale electricity price. This will help the small PV installations to create a prosumer group in the region, which will lower electricity demand and will help with the decarbonization process as a whole. The growth in hydro capacity is the lowest of the three main RES technologies. According to expert studies, more dynamic hydro capacity development is constrained by sustainability concerns and competing water uses. Similar trends unfold on the generation side, with photovoltaic and wind generation replacing outgoing coal and lignite based generation. This occurs slowly over the first 15 years and more rapidly after 2030. In the ‘no target’ scenario, when new RES generators do not receive support from 2020 onwards, PV and wind development is initially slow, still only slightly above 2020 levels, by 2040. However, in the last decade - even without subsidies - PV and wind generation expands rapidly in the ‘no target’ scenario, driven by the increasing wholesale prices and falling technology costs. Depending on the scenario, the role within the regional electricity system of natural gas as a ‘bridging’ fuel varies. In the ‘no target’ scenario, electricity generation from natural gas initially increases by a factor of more than four, while in the ‘decarbonization’ scenario the bridging role of natural gas is more short-lived, and at its peak increases only by a factor of two. This increase in generation can be accommodated without a need to increase generation capacity. From 2030 to 2040 the share of natural gas generation broadly declines in all scenarios, only keeping a sizable share in the ‘no target’ scenario. It is a topic for further research to assess whether all currently planned gas infrastructure developments are needed to satisfy the suggested gas demand, or whether investment in gas infrastructure will create a new set of stranded assets in the region over the long term.

ON THE ELECTRICITY DIFFERENCES AT NATIONAL LEVEL

Although most SEE countries follow the broad regional trend shown below, major differences can be observed at country level. While most countries will be self-sufficient by 2050, imports in Bulgaria and Serbia will increase significantly by 2050. For Bulgaria this will be due to the fact that all coal and gas-fired

100 generation will be closed and the potential for hydro is limited. By that time Serbia will have implemented some kind of ETS scheme and for this the coal and gas generation will be closed. Albania and Montenegro, in contrast, become net exporters due to their favorable RES potential within the region. In these net exporting countries the electricity sector will exclusively rely on RES generation, where hydro power based generation will dominate. Hydro power remains significant in Bosnia and Herzegovina, North Macedonia and Serbia, while variable PV and wind generation grow more in Greece, Bulgaria and Romania. Interestingly, while nuclear generation helps Romania reach self- sufficiency, Bulgaria will still rely on significant imports in spite of the sizeable nuclear generation share.

Electricity generation in the scenarios for the SEE region:189

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101 Electricity generation in the scenarios by country level, 2050:

The scenarios assume physical and commercial integration of the national electricity markets of the SEE countries, which generally improves the security of supply. However, for energy systems with a high share of variable renewables, security of supply concerns may arise. This is due to the fact that high RES production can peak in certain moments and the system may overload, which will cause the national TSO (Transmission System Operator) to remove from the system the additional energy – either from conventional sources where possible, or if there is no buffers, from the RES capacities themselves. In order to assess the validity of these concerns, three security of supply indices were calculated for all countries and scenarios: the generation capacity margin, the system adequacy margin, and the cost of increasing the generation adequacy margin to zero. The generation adequacy margin is defined as the difference between available capacity and hourly load as a percentage of hourly load. System adequacy is defined in a similar way, but net transfer capacity is added to available domestic capacity.

102 Generation and system adequacy indices in the ‘decarbonization’ scenario, 2030, 2050:

Although the above illustrates generation and system adequacy indicator values for the ‘decarbonization’ scenario, the trends in other scenarios are similar. Albania, Kosovo and Serbia face the biggest challenges, as their generation adequacy indicators are negative for some years. In contrast, the system adequacy margin is positive for all countries. This underlines the importance of deepening cross-border cooperation within the region and implementing the rules of functioning market institutions.

IMPACTS ON CARBON DIOXIDE EMISSIONS The 94% decarbonization target for the EU28 + WB6 region translates into a higher than average level of decarbonization in the SEE region for the electricity sector; by 2050, regional CO2 emissions are 95.9% and 98.7% lower than 1990 levels in the ‘delayed’ and ‘decarbonization’ scenarios. This is due to a relative advantage for renewable electricity generation in the region compared with the European electricity sector in general, despite higher WACC levels than in the

103 EU. The comparative advantage for the region relative to the EU lies mostly in hydro potential and solar irradiation. The graph below shows that even in the ‘no target’ scenario, substantial carbon reduction – close to 91% by 2050 – is achieved driven by the carbon value, which results in a changing generation mix.

CO2 emissions in the scenarios in the SEE region and in the EU and WB6, 2020–2050 (mt):

This result shows the importance of carbon pricing in the electricity sector. An efficiently operating carbon market can drive significant decarbonization trends, with declining emissions in countries where high RES potential offers higher emission reduction potential. An important consideration is whether the region can achieve this operative carbon market in an integrated way – through a regional scheme or by joining the EU ETS – or in a fragmented manner. This latter approach would have the disadvantage that some countries would pursue strategies to increase fossil fuel based generation, resulting in inefficient long- term outcomes (i.e. carbon lock-in). The significant emission reduction in the ‘no target’ scenario is a result of lower fossil fuel power plant utilization rates and the availability and viability of low carbon generation capacities. Bosnia and Herzegovina, Bulgaria, Greece and Montenegro all have coal capacities that will become uneconomical and exit the market before the end of their commercial lifetime, resulting in a higher level of stranded costs.

104 The emissions profile of countries in the region varies significantly, but inthe ‘delayed’ and ‘decarbonization’ scenarios, emission reduction reaches high levels in all countries. The Republic of North Macedonia, Montenegro and Serbia each achieve a zero-emission electricity sector by 2050 under the ‘decarbonization’ scenario due to the significant RES instalment after 2035.

SOME CONCLUSIONS The described changes in the SEE electricity network lead to significant changes on the electricity markets. Wholesale prices increase significantly, almost doubling by 2040 from present levels. This increase is driven by the continuously increasing carbon price level, and by increasing fossil fuel prices, mainly natural gas. After 2040, the wholesale electricity price starts to fall in the ‘delayed’ and ‘decarbonization’ scenarios due to merit-order effects of RES: low variable cost renewable generation crowds out high variable cost fossil fuel based generation (gas and coal), reducing wholesale electricity prices. The SEE region belongs to a price zone with differences amongst countries, indicating the insufficiency of the transmission capacity in the region and the different generation mix in each country. Investment levels increase significantly in all scenarios. This is partly due to the very low investment levels in the sector presently – which has been characteristic of the region during the last decades – but mainly due to the transformation of the electricity sector from carbon-intensive coal and lignite towards renewables in the ‘delayed’ and ‘decarbonization’ scenarios. In the ‘delayed’ and ‘no target’ scenarios, coal and lignite plants built in the 2018-2030 period (18-20 GW according to the current official energy policies in the region) become stranded, resulting in billions worth of stranded costs. Stranded costs are significantly lower in the ‘decarbonization’ scenario where most planned new coal assets do not materialize (limited to 4.5 GW). With the exception of the first decade, generation investments are dominated by renewable technologies, even in the ‘no target’ scenario. The average RES support required to reach high penetration levels of RES in the ‘decarbonization’ scenario remains low, peaking in 2030 but even then remaining low and decreasing thereafter as a result of increasing wholesale prices and the falling cost of RES technologies. The introduction of a well-functioning competitive market is a key driver for the SEE electricity sector. It will enable more intra-regional trading opportunities between countries, leading to price equalization and higher RES deployment. Additionally, a uniform carbon pricing scheme would have a significant impact on SEE electricity markets. If the carbon price increases significantly compared with current levels, it can help RES penetration in two ways: by reducing

105 the profitability of fossil fuel based generation and at the same time reducing the level of RES support needed (due to the impact of the carbon price on increasing the wholesale price). By 2050, RES can reach above 85% of electricity consumption in the region, but the contribution varies between individual countries. Those with high RES potential, like Albania and Montenegro, become RES exporters, while others, like Bulgaria and Serbia, exhibit less growth in RES output and increasing import dependence. If introduced in a timely manner, a carbon pricing scheme would send the appropriate signal to investors and reduce the risk of locking-in carbon intensive technologies. If currently planned coal and lignite investments are realized, they will lead to stranded costs after 2035 exceeding the cost of RES support needed during the same period to decarbonize the electricity sector. The utilization of fossil fuel plants will fall below required economic levels after 2040, with most newly built coal and lignite plants entering early retirement. There is a strong interaction between decarbonization policy and the role of gas in the power sector in the long run. If consistent decarbonization policy prevails, with a significant and persistent CO2 price signal, the role of gas remains transitory in the region. Although a large increase is projected in electricity generation from natural gas in the SEE region, after 2030-2040 gas generation declines in all scenarios. In the ‘delayed’ and ‘decarbonization’ scenarios, gas is mostly replaced by RES by 2050, with gas generation dropping to a quarter of its 2016 level by 2050. The high penetration of renewables in all scenarios suggests that energy policy, both at the national and regional level, should focus on lowering the cost of RES integration, as RES will be a key component of the future energy mix. This means that the foundation of market institutions (power exchange, competitive allocation of available transfer capacities with the neighbors) needs to be established as the first step in the energy transition process. EU policies should be incorporated (including via the Energy Community) into national energy planning to ensure that SEE countries embark on the energy transition process at an early stage. Stranded costs should be carefully considered in fossil fuel generation and gas network investment decisions in order to avoid lock-in to carbon intensive technologies. As household electricity expenditure may increase significantly in some SEE countries in the future, regardless of the decarbonization target set, this may require new policy approaches in the affected countries. Regional cooperation helps to handle security of supply issues and reduces the cost of decarbonization by enabling the utilization of the most economic RES resource potential in the region. EU and international financial institutions have a key role in this transition process by helping to meet growing investment needs. The results suggest that establishing an ETS scheme would be a major policy instrument in achieving 2050 carbon targets. The role of the EU and the Energy Community is key in order to steer the WB6 countries in this direction, as presently an ETS is not on their policy agendas.

106 BIBLIOGRAPHY

Dominković, D. F., Bačeković, I., Ćosić, B., Krajačić, G., Pukšec, T., Duić, N., & Markovska, N. (2016). Zero carbon energy system of south east Europe in 2050 EIA. (2017, January). Annual Energy Outlook 2017 with Projections to 2050. US energy Information Administration. Retrieved from EIA homepage: https://www.eia. gov/outlooks/aeo/pdf/0383(2017).pdf ENTSO-E. (2015b, November). Europe’s future secure and sustainable electricity infrastructure. E-Highway2050 project results. http://www.e-highway2050. eu/fileadmin/documents/e_highway2050_booklet.pdf ENTSO-E. (2016). Ten-year network development plan 2016. Retrieved from ENTSO-E homepage: http://tyndp.entsoe.eu/ ENTSO-G. (2017). Ten-year network development plan 2017. Retrieved from ENTSO-G homepage: https://www.entsog.eu/public/uploads/files/publications/ TYNDP/2017/entsog_tyndp_2017_main_170428_web_xs.pdf IRENA, Joanneum Research, & University of Ljubljana. (2017). Cost-competitive renewable power generation: Potential across south east Europe. Abu Dhabi: International Renewable Energy Agency (IRENA). Tigas, K., Giannakidis, G., Mantzaris, J., Lalas, D., Sakellaridis, N., Nakos, C., Alexandridis, A. T. (2015). Wide scale penetration of renewable electricity in the Greek energy system in view of the European decarbonization targets for 2050. Renewable and Sustainable Energy Reviews Ćosić, B., Maršić, T., Krajačić, G., Markovska, N., Batas Bjelic, I., Gota, D.-I., & Duić, N. (2013). The effect of regionally integrated energy systems on CO2 emissions reduction and wind integration: The case of South East Europe. 6th International Conference on Sustainable Energy and Environmental Protection Ćosić, B., Krajačić, G., & Duić, N. (2012). A 100% renewable energy system in the year 2050: The case of Macedonia. McKinsey. (2010, September). Transformation of Europe’s power system until 2050. Summary of findings. Düsseldorf. Retrieved from McKinsey homepage: http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/epng/pdfs/ transformation_of_europes_power_system.ashx

Emmanuel Manov is head of international and long-term trading department in one of the major electricity and energy commodities trading companies in Bulgaria. He holds a bachelor degree in International relations and masters degree in Sustainable development and management of the energy sector from New Bulgarian University. Apart from his position as an active market participant with direct observations, his interests lay in the development of the energy commodities markets based on the geopolitical and regulatory challenges before them and their impact in Europe, Bulgaria and the region.

107 NATURAL GAS IN THE WESTERN BALKANS IN THE FRAMEWORK OF THE FUTURE ENERGY COMMUNITY GOALS FOR 2030 Assoc. Prof. Atanas Georgiev, PhD Introduction In the end of 2019, the newly elected President of the European Commission, Ursula von der Leyen, presented her Commission’s view for a European Green Deal, with a target to lead the European Union to carbon neutrality. Her position is that “The European Green Deal is our new growth strategy – it is a strategy for growth that gives more back than it takes away.”190 The final goal of the European Green Deal is to make the EU climate neutral by 2050. The Commission is expected to propose in 2020 a European Climate Law turning the political commitment into a legal obligation and a trigger for investment. As noted by the Commission, reaching this target will require action by all sectors of our economy. Following the Poznan Summit in July 2019, the EU is committed to setting up a Green Agenda for the Western Balkans, mirroring the Green Deal.191 The aim of this analysis is to explore what would be the role of natural gas until 2030 and beyond in Albania, Bosnia and Herzegovina, Kosovo*, Montenegro, North Macedonia and Serbia, given the differences in the starting points of the EU and the Western Balkans – in terms of legislation, markets, energy balances – more specifically the role of coal – and last, but not least, general economic situation.

1. The European Green Deal and the Energy Community Framework At the end of October 2014, Jean-Claude Juncker, then President-elect of the European Commission (2014-2019), presented a new energy policy idea for Europe – the Energy Union. Stepping on the Third Liberalization Package and the Climate and Energy Package from 2009, he has been the first European Commission President to put energy at the heart of the EU’s transformation during his upcoming mandate. The Energy Union Strategy followed in the beginning of 2015, and a long legislative procedure managed to reach an accord for new European Clean Energy Package in the beginning of 2019.192

190 European Commission (2019) Press remarks by President von der Leyen on the occasion of the adoption of the European Green Deal Communication, https://ec.europa.eu/ commission/presscorner/detail/en/speech_19_6749 (checked on 20.12.2019) * This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo Declaration of Independence. 191 European Commission (2019) Western Balkans Summit in Poznań: strengthening links within the region and with the EU, https://ec.europa.eu/commission/presscorner/detail/ en/IP_19_3669 (checked on 20.12.2019) 192 European Commission (2019) Clean energy for all Europeans package, https:// ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/clean-energy-all- europeans (checked on 20.12.2019)

108 Building upon this achievement, but most of all – as a result of the new equilibrium in the European Parliament, with the larger number of Green Party representatives, the new European Commission President Ursula von der Leyen felt obliged to offer a similar goal, but ever more ambitious: a European Green Deal. The new President of the European Commission must be aware that the EU has a small direct role in the global emissions. The official European Green Deal communications acknowledge that climate change and the environmental degradation affect every human being, and this needs a global solution. The EU is committed to “lead by example, through the European Green Deal” as well as to “using diplomacy, trade and development cooperation to advance climate action.”193 Making a “Green Deal” only at home would prove counter-productive for the EU – neither the global carbon emissions would be significantly affected, nor the economic competitiveness of the EU would be protected. Exporting the European Green Deal abroad should be the number one diplomatic goal of the EU if it is serious about affecting global carbon emissions. One of the first testing grounds for such a diplomatic effort would bethe Energy Community countries. The Energy Community Treaty, which brings the European Union and its neighbors together for the creation of an integrated pan-European energy market, was signed in October 2005 in Athens, and its key objective is to extend the EU internal energy market rules and principles to countries in Southeast Europe, the Black Sea region and beyond, on the basis of a legally binding framework. The Treaty includes the EU and several non-member countries, namely Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro and Serbia among the enlargement countries, as well as Georgia, Moldova and Ukraine. Armenia, Norway and Turkey have an observer status. In general, the Energy Community Treaty’s objectives are to: attract investment in power generation and networks; create an integrated energy market allowing for cross-border energy trade and integration with the EU market; enhance the security of supply; improve the environmental situation in relation to energy supply in the region; enhance competition at a regional level; and exploit economies of scale. Janez Kopač, the Director of the Energy Community Secretariat in Vienna, who has been reelected for a new 3-year term in the end of 2019, has commented earlier in March in an op-ed for Euractiv194 that, to date, the Energy Community Contracting Parties “have taken no steps to follow the EU in its decarbonization pathway.”

193 European Commission (2019) A European Green Deal, https://ec.europa.eu/info/ strategy/priorities-2019-2024/european-green-deal_en (checked on 20.12.2019) 194 Kopač, J. (2019) The burden of coal at the doorstep of the Energy Union, Euractiv, https://www.euractiv.com/section/electricity/opinion/the-burden-of-coal-at-the-doorstep-of-the- energy-union/ (checked on 20.11.2019)

109 He reminded that the Energy Community’s acquis related to decarbonization essentially ends with energy efficiency and renewables targets for 2020, while “a common target for the reduction of CO2 emissions, let alone the incorporation of the Emission Trading Scheme Directive, has not even been seriously discussed.” He considers that even if such proposals were tabled now, “the reform capacity of the Contracting Parties is doubtful.” After years with low levels of decarbonization imperative on regional and national levels, “the reform efforts in an already difficult social-economic environment would have to be doubled or more.” Mr. Kopač ends his op-ed with a gloomy prediction: “Most importantly, the EU must stop closing its eyes. The widening energy policy gap will move the Contracting Parties, especially the Western Balkan countries, not closer to the EU but further away.” Even if the Energy Community acquis gradually included legislation on renewables, energy efficiency, pollution control and climate change, thus evolving into a policy vehicle for the acceleration of clean energy transition in the SEE region, there has been little investment in renewable power and the region is still heavily dependent on coal. The challenging task of introducing EU goals to the region has been evaluated many times in the past. Deitz et al. for example consider that “the establishment of the Energy Community for South East Europe is a bold experiment in Europeanisation, inviting comparison with the creation of the European Coal and Steel Community (ECSC), arguably the first successful European experiment in sectoral integration.”195 They find that there are many political disincentives associated with regionalizing the energy sector, specifically when there are strong ties between political entities and State-owned assets. And some of the political advantages of integration, for example attempts by domestic policy-makers to shift responsibility for unpopular outcomes such as price rises, may not always prove successful. A Ministerial Council Meeting in Chisinau, Moldova, on 13 December 2019, concluded that new targets for Contracting Parties are expected to be adopted by mid-2021. During the meeting, the European Commission informed about the launch of the extension of its modelling capacities through a new study to cover all nine Contracting Parties in a similar way as it is done for the EU. The European Commission will propose the 2030 targets for the Energy Community and its Contracting Parties in the first half of 2021 alongside with the adoption of the relevant legislative package. During the same meeting, the Ministerial Council did not reach the unanimity required to establish serious and persistent breaches of the Energy Community Treaty by Bosnia and Herzegovina and by Serbia.196

195 Deitz, L., S. Lindsay, K. Wright (2009) South East Europe’s electricity sector: Attractions, obstacles and challenges of Europeanisation, Utilities Policy 17: 4-12 196 Energy Community Secretariat (2019) Energy Community Ministerial Council focuses on 2030 targets and enforcement, https://energy-community.org/news/Energy-Community- News/2019/12/15.html (checked on 20.12.2019)

110 2. An Energy Community or a Coal Community? As noted by Eurostat, in contrast to the situation in the EU-28, primary energy production increased between 2007 and 2017 in many of the enlargement countries, most notably in Albania (up overall by 59.1%), Kosovo (25.7%) and Montenegro (18.9%). In Serbia the level of primary production in 2017 was almost the same as in 2007, while primary energy production in North Macedonia was 25.2% lower at the end of the period under consideration. As shown on Figure 1, solid fuels have been the main source of primary energy production in most of the enlargement countries.

Figure 1. Total energy supply, 2017, in %

Albania

Bosnia and Herzegovina

Kosovo

Montenegro

North Macedonia

Serbia

Solid fossil fuels Natural gas Oil and petroleum products (excl. biofuel) Renewables and biofuels Electricity

Source: Eurostat (2019) Simplified energy balances [nrg_bal_s]

In 2017, almost 80% of Kosovo’s energy production was from solid fuels, and this was also the main source of primary energy production (accounting for more than half of all primary production) in four of the six other enlargement countries. The main exception was Albania, where petroleum products were the main source of primary energy production, with a share of over 50%. There is a high energy intensity in the enlargement countries. It is at least double that in the EU-28, reaching nearly four times as high in Serbia and Kosovo and slightly exceeding four times as high in Bosnia and Herzegovina. The “positive” side of this statistics is that enlargement countries are generally less dependent on energy imports than the EU-28.197 Figure 1 shows, however, that Bosnia and

197 Eurostat (2019) Enlargement countries – energy statistics, https://ec.europa.eu/ eurostat/statistics-explained/index.php?title=Enlargement_countries_-_energy_statistics (checked on 13.12.2019)

111 Herzegovina was the only net exporter of electricity among the six countries in 2017. The “coal dependency” is re-confirmed by the Director of the Energy Community Secretariat. Coal is not only a thing from the past – new thermal plants investments are planned all over the Western Balkans. According to Mr. Kopač,198 this is due to the absence of a carbon price and “the self-illusion of profitability of coal-fired power generation.” The new investments are “intensively supported by Chinese and US capital, without active opposition of the EU.” Moreover, continuing the current coal and lignite-based energy policy, with its hidden subsidies, is bound to cause serious political, economic and social trouble in the next few years – the removal of subsidies and the real price of carbon could lift up electricity prices for households by some 17% in North Macedonia, 45% in Kosovo, 58% in Bosnia and Herzegovina, 62% in Montenegro and 137% in Serbia. Prices for industrial consumers would be increased by 12% in North Macedonia, 34% in Serbia, 35% in Bosnia and Herzegovina, 48% in Montenegro, while in Kosovo it would be decreased by 14%. Full compliance with European energy regulations may be painful for both the energy sector and the population. According to a report by the Energy Community Secretariat,199 Serbia has announced that it will shut down eight coal-fired power plant units of public power utility Elektroprivreda Srbije, which do not comply with the requirements of the Large Combustion Plants Directive by 2024. As noted in the report, “The implementation of this Directive alone will result in significant positive impacts on human health and the environment but will also require an answer to the most burning question in the region: what comes after coal?”

3. Price differentials and just transition A report by the Energy Community Secretariat concludes that in 2018 the average electricity price for household consumers in the Contracting Parties, excluding Ukraine, amounted to 7.8 euro cents/kWh, which was almost 2.7 times less than the average EU household electricity price for the same year.200 The price trends for households are shown in Figure 2.

198 Kopač, J. (2019) The burden of coal at the doorstep of the Energy Union, Euractiv, https://www.euractiv.com/section/electricity/opinion/the-burden-of-coal-at-the-doorstep-of-the- energy-union/ (checked on 20.11.2019) 199 Energy Community Secretariat (2018) Knocking on the EU’s Door through the Energy Community: Integration of Western Balkans into the Pan-European Energy Market 200 Energy Community Secretariat (2019) Monitoring Report on the Functioning of Gas and Electricity Retail Markets in the Energy Community in 2018

112 Figure 2. Households electricity prices in the Contracting Parties 2013-2018 h W euro cent/k

AL BA GE KS* MK MD ME RS UA EU average

2013 2014 2015 2016 2017 2018

Source: Energy Community Secretariat (2019) Monitoring Report on the Functioning of Gas and Electricity Retail Markets in the Energy Community in 2018

Figure 3 below shows the breakdown of the final electricity price for households in capital cities of the Contracting Parties in November-December 2018, based on a consumption profile of 3,500 kWh per year. As noted by the Energy Community Secretariat, the composition of the final household electricity price varies widely across the Contracting Parties.

Figure 3. Electricity breakdown of the incumbent’s standard offers for households

8% 7% 17% 15% 15% 17% 17% 1% 0% 7% 5% 6% 1% 21% 40% 49% 41% 26% 35% 43%

62% 52% 52% 43% 44% 43%

33%

AL BA MD MK KS* ME RS

Energy Network RES Taxes VAT

Source: Energy Community Secretariat (2019) Monitoring Report on the Functioning of Gas and Electricity Retail Markets in the Energy Community in 2018

113 The share of the energy component in the final bill was the highest in Albania (62%) and the lowest in Serbia (33%). The share of network costs in the total household electricity price ranged between 21% in Albania and 49% in Kosovo. The share of RES charges in the final price gives an indication of the support for renewable electricity production to the extent that it is financed by the electricity tariff. In Albania, Kosovo and Moldova, no RES support mechanism was reported by the natural regulatory authorities for 2018. In other Contracting Parties, RES support amounts to 1% of the final household electricity price in Bosnia and Herzegovina and Serbia, 5% in Montenegro and 7% in North Macedonia. Data from energy poverty analyses show that there is a great discrepancy between the ways households use energy in the EU and in the six countries from the Western Balkans. While EU households’ use of gas is 35% of their total consumption, the share in the Western Balkans households’ consumption is only 3%. At the same time, biomass use in the Western Balkans holds 45% of the domestic consumption of energy, while in the EU its share is only 15%. The share of electricity in households’ energy consumption is 37% in the Western Balkans and only 25% in the EU.201 The same report notes that more than 67% of all households in the region use solid fuels or fuel wood for heating. Other researchers note that appliances and the housing stock in this region are notoriously inefficient and there is a high-rate of electrical heating systems in homes that consume high amounts of energy compared to gas or other heating systems. Households in the region are often burdened with unnecessarily high electricity consumption and energy poverty is widespread.202 Robic et al. consider that while there have been some efforts to design policies for protecting vulnerable energy consumers in the Western Balkans, those policies primarily focus on short-term energy price relief.

4. The role of natural gas As seen in Figure 1 above, gas has a small share of the Contracting Parties’ energy balances. In the combined total energy supply of Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia it had a share of 8.3% in 2017. The largest share (above 13%) was in Serbia. Albania does not have a developed gas market at present and is not connected to international gas networks. Kosovo has no functional gas sector and has not achieved notable progress in the development of a gas market and interconnection with neighbors. There are plans to establish a gas supply

201 RES Foundation (2018) Energy poverty in the Western Balkans – Presentation at “Sustainability Forum of the Energy Community”, Vienna, 22 June 2018 202 Robic, S., I. Rogulj, B. Ancic (2018) Energy poverty in the Western Balkans, in Energy Poverty and Vulnerability, eds. Simcock, N. et al., Routledge, ISBN 978-1-138-29445-5

114 route through an interconnector with the planned gas transmission system of Albania. At present, no gas market exists in Montenegro as well.203 The Energy Community Ministerial Council has decided in 2011 to prepare its first Energy Strategy, in a joint effort of all its stakeholders. The Energy Strategy followed the same principles as that of the European Union’s “Energy 2020”, defining the energy priorities for the next years and setting the actions tobe taken in order to tackle the challenges of achieving a market with competitive prices and secure supplies, saving energy, using less polluting energy sources and reducing the carbon footprint from the energy sector.204 The Energy Strategy planned for new gas-fired power plants in existing gas markets (Bosnia and Herzegovina, North Macedonia and Serbia). The plan also included the construction of a so-called “gas ring” in the Western Balkans. The gas ring was considered in the 2020 goals as one of the means to decarbonize (in addition to energy efficiency and renewables targets achievement). The cost of this scenario, called “low emissions/sustainable scenario”, was evaluated at the time to be 130 billion euro for the period 2012 to 2030. The gas ring, the Strategy said, could not be effectively implemented by a single Contracting Party and requires a regional approach if it is to be realized. As a net importer of natural gas, the region is looking toward broader diversification of supplies, namely through the realization of the Southern Gas Corridor and the vertical gas corridor in Southeast Europe. The big question for the Western Balkans region is whether natural gas would be still considered a bridge fuel to decarbonization, or is gas part of the past. Many EU members are already preparing for the “decarbonization” of natural gas through an increased use of hydrogen and/or biogas. At the same time, countries in Southeast Europe are just boarding the gas wagon, after a long period of waiting for gas market diversification and the construction of the missing infrastructure. Two scenarios for development may be considered here, having in mind the new “European Green Deal” to 2030, the current level of development in the Western Balkans, and the societal specifics of the region: a) An “all gas” scenario; b) A “no gas” scenario. The presented “scenarios” are just a hint of what the decisions within the national borders of every Western Balkan country may look like. The main decisive factors will be:

203 Energy Community Secretariat (2019) Transparency of gas transmission system operators in the Energy Community Contracting Parties – Status Review 204 Energy Community Secretariat (2012) Energy Strategy of the Energy Community

115 – The availability of the respective technologies; – The investment environment in the respective country; – The ability of households to pay for the envisioned transition; – Geopolitical factors; – The ability of the EU to conclude a new energy “deal” with the Western Balkans.

Table 1. “All gas” or “No gas” scenarios for the Western Balkans

All gas No gas

Fast construction of missing gas Directing investments toward other energy transmission infrastructure sub-sectors (e.g. RES, coal)

Construction of gas distribution grid for Investing in the electricity grid in order connecting a large number of households to be able to secure heating through electricity

Replacing coal generation of electricity with Keeping coal generation at current or gas-fired power plants higher levels until RES kick in

Moderate development of RES in addition Strong development of RES as a replace- to current hydro capacities and future gas ment fuel for current coal generation capacities

Another factor for the decisions regarding gas would be its price. Even if this is a topic for another study, gas prices in the region may become more lucrative with the development of transmission infrastructure and the new supply routes – pipelines of the Southern Gas Corridor and LNG infrastructure development globally.

Conclusion The challenges for the Western Balkan countries during the forging of the new European Green Deal would not be very different from the ones that poorer member states in the European Union (like Bulgaria) or coal-dependent ones (like Poland) already have. Getting on the bandwagon of liberalization and decarbonization is one thing, but being a global leader in carbon dioxide reduction is quite another. The countries in the Western Balkans had a “deal” with the EU until 2020 under the Energy Community Treaty framework and have started the negotiation for the period until 2030. Many challenges lie ahead, among them

116 energy poverty, the lack of enough natural gas in the region, and the lagging of energy efficiency and renewable energy policies. One of the decisive factors, which will define the negotiation process, would be the role of natural gas. Its role in the EU, even if large enough now, may decline in the period until 2030. The Western Balkans, however, have not even started their “gas age”.

Atanas Georgiev, PhD, is Dean of the Faculty of Economics and Business Administration at Sofia University ‘St Kliment Ohridski’ and an associate professor there. He is a director of and a lecturer in the MA program ‘Energy Markets and Services’. He is also chief editor and publisher of the Utilities monthly business magazine and the website publics.bg, responsible for the editorial content of the electricity and natural gas sections. Assoc. Prof. Georgiev has taken part in various energy-related programs and workshops in the United States, the Russian Federation, Azerbaijan, Italy, etc. He is a member of the Management Board of the National Committee of Bulgaria for the World Energy Council (NCBWEC), member of the MB at the Electric Vehicles Industrial Cluster, as well as member of the International Association for Energy Economics. Assoc. Prof. Georgiev is also guest lecturer in the Energy Diplomacy seminars organized by the Bulgarian Diplomatic Institute.

117 COMBINING ENERGY SECURITY WITH ENERGY EFFICIENCY – THE AUSTRIAN APPROACH WITHIN THE EU ENERGY POLICY FRAME Sandra Galoci

Introduction: The importance of energy security has been steadily gaining in prominence over the last decades as countries begin to realise that energy dependence renders them vulnerable. In the context of energy security, energy from renewable resources constitutes an area of great potential. Austria is one of the countries currently seeking to become less dependent on energy imports, through vast investments in the renewable energy sector. This article will take a closer look at the status quo in Austria in terms of energy efficiency, energy consumption and where there is potential for improvement – as is the case with the transport sector. An overview of the main things that Austria has been doing ‘right’ and the challenges it still faces in the near and longer-term future in order to continue on the journey to clean energy and greater energy security will also be discussed. Another focus of the analysis will be on the aspects which South East Europe can learn from Austria and what Austria can learn from the SEE countries.

1. A brief look at energy security and efficiency in Austria Energy security is a topic which has been gaining in prominence over the past decades, especially in light of certain disruptions, such as the Russo-Ukrainian gas disputes in 2006 and 2009. This aspect of energy relations is a crucial part of maintaining stability in a region, whether this is done to secure a stable energy flow for households, public institutions or private companies, thus preventing potential economic damage resulting from similar energy disruptions. Due to the increasing importance of energy security and its interrelation with current political developments, European states have begun to pose a greater emphasis on the importance of diversifying their energy imports. Austria is a prime example of a European country focused on achieving clean energy, energy security and efficiency. For decades, the country has been emphasising the importance of maintaining a stable energy supply, increasing energy efficiency and renewable energy sources. The Austrian Energy Efficiency Act (Energieeffizienzgesetz – EeffG), which is the national legislation in place to comply with the Energy Efficiency Directive, was adopted in 2014 and has the objective of improving energy efficiency by 20% until the year 2020, while also increasing the security of supply.205

205 Austrian Energy Agency. “Monitoringstelle Energieeffizienz“. https://www. monitoringstelle.at/index.php?id=589 accessed on 15 Jan. 2020.

118 In addition to aiming its attention at sustainably optimising its energy supply and consumption, Austria has been a strong opponent of nuclear energy and has never had a nuclear plant in operation on its territory. On 15 December 1978 the so-called ‘Law on the Prohibition of the Use of Nuclear Fission for Energy Generation’ was passed in the Austrian government.206 Interestingly enough, a nuclear plant was indeed constructed in Zwentendorf, Lower Austria, and turnkey-ready, however a referendum on 5 November 1978 rejected the nuclear power plant’s operation, which led to the acceptance of the aforementioned law. Also, Austria has committed to decreasing its ‘greenhouse gas emissions by 2030 by 36% compared to 2005’ according to the Austrian Climate and Energy Strategy published by the Federal Ministry of Sustainability and Tourism and the Federal Ministry of Transport, Innovation and Technology.207 Despite the best intentions, Austria remains a net importer of energy with 64% of its energy use accounted for by energy imports.208 The country is therefore susceptible to geopolitical developments and the possibility of energy disruptions. For this reason, decreasing its dependence on energy imports is an additional objective which Austria strives to achieve. Energy security is defined by the Internal Energy Agency as ‘…the uninterrupted availability of energy sources at an affordable price’.209 Austria is a relatively small European country which is managing to balance its energy security in the short and medium term, despite being highly dependent on imports. Energy efficiency is connected with energy security due to the fact that by reducing the amount of energy needed, the demand for energy from other sources is also reduced or potentially eliminated. Thus, by becoming more energy efficient, a country or entity may also increase its energy security. As a country of the European Union, Austria depends on the policy decisions which take place in Brussels on energy-related matters. In comparison to other European countries, Austria is a success story in terms of its efforts to invest in renewable energy – hydroelectric power generated from 700 run-of-river power plants and approximately 3,000 stations covering more than half of Austria’s demand for electricity. Currently, renewable energy accounts for more than a third of the energy produced (33.6%) as stated by the Austrian Energy Agency.210

206 IAEA. „Austrian National Report under the Joint Convention on the Safety of Spent Fuel and on the Safety of Radioactive Waste Management”. May 2003. https://www.iaea.org/ sites/default/files/austria-report-jc-first-review-meeting.pdf accessed on 15 Jan. 2020. 207 Austrian Climate and Energy Strategy. Sep. 2019. Accessed on 15 Jan. 2020. 208 World Bank. https://data.worldbank.org/indicator/eg.imp.cons.zs accessed on 31 Mar. 2020. 209 IEA. „Energy security. Ensuring the uninterrupted availability of energy sources at an affordable price“. 02 Dec. 2019. https://www.iea.org/areas-of-work/ensuring-energy-security accessed on 15 Jan. 2020. 210 Austrian Energy Agency. https://en.energyagency.at/ accessed on 12 Jan. 2020.

119 Despite this considerable amount of produced renewable energy, there are areas with potential which remain untapped – one of them is the transport sector, which will be discussed in chapter 3 together with e-mobility. The European Union’s goals of energy efficiency and a sustainable future made possible with clean energy are common ones that all European countries strive towards. Another European country which is a forerunner in the European Union in terms of the share of renewable energy in gross final energy consumption is Bulgaria. According to the European Commission, the country’s national target of 16% from renewable resources was surpassed by 4%, at 20.528% in 2020 (which was also higher than the share in the European Union, which stood at 17.985%).211 In order to have a better understanding of the legal framework under which both Austria and Bulgaria operate, the next chapter will elaborate on the main legal instruments and mechanisms which pertain to energy efficiency and renewable energies in the European Union.

2. Renewables in the European region – legal background The legal basis for the usage of renewable sources of energy is anchored in Article 194 of the Treaty on the Functioning of the European Union, which states: “EU energy policy is aimed at promoting the development of new and renewable forms of energy to better align and integrate climate change goals into the new market design”.212 The first time that renewable resources became an urgent topic of discussion was when the White Paper on renewable energy sources was published in 1997. Following this, concrete targets were set for the year 2010 – renewable energy was to account for 12% of energy consumption and 22.1% of electricity consumption. Due to the fact that the progress to achieve these targets was slow, a more extensive legal framework was needed to be created and adopted, which led to the Renewable Energy Directive.213 According to the ‘Renewable Energy Directive’ adopted by the European Commission on 23 April 2009, renewable energies must account for at least

211 European Commission. “Europe 2020 targets: statistics and indicators for Bulgaria”. https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/ eu-economic-governance-monitoring-prevention-correction/european-semester/european- semester-your-country/bulgaria/europe-2020-targets-statistics-and-indicators-bulgaria_en accessed on 20 Feb. 2020. 212 European Commission. “Renewable energy directive”. 16.07.2014. https://ec.europa. eu/energy/en/topics/renewable-energy/renewable-energy-directive/overview accessed on 20 Feb. 2020. 213 European Commission. “Renewable energy directive”. 16.07.2014. https://ec.europa. eu/energy/en/topics/renewable-energy/renewable-energy-directive/overview accessed on 20 Feb. 2020.

120 20% in the energy mix for EU states by the year 2020. In Austria renewable energy sources already account for 32.8% of the energy mix.214 One of the key points on the Strategic Agenda 2019-24, set forth by the European Council on 20 June 2019, is ‘building a climate-neutral, green, fair and social Europe’. The objectives and the willingness to support and promote clean energy and renewable energy sources is definitely present, however, there are still challenges which make this endeavour a most difficult one to achieve.215 Globally, the 2030 United Nations Sustainable Development Goals (SDGs) are an important measure adopted by all UN Member States to help create a framework which will lead to a more prosperous future.216 For energy efficiency and climatic considerations, the most relevant SDGs that the UN Member States have committed to, include:

Figure 1: Sustainable Development Goals. Source: United Nations

The Sustainable Development Goals depicted above demonstrate how closely interrelated energy consumption and production, infrastructure, sustainability, and ultimately, climate change, are. Without the appropriate infrastructure it is difficult, if not impossible, to promote affordable and clean energy. Thisleads to the fact that the carbon footprint of cities remains high, making them less sustainable and leading to more detrimental effects to the planet, thus increasing the negative effects of climate change.

214 European Commission. “Renewable energy directive”. 16.07.2014. https://ec.europa. eu/energy/en/topics/renewable-energy/renewable-energy-directive/overview accessed on 20 Feb. 2020. 215 European Council. “A new strategic agenda for the EU”. https://www.consilium.europa. eu/en/eu-strategic-agenda-2019-2024/ accessed on 16 Jan. 2020. 216 United Nations. „Sustainable Development Goals“. https://sustainabledevelopment. un.org/?menu=1300 accessed on 16 Jan. 2020.

121 However, the international community’s efforts to promote sustainability, climate action and overall global prosperity are embodied in these initiatives. The reality that all UN Member States have committed to the 2030 Sustainable Development Agenda is not to be underestimated. The urgency to act sustainably is ever more present. One of the initiatives set forth by the European Commission and inaugurated in 2003 was the Intelligent Energy – Europe programme which sought to increase energy sustainability, by supporting organisations and entities in their efforts to become more energy efficient and shift their focus to renewable energy sources.217

3. Comparative analysis of Austria versus SEE – similarities and differences In order to achieve greater efficiency, lower carbon emissions and potential synergy effects, it is important for countries to look beyond their own borders and to cooperate on an international level. On a pan-European scale, the Energy Community is the organisation which seeks to bring ‘together the European Union and its neighbours to create an integrated pan-European energy market’.218 The Energy Community has the objective of extending the EU internal energy market to SEE, the Black Sea region and further, based on a legally binding framework. According to the research performed by the Energy Community, the 2020 goals under the RES Directive219 were expected to be reached by all Contracting Parties of the Energy Community (the Contracting Parties include Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Georgia, Moldova, Montenegro, Serbia and Ukraine), a fact which shows the positive trend in the greater European region.220 The European Commission recently published the ‘Guide on good practice in energy efficiency for Central and Eastern Europe’,221 which is meant to summarise

217 Intelligent Energy Europe. https://ec.europa.eu/easme/en/section/energy/intelligent- energy-europe accessed on 12 Jan. 2020. 218 Energy Community. https://energy-community.org/aboutus/whoweare.html accessed on 15 Mar. 2020. 219 Directive 2009/28/EC of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. 220 Energy Community. https://energy-community.org/documents/studies.html accessed on 15 Mar. 2020. 221 European Commission. “A guide on good practice to boost energy efficiency in Central and South Eastern Europe”. https://ec.europa.eu/easme/en/news/new-guide-good-practice- energy-efficiency-central-and-south-eastern-europe accessed on 17 Feb. 2020.

122 the good practices which could be applied in these regions in order to become more energy efficient. Some of the practices which were emphasised in the guide included increasing the energy performance of buildings, as well as the efficiency of district heating and cooling networks. Naturally, when it comes to older constructions, similar best practice suggestions are highly welcome, but difficult to implement because they would entail significant rebuilding and investment. Behind the guide on good practice is the ‘Central and South-Eastern European Energy Connectivity’ initiative, which has existed since 2015 and has the objective of accelerating the integration of Central and South-Eastern states’ gas and electricity markets, whilst also diversifying gas and electricity supplies. In light of the fact that several Central and Eastern European countries are almost entirely dependent on Russian gas supplies, this initiative is of crucial importance. The following figure depicts the evolution of the energy mix for Austria since the 1970s.

Energy mix in final energy consumption in TJ

Renewables

District heating

Electricity

Natural gas

Oil

Coal

Figure 2: Energy Mix in the Final Energy Consumption, Austria. Source: E-Control, Statistik Austria

Even though oil and natural gas remain a core part of the Austrian energy mix, the figure shows that the increase in renewables has been considerable, as well as the decrease in coal.

123 Figure 3 shows Austria’s total primary energy supply by source in the years 1990-2018. The figure depicts the average values in the aforementioned time period of the respective energy sources.222

Figure 3: Total Primary Energy Supply, Austria. Source: IEA

As can be seen from above, the total primary energy supply remains dominated by oil and natural gas, even though a general decline is visible in the last decade, with the primary supply of oil decreasing from 13.774 ktoe (kilotonnes of oil equivalent) in 2005 to 11.759 ktoe in 2018. As can be seen from figure 2, wind and solar energy sources are still minimal in comparison to natural gas and oil, but they have been steadily rising – having risen to 863 ktoe in 2019. In 1990 this figure only amounted to 18 ktoe. Hydro represents a considerable portion of the primary energy supply with 3.236 ktoe in 2019 – to provide a comparison of the situation in 2019, biofuels and waste accounted for 6.227 ktoe, natural gas for 7.395 ktoe and oil for 11.759 ktoe.223 The International Energy Agency shows Austria’s total final consumption of energy by source in the years 1990-2018. The figure below depicts the average values in the aforementioned time period of the respective energy sources.

222 International Energy Agency. https://www.iea.org/countries/austria accessed on 11 Jan. 2020. 223 International Energy Agency. https://www.iea.org/countries/austria accessed on 11 Jan. 2020.

124 Figure 4: Total Final Energy Consumption, Austria. Source: IEA

As far as total final consumption in Austria is concerned, oil products are definitely the most prevalent source of energy with 10.864 ktoe which were consumed in 2017. Nonetheless, the consumption of energy from renewable sources has grown significantly in the last decades – from 39 ktoe in 1995 to 186 ktoe in 2017.224 The fact that oil products are so prevalent may be attributed to the high demand of the transport sector, which shows that a shift to e-mobility would also decrease the high demand and consumption of oil products and necessity for fossil fuels.

Figure 5: Total Primary Energy Supply, Bulgaria. Source: IEA

224 International Energy Agency. https://www.iea.org/countries/austria accessed on 11 Jan. 2020.

125 The situation within the European Union varies widely. In Bulgaria the total primary energy supply is dominated by the coal industry, which continues to be the highest source in the total primary energy supply. The primary supply consists mainly of oil and nuclear energy, followed by natural gas. The portion of the primary energy supply which is covered by renewable energy sources remains low in comparison. Nonetheless, there has been a significant increase in the supply of wind and solar from the 33 ktoe supplied in 2005 to the 308 ktoe in 2017. This almost tenfold increase shows that the willingness to invest in renewable resources is definitely present and increasing on an annual basis.225

Figure 6: Total Final Consumption By Source, Bulgaria. Source: IEA

In terms of the total final consumption by source in Bulgaria, oil products are the most prevalent – even though there has been a decrease of their consumption in the last ten years – from 4.243 ktoe in 2005 to 3.547 ktoe. This decrease may be accounted for by the increase in biofuels and waste, which rose from 747 ktoe in 2005 to 1.264 ktoe in 2017.226 The consumption of renewable sources of energy such as wind and solar remains low at 58 ktoe in 2017, in comparison the consumption in Austria was 186 ktoe in 2017.227

225 International Energy Agency. https://www.iea.org/countries/bulgaria accessed on 11 Jan. 2020. 226 International Energy Agency. https://www.iea.org/countries/bulgaria accessed on 11 Jan. 2020. 227 International Energy Agency. https://www.iea.org/countries/bulgaria accessed on 11 Jan. 2020.

126 One of the areas with potential for improvement in both Austria and SEE is the transport sector. Even on a global level, the transport sector has been one of the biggest contributors of greenhouse gas emissions – according to the World Resources Institute greenhouse gas emissions resulting from transport ‘accounted for more than 24% of global CO2 emissions in 2016’. Additionally, approximately 14% of all annual emissions, which include non CO2 gases, such as methane, were also accounted for by the transport sector.228 According to World Bank Data, CO2 emissions from transport (in percentage points of total fuel combustion) rose from 19.746% in 2010 to 20.449% in 2014, which is disconcerting ipso facto, but even more so in light of the fact that we are in a moment in time when greenhouse gas emissions need to be decreasing.229 While Austria has been progressively seeking to decrease greenhouse gas emissions, the transport sector has remained somewhat behind (despite the fact that trains and bikes are widely popular in Austria). The transport sector will continue to remain an area with great potential as a change in this area would lead to significant overall improvement in the carbon footprint of cities.

4. Economic and strategic considerations related to clean energy in Austria Economic viability is an important factor when dealing with the idea of living in a ‘green’ (or greener) world. As already mentioned, the transport sector is an area which lags behind in the case of Austria. The reason for this is related to the simple fact that electric cars are economically not viable and not particularly user-friendly in terms of networks and accessibility. The economic viability of electric cars is a recurrent topic that has been in the public eye for several decades, beginning in the early 1990s when General Motors developed the first electric vehicle designed for large-scale production.230 Three decades later, electric cars are still not produced on a large-scale. Despite efforts by Tesla to bring the electric vehicle closer to the average customer, the amount of electric cars one sees on European roads is devastatingly low. In the context of energy security and energy efficiency, it is important to mention energy infrastructure. Part of the difficulty of establishing a network for electrical vehicles in the European Union is the lack of adequate infrastructure. In

228 World Resources Institute. Wang, S. and Ge, M. “Everything You Need to Know About the Fastest-Growing Source of Global Emissions: Transport”. 16 Oct. 2019. https://www.wri. org/blog/2019/10/everything-you-need-know-about-fastest-growing-source-global-emissions- transport accessed on 19 Feb. 2020. 229 World Bank. “CO2 emissions from transport (% of total fuel combustion)”. https://data. worldbank.org/indicator/EN.CO2.TRAN.ZS accessed on 19 Feb. 2020. 230 The Economics of Electric Cars. http://large.stanford.edu/courses/2010/ph240/ sahasrabuddhe1/ accessed on 12 Jan. 2020.

127 this context, the construction and acquisition of adequate infrastructure must also be economically viable, otherwise it will simply not be built. In regards to the economic viability of renewable resources, such as wind and solar energy, there is progress as there have been increases in cost efficiency and reductions in costs. However, at the current moment, energy storage still remains an issue. Even though solar batteries can be used to store the energy produced during the day, their efficiency is not what would be needed in order to ensure a stable flow of energy. According to an article by Bill Gates, the type of battery which would be able to supply one household with energy for a week would weigh more than a ton – since an average household in the US uses approximately 210 kilowatt hours per week and the best lithium-ion batteries store less than 0.2 kilowatt hours per kilogram.231 Furthermore, the cost of electricity for the household in question would be tripled – in the United States the average price of electricity is at approximately 10 cents per kilowatt hour. The aforementioned lithium-ion battery would end up costing 30 cents an hour, assuming it costs 150 US dollars per kilowatt hour and has a capacity of 500 charges. According to the abovementioned article, similar increases could be expected in other parts of the world where there are different prices for electricity.232 This example shows that even though energy from renewable sources would idealistically be the best solution, some issues remain unsolved and they will continue to pose a challenge for countries like Austria which seek to reach greater levels of energy security by investing mainly in renewable sources of energy. The investments in renewable energy sources which Austria undertakes are undoubtedly a demonstration of its focus on renewable resources – most importantly wind and solar energy. This focus also represents a positive contribution to the country’s energy security. By using renewable resources for electricity production, Austria is less dependent on fossil fuels, whether oil or natural gas. Electricity in Austria is produced independently on the country’s own territory, under its exclusive control and supervision and the only external factor (although a significant one) is whether there is enough wind or sunshine to create the energy. By placing a focus on renewable resources, Austria reduces its dependency on external factors – such as potential political disputes and the resulting disruptions, changes in the prices of commodities on the global markets, even potential issues with transit countries. This positive impact and increase in energy

231 Gates, Bill. “It is surprisingly hard to store energy”. Gates Notes. 22 Feb. 2016. https:// www.gatesnotes.com/energy/it-is-surprisingly-hard-to-store-energy accessed on 22 Feb. 2020. 232 Gates, Bill. “It is surprisingly hard to store energy”. Gates Notes. 22 Feb. 2016. https:// www.gatesnotes.com/energy/it-is-surprisingly-hard-to-store-energy accessed on 22 Feb. 2020.

128 security may even be more important than the difference between the higher prices of energy produced by wind turbines or solar panels, when compared to fossil fuels.

5. What the future holds The growing regulatory pressure to comply with EU legislation which calls for an increased focus on renewable energy sources has been the backdrop for countries’ efforts to become more energy efficient. Austria has sought to facilitate the transition to clean and smart energy through a number of institutions and mechanisms. One example of such an institution is the Austrian Energy Agency. The core mandate of the Austrian Energy Agency is ‘on achieving a fossil-free future, shifting the energy system towards smart energy, and supporting the resulting transformation of energy-related industries’ as well as ‘promoting energy efficiency and renewable energy sources between poles of competitiveness, climate and environmental protection, and supply security’. These goals are ambitious ones and will be challenging to implement, however, there is great initiative and support on the side of the Austrian government in this regard. One of the strategic documents which corroborates the importance that Austria places on energy efficiency is the Austrian Climate and Energy Strategy published by the Federal Ministry of Sustainability and Tourism and the Federal Ministry of Transport, Innovation and Technology.233 The World Energy Council Austria is a non-governmental organisation which deals with energy related matters. Most recently, the World Energy Council collaborated with the Organization for Security and Co-operation in Europe by co- organising the 2nd Vienna Energy Strategy Dialogue focused on energy security in the context of big data and digitalisation’s impact.234 The aforementioned initiatives are just some of the examples which show Austria’s interest and willingness in addressing energy-related matters and in moving forward in the discussion. In the current international political environment, climate change and the utter necessity to focus on sustainability and clean energy is an often discussed topic – most recently, at the World Economic Forum in Davos, Switzerland, climate change was the main agenda point. Despite the clear indications that climate change is possibly the biggest challenge humankind will face in the course of the 21st century, progress is slow. Clean energy and energy efficiency are core aspects of combating climate change and alleviating its detrimental effects.

233 Austrian Climate and Energy Strategy. Sep. 2019. 234 OSCE. https://www.osce.org/secretariat/440627 accessed on 12 Jan. 2020.

129 Even though Austria is one of the European countries which places a focus on being ‘green’, real progress can only be achieved through a joint effort of the international community for a sustainable tomorrow.

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130 World Resources Institute. Wang, S. and Ge, M. “Everything You Need to Know About the Fastest-Growing Source of Global Emissions: Transport”. 16 Oct. 2019. https://www.wri.org/blog/2019/10/everything-you-need-know-about-fastest-growing- source-global-emissions-transport accessed on 19 Feb. 2020.

List of Figures: Figure 1: UN Sustainable Development Goals. Source: United Nations Figure 2: Energy mix in final energy consumption, Austria. Source: E-Control, Statistik Austria Figure 3: Total primary energy supply, Austria. Source: IEA Figure 4: Total final consumption by source, Austria. Source: IEA Figure 5: Total primary energy supply, Bulgaria. Source: IEA Figure 6: Total final consumption by source, Bulgaria. Source: IEA

Sandra Galoci is multilingual professional with four years of experience in the financial sector in Vienna, Austria. She has strong educational background in international business administration, diplomacy and global studies. Mrs. Galoci’s academic and professional interests lie in sustainability, energy efficiency and security.

131 RENEWABLE ENERGY SOURCES IN THE REPUBLIC OF MOLDOVA – SECTOR OVERVIEW IN LIGHT OF THE NEW EUROPEAN GREEN DEAL Marcelina Moraru

Introduction In any discussion about climate change, renewable energy usually tops the list of changes that countries can implement to stave off the worst effects of rising temperatures. Renewable energy, often referred to as clean energy, comes from natural sources or processes that are constantly replenished. They include biological resources such as biomass, plants, animals, water, wind, soil fertility and inexhaustible solar energy. Clean energy has far more to offer than just being “green”. The growing sector creates jobs, makes electric grids more resilient, expands energy access in developing countries and helps lower energy bills. Cities, states and governments around the world are instituting and implementing multiple policies aimed at mitigating greenhouse gas (GHG) emissions and increasing renewable energy use. A number of industrial countries with limited domestic energy resources are looking at renewable energy technologies to decrease their dependence on energy imports while reducing their GHG emissions. Most of them have set renewable portfolio standards or policies which require that a specified percentage of the electricity sold by utilities comes from renewable resources. These standards have been created to diversify the countries’ energy resources, promote domestic energy production and encourage economic development. In the absence of a governmental renewable energy push, local administrations are taking matters into their own hands, making commitments to climate action. More than 100 cities worldwide now boast at least 70% renewable energy, and still others are making commitments to reach 100% renewable or zero-emissions electricity by mid-century.235 Corporations are making a difference too, purchasing important amounts of renewable power in the last years. According to the European Commission Renewable Energy Progress Report 2019,236 over the period from 2015 to

235https://www.euractiv.com/section/energy/news/six-eu-countries-join-call-for-100- renewable-energy-scenario/ 236 Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Renewable Energy Progress Report (COM(2019) 225 final), p. 5

132 2018, corporate power purchase agreements for renewable electricity in Europe quadrupled from 506 MW to 1967 MW. As highlighted by the International Renewable Energy Agency (IRENA),237 the growing deployment of renewables has also set in motion a global energy transformation with significant implications for geopolitics, and the European Union (EU) is clearly in a frontrunner position. In this regard, the currently implemented EU renewable energy policies and already planned renewable energy policy initiatives are a very important tool to analyse in order to understand the pace of deploying renewables in the region, and namely in the Republic of Moldova.

On the role of the European Union The European Union has been at the forefront of international efforts to fight climate change. It was instrumental in brokering the Paris Agreement238 and continues to show global leadership. In 2009 the EU set for itself and all its member countries the goal to increase the proportion of renewable energy to 20% by 2020. An increased use of energy from renewable sources is viewed by the European Union policies as an important part of the measures needed to reduce greenhouse gas emissions in complying with the EU’s international commitments. In 1996 began the first activities concerning renewable energy sources in the EU, when the Commission produced a Green Paper239 on the issue. The year after, another White Paper240 was adopted, focusing only on this sector, with the objective of reaching a market share of 12% for energy from renewable sources in the EU by 2010. The current legal framework within the EU is governed by Directive 2009/28/ EC on the promotion of the use of energy from renewable sources241 (RED I). The Renewable Energy Directive established an overall policy for the production and promotion of energy from renewable sources in the EU. It required the EU to fulfil at least 20% of its total energy needs with renewables by 2020 – to be achieved through the attainment of individual national targets.242 All EU countries

237 IRENA (2019), A New World: the geopolitics of the energy transformation, http:// geopoliticsofrenewables.org/Report 238 The Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCCC), adopted at COP 21 in Paris, on 12 December 2015, to combat climate change and to accelerate and intensify the actions and investments needed for a sustainable low carbon future 239 A non-binding EU act used by the Commission to stimulate discussion and consultation on given topics 240 COM(1997) 599 final, Energy for the future: renewable sources of energy 241 Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC, OJL 140, p. 16-62 242 Directive 2009/28/EC specified national renewable energy targets for 2020 for each

133 must also ensure that at least 10% of their transport fuels come from renewable sources by 2020. Individual EU countries have different available resources and their own unique energy markets. This means that they will have to follow distinctive paths when it comes to meeting their obligations under the renewable energy directive, including their legally binding 2020 targets. In their national action plans, they should explain how they intend to do this. Directive 2009/28/EC was a central element in the Energy Union243 policy and a key driver for meeting the renewable energy targets for 2020. The political priority of the European Union to become the global leader in renewables is underpinned by the presence of renewables in all five dimensions of the Energy Union: - for energy security, the role of renewables is to reduce the import dependency of fossil fuels; - for the internal energy market, renewables play an increasing role in particular for the power market where in 2017244 close to one-third (30.8%) of the EU 28 gross electricity production was generated by renewables; - for energy efficiency, a reduced energy consumption is tightly linked to reaching a higher share of renewables and the increased integration of small- scale renewables in buildings, thus improving the energy performance in a cost- effective way; - for decarbonisation, renewable energy plays a significant role, where in 2016 renewables have contributed to 460 Mt of gross avoided CO2 emissions (more than the total GHG emissions of Italy in 2016);245 - for the innovation dimension, renewables are a key contributor: in the area of renewables, 53% of inventions from EU-based companies acquire patent protection outside Europe;246 in this respect, as recognised later on by IRENA, Europe has become a lighthouse in showing successful pathways to a renewables-based energy future, being at the forefront in energy innovation.247 The benefits of renewables expanded well beyond the impacts on the five political dimensions above. Renewable energies are a source of economic growth and jobs for Europeans, in particular local jobs with more than 1.4 million country, taking into account its starting point and overall potential for renewables. These targets range from a low of 10% in Malta to a high of 49% in Sweden. 243 COM(2015) 80, A Framework Strategy for a Resilient Energy Union with a Forward- Looking Climate Change Policy 244 Eurostat 245 https://www.eea.europa.eu/publications/renewable-energy-in-europe-2018/ 246 JRC (2017), Monitoring R&I in Low-Carbon Energy Technologies, http://publications. jrc.ec.europa.eu/repository/handle/JRC105642 247 IRENA (2019), Report on Innovation landscape for a renewable-powered future: Solutions to integrate variable renewables, launched in Brussels on 19 February 2019

134 people that are currently working in the sector and with a related turnover that is estimated to €154.7 billion.248 The recent report on energy prices and costs in Europe249 documents further positive impacts on industrial competitiveness since the greater amounts of renewable energy are a key factor behind the fall in wholesale energy prices in recent years. In December 2018, the revised Renewable Energy Directive on the promotion of the use of energy from renewable sources (RED II)250 entered into force, as part of the Clean energy for all Europeans package, aimed at keeping the EU a global leader in renewables and, more broadly, helping the EU to meet its emissions reduction commitments under the Paris Agreement. With the entry into force of Directive (EU) 2018/2001 on 24 December 2018, a new future-proof framework is established towards meeting the binding Union target of at least 32% renewable energy in gross final energy consumption by 2030. This framework should build on the progress being achieved under the original Directive (RED I) including inter alia the obligation for Member States to keep the 2020 targets as baseline of their respective trajectories for the next decade. This is further complemented by the other elements of the Clean Energy for All Europeans package.251 The revised Directive also lays down rules on financial support for electricity from renewable sources, on self-consumption of such electricity, on the use of energy from renewable sources in the heating and cooling sector and in the transport sector, on regional cooperation between Member States, and between Member States and third countries, on guarantees of origin, on administrative procedures and on information and training. It also establishes sustainability and greenhouse gas emissions saving criteria for biofuels, bioliquids and biomass fuels. Most of the other new elements in the new Directive need to be transposed into national law by Member States by 30 June 2021. In this context, the Communication from the new European Commission of December 11, 2019,252 sets out a European Green Deal for the European Union and its citizens. It resets the Commission’s commitment to tackling climate and environmental-related challenges and sets out a wide range

248 https://www.eurobserv-er.org/18th-annual-overview-barometer/ 249 https://ec.europa.eu/energy/en/data-analysis/energy-prices-and-costs 250 Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (recast), OJ L 328, 21.12.2018, p. 82-209 251 https://ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/clean-energy- all-europeans 252 Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions – The European Green Deal (COM/2019/640 final)

135 of major policy and legislative proposals to transition Europe to be ‘climate neutral’ by 2050.253 It is, by far, the European Commission’s most ambitious environmental and climate programme to date and seeks to affirm Europe as a global leader on climate change. If the vision is realised, it will have far reaching consequences for operators and investors across a wide range of sectors, as well as those international exporters for whom Europe is a key market.

Renewable energy sources in the Republic of Moldova

General aspects The Republic of Moldova has been an independent state since 27 August 1991, as an ex-Soviet country. The transition period was characterised by political instability and numerous changes of government. From energy resources point of view, the country has minor reserves of coal, petroleum and natural gas and moderate hydroelectric potential. This has led to a high dependence on energy imports (mainly from Russia, Ukraine and Romania); imports totalled 87% of the total energy supply in 2013.254 In 2013, total energy imports were comprised of: 44.7% natural gas, 34.1% petroleum products, 7.5% coal and 13.7% electricity. Moldova is dependent on imports of electricity from two sources for 80% of its electricity demand: Ukraine and the Kuchurgan power plant, i.e. Moldavskaya GRES (MGRES), a large power plant on the territory of Transnistrian Region.255 The combination of expensive domestically produced power with relatively expensive imported power, due to a lack of effective connections to the West, leaves the country with high-priced electricity in the range of US$ 80/MWh.256 At the same time, the energy intensity in Moldova is still relatively high, though it has significantly decreased since 2005.257 Numerous factors, including ageing technology, equipment and networks, the system running at much lower

253 According to the document, the Commission should review and propose to revise the relevant energy legislation by June 2021, continuing to ensure that all relevant legislation is rigorously enforced. 254 Energy balance in thousand tons of oil equivalent for 2006-2013, as of 10 April 2015, National Bureau of Statistics; for Energy Balance of Republic of Moldova 2012-2019 see: https://statistica.gov.md/pageview.php?l=en&idc=263&id=2197 255 Moldavskaya GRES is the largest thermoelectric power station in the Republic of Moldova, located in the city of Dnestrovsk, on the border with Ukraine, and is currently controlled by the separatist authorities of Transnistrian Region. The installed capacity of the plant is 2,520 MW, being supplied with natural gas, fuel oil and coal. From 2005, CJSC Moldavskaya GRES is part of Inter RAO UES PJSC, a Russian leading energy export and import operator. 256 http://documents.worldbank.org/curated/en/713911557626447656/pdf/Moldova- Power- System-Development-Project.pdf 257 In 2017 Moldova’s economy continued to consume approx. 4 times more energy (per capita) than the European average.

136 than the designed load etc., contribute to higher energy losses. The efficiency of energy transformation has considerable potential for improvement.258 The past decade has brought about changes in the fuel mix. A fivefold increase from 2005 to 2013 in average annual natural gas import prices from 76.1 $/1000m³ in 2005 to 379.6 $/1000m³ in 2013 resulted in a sharp increase in tariffs for gas supply, but also in tariffs for locally produced electricity and heat.259 These price increases served further as the main driving force in the search for alternative energy resources, and also for optimisation of energy consumption in all sectors of the national economy. With renewables becoming increasingly cost-competitive, policy makers have recognised them as an important means to address the Republic of Moldova’s energy challenges and achieve a sustainable future. On the other hand, the country has vast renewable energy potential, which remains still largely untapped. The Republic of Moldova’s renewable energy potential was considered even one of the region’s largest. According to an IRENA report from 2017, the cost-competitive potential for solar and wind energy alone across the country totalled more than 22 GW, and wind energy potential is among the most attractive across South East Europe: wind energy in Moldova has the greatest technical potential at approximately 77.3%, followed by solar potential equal to approximately 9.3%; biomass constitutes about 8.3%, out of which, solid biomass constitutes 7%, biogas potential is estimated at 1.2%, and hydro potential is about 5.2%.260 During the last decade, the energy sector in Moldova has achieved important results through a process of reforms and restructuring. The organisational structure and the most important actors involved in governing the energy sector have been established. The Ministry of Economy and Infrastructure (MoEI) is responsible for administration of the energy sector and is the primary policy-setting body, responsible for defining energy priorities and leading the sector dialogue. In addition, the ministry leads international collaboration in the energy field, including, but not limited to, the supply of strategic energy resources, attraction of foreign investment and facilitation of power interconnections. The National Agency for Energy Regulation (ANRE), which was established in 1997, regulates electricity, natural gas, petroleum products and district heating, as an independent institution reporting to the Parliament. ANRE is responsible, among others, for licensing renewable fuel production and for setting the tariffs

258 In-Depth Review of the Energy Efficiency Policy of Moldova, Energy Charter Secretariat, 2015 259 The 2013 ANRE Annual Activity Report/ Raport privind activitatea Agenţiei Naţionale pentru Reglementare în Energetică în anul 2013, Chişinău, 2014 260 IRENA (2017), Cost-competitive renewable power generation: Potential across South East Europe

137 for each type of renewable­ energy and fuel. It is responsible for the introduction of market regulatory mechanisms that protect the interests of both consumers and investors. Through the first national Renewable Energy Law261 and the National Energy Strategy262 adopted both in 2007, Moldova was, for the first time in its history, approaching legally the use of Renewable Energy Sources (RES) as a reliable alternative to compensate for the critical lack of other indigenous energy resources. It came also as a continuation of the country’s tradition of utilising biomass for heating, and as a consequence of the country openness to the EU’s early policies supporting generation of electricity from renewable sources and energy for heating and cooling from renewable energy sources. The 2007 Renewable Energy Law defines state policy objectives and targets in the field of renewable energy, including electricity and biofuels, as well as state administration, need for the establishment­ of the Energy Efficiency Fund, state support in promotion of RES, and others. It was built upon the concept of tenders organising, the principles of priority acquisition and priority dispatch of electricity from renewable sources, as well as upon a regulated tariff for RES-E and biofuel production. The law stated on the National Energy Regulatory Agency (ANRE) the obligation to ensure a regulated tariff system for each type of renewable energy and biofuel, calculated by the producers based on the methodologies approved by ANRE. The Methodology on calculation, approval and application of tariffs on electricity produced from RES and on biofuels was approved by ANRE in 2009.

The membership of the Republic of Moldova to the Energy Community On 17 March 2010, the Protocol on the accession of Republic of Moldova to the Energy Community was signed.263 The Energy Community, an international organisation that includes the EU and its neighbours, aims to create an integrated pan-European energy market. With the accession to the Energy Community, Moldova undertakes a decisive step for harmonising its energy legislation with EU standards and starting implementing the EU Energy Package. The membership of the country to the Energy Community as a Contracting Party – on the background of the Ministerial Council Recommendation in September 2010 with regards to promoting the energy from renewable sources

261 Law no. 160-XVI of 12 July 2007 on renewable energy, in force from 17 August 2007 (repealed in 2017 by a new Law) 262 The Energy Strategy of the Republic of Moldova until 2020, approved by the Government Decision no. 958 of 21 August 2007 263 The accession of Moldova was approved by the Ministerial Council of the Energy Community in December 2009, but the signing of the Protocol for accession was conditioned by the adoption of the Law on gas, pursuant the relevant EU rules (being published and in force from 12 February 2010)

138 utilisation and the decision to adopt the Directive 2009/28/EC (RED I),264 brought a new impetus, materialised by other important strategic documents, namely: the National Program for Energy Efficiency for 2011-2020,265 the Energy Strategy of the Republic of Moldova until 2030266 and the National Action Plan on the renewable energy for 2013-2020.267 Renewable energy and energy efficiency are among the main objectives of the Energy Strategy of the Republic of Moldova until 2030, contributing both to the security of energy supply and to the environmental sustainability and combating climate change, common objectives with those pursued by the Energy Community and the European Union. The overall target for the use of renewable energy sources, to ensure their contribution of 20% in the energy mix of 2020, set out by the Energy strategy of Moldova 2030, is higher than the renewable energy target of 17% by 2020 as set by the Energy Community (2012). It also reflects the country’s international obligations under the treaties, agreements and programmes (including the EU Neighbourhood Policy) to which Moldova is a member. The energy strategy aimed at year 2020 as the year of full integration into the EU’s internal energy market. In accordance with this objective, the country's legislation will be timely harmonised with the Energy Community acquis and will be consistent with the EU acquis, ensuring legal and regulatory compatibility with these markets. The National Renewable Energy Action Plan is another key document concerning energy policies in the Republic of Moldova for the promotion of the use of energy from renewable sources. The RE Action Plan defines the sectorial targets towards achievement of 20% RES by 2020 and sets up the required legislative, regulatory and administrative actions to achieve those targets. Other significant steps, from institutional point of view, were the creation at the end of 2010 of the Agency for Energy Efficiency (AEE),268 responsible for the implementation of state policies in the field of energy efficiency and RES, and the establishment in 2012 of the Energy Efficiency Fund (EEF),269 as the necessary instrument for the financing and implementation of RES projects. The Energy Efficiency Agency provides support to the Ministry of Economy and Infrastructure in implementing energy efficiency and renewable energy policies. Its mission is to: manage all activities in the energy efficiency and renewable energy sectors; ensure the continuation of countrywide efforts to

264 Decision of the Ministerial Council of the Energy Community D/2012/04/MC-EnC on the implementation of Directive 2009/28/EC, 18 October 2012 265 Approved by the Governmental Decision no. 833 of 10 November 2011 266 Approved by the Governmental Decision no. 102 of 5 February 2013 267 Approved by the Governmental Decision no. 1073 of 27 December 2013 268 Approved by the Governmental Decision no. 1173 of 21 December 2010 269Approved by the Governmental Decision no. 401 of 12 June 2012

139 reach the objectives stemming from national strategies and programmes; and guarantee timely and proper implementation of legislation related to energy efficiency and renewable energy.

EU-Moldova Association Agreement With time, the European Union was developing an increasingly close relationship with the Republic of Moldova, going beyond cooperation, to gradual economic integration and a deepening of political cooperation. In 2014, the Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and the Republic of Moldova, of the other part (hereinafter, Association Agreement) was signed.270 Following this agreement, Moldova has to make its legislation conform to the core EU energy legislation related to electricity, oil, gas, environment, competition, renewables, efficiency and statistics, by December 2017. The Association Agreement also established a framework for political and economic collaboration between the EU and the Republic of Moldova. According to the annexes of the Association Agreement, the country committed to transpose 43 EU Directives and Regulations relevant to the energy sector.271 Part of these Directives and regulations were transposed before Moldova even started provisional application of the Association Agreement in September 2014, based on its commitments within the Energy Community. Actually, the Association Agreement in its energy sector part was engineered aiming to complete and strengthen the already existing framework of the Energy Community, which remains as the basis for the European energy integration of Moldova with the EU. Following the Energy Community and EU-Moldova Association Agreement commitments, a revision of the Law on renewable energy from 2007 was prepared aiming to transpose the Renewable Energy Directive 2009/28/EC of 23 April 2009 (RED I). As a result, the new Law on the promotion of the use of energy from renewable sources no. 10 of 26 February 2016, in force since March 2018, came with new support mechanisms for renewable energy investments including feed-in tariffs, net metering and tenders. This law aims to establish a legal framework for the effective promotion and use of renewable energy. It has to ensure the appropriate conditions to achieve the targeted share of energy from renewable sources in gross final consumption of energy and also sets clear and comprehensive competences and responsibilities, as well as state policies to guarantee the established targets fulfilment.

270 EU-Moldova Association Agreement was signed on 27 June 2014 in Brussels; ratified by the Parliament of the Republic of Moldova on 2 July 2014 and by the European Parliament on 13 November 2014 271 EU-MD AA: Title IV, Chapter 14, Energy Cooperation (Articles 74-79); Annex VIII, Approximation List (Energy Cooperation)

140 At the same time, to ensure local energy autonomy and achieve the goal of distributed energy generation, the law supports the development of small- scale, community promoted renewable energy projects. Moreover, it provides an obligation by the central electricity supplier to purchase renewable-generated electricity, guaranteed and non-discriminatory access to the grid and priority dispatch, all these providing necessary guarantees for investments. In addition, the new law was expected to lead to the construction of up to 168 MW of new capacity, mainly wind and solar PV, to be supported through administratively set feed-in tariffs and an auction based mechanism. As part of Government commitment to support the development of renewable energy sources, more legal and institutional reforms emerged aiming to improve the policy and regulatory frameworks to attract investments in the RES sector. Following such an institutional reform in 2018, the Energy Efficiency Agency272 has absorbed the Energy Efficiency Fund. As a result, it is responsible now for providing financial support to the sector – in part through funds allocated from the state budget, but also through additional resources to be fundraised on local, regional and international financial markets.

Financing of renewable energy The Energy Efficiency Fund was established by the Law on renewable energy (2007), but became operational in 2012. Before this moment, a number of energy efficiency and RES projects were funded by the National Environmental Fund (under the Ministry of Environment273). These included waste processing and production of biogas, amongst others. Since the beginning of activity of EEF in 2012 until the end of January 2015, about 169 projects were approved for funding, including 53 between November 2014 and January 2015. EEF required that financial allocations from the government to this fund should be at least 10% of the EEF’s total amount. Other fund resources are represented by grants, loans and other financial instru­ments, but also financial results from EEF’s operational activity. In parallel with the establishment of a special governmental financial instrument, most of the renewable energy projects in Moldova were financed by multilateral development banks or bilateral development agencies, or were self- financed by the private sector. Examples of the first source of funding include the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the World Bank Group, while examples of the second include the Swedish International Development Cooperation Agency and the

272 New Regulation approved by the Gov. Decision no. 45 of 30 January 2019 (in force from February 2019) 273 Now the Ministry of Agriculture, Regional Development and Environment of Republic of Moldova

141 Japanese International Cooperation Agency (JICA). Private sector funding was used mainly in the case of biogas and solar. While some of these partners provided grants for the financial products developed in collaboration with local commercial banks, others set up credit lines to support both renewables and energy efficiency. For example, the EBRD’s financing tools implemented together with local banks (BCR Chisinau, Moldova Agroindbank, Moldindconbank, ProCredit Bank and MobiasBanca) was MoSEEFF – the Moldova Sustainable Energy Efficiency Financing Facility.274, 275 With a total budget of €42 million (for the period 2009-2019), this aimed to support the use of renewables by local enterprises. Solar was one of the focus areas, and a diverse range of projects was implemented through the programme, from a 100 kW rooftop power plant installed on an agricultural warehouse, to a 500 kW solar PV farm installed on the grounds of a carpet manufacturer. Between 2011 and 2018 the Moldova Energy and Biomass Project276 was implemented. It was funded by the European Union (total EU funding €23.41 million) and co-partnered and implemented by the United Nations Development Programme. In its first stage (2011-2014), this project has achieved exceptional results and greatly exceeded expectations, so consequently the project has been extended to 2015-2018. The achieved results covered 144 public institutions in 127 communities/villages from all districts in Moldova. Total in­stalled new heat capacities for biomass are 29.6 MW with a total heated area of 270,025m². Realised capital investments included additional 28.28 million MDL contributions by local communities. An ex­tended project aimed at installation of additional 80 heat plants on biomass in public institu­tions. Out of these, 21 institutions have installed solar collectors for hot water. Another biomass heating project, Effective Use of Biomass Fuel in the Republic of Moldova277 (2013-2017), was realised with the support of Japan, thanks to the agreement between Japan International Cooperation Agency (JICA) and the Government of Moldova (Ministry of Agriculture and Food In­dustry of Moldova), to promote sustainable biomass heating systems, in order to improve the energy self-sufficiency of the country. The project was financed through a grant aid of US$ 14 million, with an estimated contribution of 17.5 million MDL by Moldova, and included procurement and installation of 25 biomass heating systems at public facilities in 23 rural communities. For the development of Energy and Environment Efficiency projects, on 14 May 2015 was ratified the agreement on the contribution of the Government

274 https://www.eu4moldova.md/en/content/2nd-phase-moldova-sustainable-energy-efficiency- finance-facility-moseff2 275 https://www.ebrd.com/work-with-us/projects/psd/moseff-ii---moldovan-sustainable- energy-ff-extension.html 276 https://www.eu4moldova.md/en/content/moldova-energy-and-biomass-project 277 http://www.2kr.md/index.php/ro/proiecte-piu/utilizarea-biomasei

142 of the Republic of Moldova to the EBRD, regarding the participation in the Eastern Europe Energy Efficiency and Environment Partnership (E5P). Through Moldova's participation in this fund, central and local administrative authorities would have access to E5P funds amounting to about €11-20 million of grants, but also €100 million in credits for project development for energy efficiency and environment.278 As regards donors, the leading contributor to the projects launched in Moldova in the last decade is the European Union. A large range of EU initiatives and programmes aims at promoting investments in energy ef­fi ciency and renewable energy sources. A brief summary of energy projects in Moldova (co)funded by external sources shows that from 2008 to the beginning of 2015 the total costs of actual commitments in the energy sector accounted for at least €180 million, for more than 29 projects. Around 46% of this amount was provided by the EU.279 In addition to the projects to promote the use of RES in Moldova, the EU also funds financial assistance projects for implementing the ongoing policies documents and reforms in the energy sector, including through budgetary support:280 Sector Policy Support Program (PSPS) Energy sector reform assistance (2011-2013, €42.6 million, of which €40 million to support the Program and €2.6 million for technical assistance); EU4Energy project Support to the modernisation of the energy sector in the Republic of Moldova (2017-2020, €1.5 milllion) and others. Meanwhile, the local financial sector still does not offer adequate financing options for renewables, with the exception of a few banks with foreign capital that have dedicated financial products for renewable energy projects.281 The limited number of financial institutions open to this field is due to the unavailability of low-cost capital and the high-risk perception of RES projects. The lack of understanding of renewable energy technologies leads to the broad perception of renewables as being very innovative and prone to failure, which has led to high interest rates from capital providers. Altogether, the preparatory costs related to the prefeasibility stage and permitting, amongst other factors, are considered to be at a level that can limit the appetite of investors for the Republic of Moldova. Thus, given the condition of the local financial sector, only larger companies have sufficient financial resources to initiate project development.282

278 https://mei.gov.md/en/content/energy-efficiency-and-renewable-energy-sources 279 In-Depth Review of the Energy Efficiency Policy of Moldova (Financing energy efficiency and renewable energy), Energy Charter Secretariat, 2015 280 https://mei.gov.md/en/content/energy-assistance-projects 281 http://www.procredit.md/en/glossary_en 282 IRENA (2019), Renewables Readiness Assessment: Republic of Moldova, International Renewable Energy Agency, Abu Dhabi

143 Small and medium-sized enterprises with deficient finances are exposed to a higher risk of failure in the completion of a project. Some support is provided by the Energy Efficiency Fund and international financial institutions, but this is often insufficient to increase the participation of those entities in the national renewable energy market. Thus, the continuous involvement of international players is expected to advance the uptake of renewable energy sources and to ensure that all investors, including small ones, which are interested in the new support mechanisms, will be in a position to prove their financial credibility.

Further perspectives and necessary steps In recent years Moldova has achieved major progress in energy efficiency and RES deployment policies and pro­gramme development, though the progress in their implementation is still moderate. Unfortunately, the foreign, and especially EU support, is still essential in achieving the successful implementation of national programmes and action plans on renewables. Indeed, the tandem between political will of national authorities with the available financial supportive tools, arising from international (regional) and bilateral agreements signed by the Republic of Moldova in this regard, reveals visible results. As a consequence of all supportive measures for renewables introduced by the country’s energy policymakers in the last period, in order to stimulate further activity in the sector, the national objective to cover at least 17% of gross final energy consumption with renewables has been met ahead of time. Already in 2016, 26.8% of the energy consumed in the Republic of Moldova was “green”, this amount being almost totally oriented towards household heating and cooling (the proportion of renewables in the total energy mix in 2012 was only about 4%). The recent reports by authorities and statistical data revealed that Moldova has registered a 27.8% share of energy from renewable sources in 2017. Notably, while the deployment of renewables – beyond biomass in the heating sector – has so far been limited, the recently introduced support schemes for renewable electricity have contributed to the rising interest of the business community and private investors, but additional efforts are still necessary to cement the foundations of the sector. First, the government and other competent authorities still needs to prioritise and timely develop all necessary secondary legislation and regulations to facilitate the implementation and attain the objectives of the adopted energy efficiency and renewable energy strategies, plans and programmes. It further needs to develop­ enforcement and implementation mechanisms for its policies and to provide incentives to attract necessary private investment in the renewable energy sector.

144 These mechanisms should target also the existing lack of effective coordination among different public actors, which hinders the deployment of renewable energy in the country. The private sector highlights some procedures as too costly and lengthy, or even catalogues them as an administrative burden. The Ministry of Economy and Infrastructure as the main responsible authority could initiate a dialogue with the Ministry of Agriculture, Regional Development and Environment, the Ministry of Finance and other actors involved in order to clarify and simplify such procedures. Second, according to the Renewable Energy Law no. 10/2016 and the institutional regulation, the Energy Efficiency Agency is responsible for the implementation of the state policy on efficiency and renewable energy and for taking measures for the national targets to be achieved. However, there is a pressing need to strengthen the institutional, human and financial capacity of the Agency to enable it to take a leading role in implementing energy efficiency and renewable energy policies and regulations within the country. Also, the local public administration authorities have limited institutional capacity, which results in limited implementation of the legally provided measures at the local and regional level. According to Law no. 10/2016, local authorities are involved in wide range of important activities regarding RES implementation, such as need assessments, planning, construction permit issuing and others. Therefore, measures towards improving their institutional and financial capacity should be planned and duly undertaken at a higher level. Third, with Republic of Moldova’s policy makers and broader energy community working towards an accelerated ramp-up of renewables, public- private dialogue and partnerships will be critical. Still, a communication strategy is needed to raise awareness and boost understanding of renewable energy sources and their benefits across the country (from disseminating the most up-to-date information on renewables and the ongoing energy transition, to improving the curriculum of schools and universities in order to reflect the growing role of renewables and opening discussions regarding the ongoing legislative changes). Through this communication strategy a permanent dialog or a roundtable should be established, addressing several stakeholders, including central and local public authorities, civil society, the banking community and donors. Fourth, despite abundant resources, so far deployment of renewables has been limited except for the use of biomass in the heating sector. The deployment of biomass continues to provide economic benefits, but the Republic of Moldova should step up towards developing non-biomass renewable energy sources, too. For instance, the actual regulatory framework is neglecting the RES role in producing thermal energy, focusing mainly on electricity. So, further development of a strategy for the bioenergy sector to provide a comprehensive assessment of resource potential and clarity on the most suitable technology options for a wide

145 group of beneficiaries in the Republic of Moldova could be beneficial. Also, the use of biofuels in the transport sector is a missing link in the Moldovan policy documents that should be further addressed in order to be in line with the EU RES-T targets. Furthermore, an important support measure for the renewable energy market development would be the further development of an online platform for trade to facilitate market operations and the entry of new suppliers, as necessary preconditions are already in place. Fifth, as regards the RES projects funding, the actual situation is quite unbalanced: while large-scale renewable power plants can access easier the necessary financial resources (from abroad or IFIs), small-scale projects are limited to funding opportunities from the local financial market. The Republic of Moldova’s financial and banking sector is comparatively small, with limited resources. Adding to that the limited knowledge of the renewable energy sector, along with insufficient understanding of the sector’s supporting mechanisms, and the availability of financing may be obstructed. Therefore, enhancing the capacity of local banks to facilitate the financing of renewable energy projects is needed, but to a very delicate extent, so that it does not go beyond the purpose itself of promoting RES projects. Finally, since the renewable energy target of 17% by 2020 has already been overachieved, it neither provides long-term predictability, nor reflects the country’s vision of energy sector development. The fact that the current share of renewables (27.8%) was reached mainly through the revision of biomass consumption data adds another level of uncertainty. Thus, adoption of a “2030 renewable energy target” would be more than appropriate in order to provide long-term predictability to the developer and investment community and to reflect the country’s energy vision. This new target, besides the fact that it has to align with the EU’s new objectives established by the new European Green Deal, could also focus on the unresolved issues stated above, including implementation of new technologies for energy conservation, wider use of renewable energy sources and attracting increased investments in research and innovation in the respective field. Currently, the Republic of Moldova faces one of the most important impediments, namely the lack of financial resources, investments and uncertainty in the possibility of developing RES sector. According to the recently published European Commission’s Joint Communication laying out the vision on the future of the Eastern Partnership policy beyond 2020,283 the current cooperation framework remains valid and

283 European Commission Joint Communication: Eastern Partnership Policy Beyond 2020 “Reinforcing Resilience – An Eastern Partnership That Delivers For All” (Brussels, 18.3.2020 JOIN(2020) 7 final) https://eeas.europa.eu/sites/eeas/files/1_en_act_part1_v6.pdf

146 should continue, with the necessary adjustments to bring it in line with the main policy objectives post 2020 outlined in the communication. The new focus will be on making the existing structures more effective. Evidence-based energy policy in Moldova will be further supported through the “EU4Energy” initiative and the energy policy dialogue (association agreements). The ongoing amendment of the Energy Community Treaty, of which Moldova, Ukraine and Georgia are part, will aim at making the Energy Community more efficient and fit for a sustainable energy future. The EU will also help the partner countries to increase energy security by diversifying from oil or gas imports through investments in renewable energy and enhanced energy efficiency and by encouraging energy market integration based on sound legislation. The Commission declares that it will remain supportive to the development of renewable energy sources in the Eastern Neighbourhood region and will continue to roll out tools and implement the high-level energy efficiency initiative together with IFIs through “green” finance schemes and by involving the private sector.284 The newly presented document on Eastern Partnership policy beyond 2020 is to be endorsed soon by the European Council, the European Parliament and the Council, and further presented to the European Economic and Social Committee and the Committee of the Regions. It will also be discussed with partner countries in view of the Eastern Partnership Summit in June 2020. Shaping the future deliverables for beyond 2020 will therefore be a key task for the second half of 2020. In conclusion, the next steps and a true perspective for the Republic of Moldova in developing its Renewable Energy Sources potential is to explore further and widen the already established path of bilateral cooperation with the European Union, while staying tuned with the Energy Community on regulatory aspects. The clear economic and environmental benefits of using RES are well acknowledged by the national authorities in Moldova and should be further translated to the wider audience, so the entire society could move into a circular and competitive economy, including through more sustainable use of available natural resources.

284 Ibid., p. 11

147 BIBLIOGRAPHY

Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and the Republic of Moldova, of the other part, signed on 27 June 2014; Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions – The European Green Deal (COM/2019/640 final); Joint Communication to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions: Eastern Partnership Policy Beyond 2020 “Reinforcing Resilience – An Eastern Partnership That Delivers For All” (Brussels, 18.3.2020 JOIN(2020) 7 final); Directive 2009/28 / EC of the European Parliament and of the Council on the promotion of the use of energy from renewable sources, amending and subsequently repealing Directive 2001/77 / EC and Directive 2003/30 / EC; Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (recast); Decision of the Ministerial Council of the Energy Community D/2012/04/Mc-Enc: Decision on the implementation of Directive 2009/28/EC and amending Article 20 of the Energy Community Treaty, 18 October 2012; Recommendation of the Ministerial Council no. 2010/01/MC-EnC of 24 September 2010 on the promotion of the use of energy from renewable sources; Law no. 160-XVI of 12 July 2007 on renewable energy, in force from 17.08.2007 (repealed); Law of the Republic of Moldova no. 10 of 26.02.2016 on the promotion of the use of renewable sources; Government Decision of the Republic of Moldova no. 102 of 05.02.2013 on the Energy Strategy of the Republic of Moldova until 2030; Government Decision of the Republic of Moldova no. 1073 of 27.12.2013 on the approval of the National Action Plan on Renewable Energy for the years 2013-2020; Republic of Moldova: Third Progress Report under Renewable Energy Directive 2009/28/EC as adapted by the Ministerial Council Decision 2012/04/MC-EnC (submitted to EnCS in May 2019); Report from the Commission, Renewable Energy Progress Report 2019 (COM(2019) 225 final); In-Depth Review of the Energy Efficiency Policy of Moldova, Energy Charter Secretariat (2015); Invest Moldova: Renewable Energy Sector Overview Republic of Moldova (Edition 2018-2019);

148 IRENA (2017), Cost-competitive renewable power generation: Potential across South East Europe, International Renewable Energy Agency, Joanneum Research and University of Ljubljana, Abu Dhabi; IRENA (2019), A New World: the geopolitics of the energy transformation; IRENA (2019), Renewables Readiness Assessment: Republic of Moldova, International Renewable Energy Agency, Abu Dhabi.

Marcelina Moraru has more than 10 years of experience working in public policy sector for Moldovan Government authorities. Mrs. Moraru was involved actively in the negotiation team from Moldovan side on the most significant bilateral agreements with European Union: (2010-2013) EU-Moldova Association Agreement and Deep and Comprehensive Free trade Area Agreement; (2011- 2012) EU-Moldova Common Aviation Area Agreement; (2011-2012) Moldova- EU Visa Liberalization Dialogue. Mrs. Moraru’s first experience with renewable energy sources was in 2004, when she provided legal assistance to the first biogas station in Moldova; and further seeing and assessing the vulnerabilities of national legal system during implementation of some RES projects in the country. She is currently advising one of the biggest energy companies in Moldova in implementing the third EU Energy Package in gas sector.

149 SOLID MUNICIPAL WASTE – AN INVALUABLE INEXHAUSTIBLE ENERGY RESOURCE Tsvetozar Zahariev

Introduction Energy consumption is one of the main sources of greenhouse gas emissions. The world is facing the challenges of climate change caused by rising greenhouse gas emissions. Therefore, sustainable energy development, in particular the reduction of greenhouse gas emissions, has been identified as the center of energy policy. The use of renewable energy sources, together with the rational use of energy, is an important engine for sustainable development, while guaranteeing the achievement of security of energy supply goals and decreasing exposure to drastic changes in oil prices, contributing to reducing trade imbalances and stimulating the creation of energy. Solid waste is a renewable energy source that is highly undervalued as a raw material for electricity generation. The current analysis traces some major links between population growth and the production of solid waste, which can be not only a problem, but also an important source of energy. Managing waste recovery processes through capacity building for energy conversion based on state-of-the-art technological developments will result in increased energy security for individual countries as well as entire regions. This will inevitably turn them into a key element of energy diplomacy in the coming years. Challenges to management of waste generated by urban populations worldwide are fundamental because population growth leads to increased household waste, fragmentation and low-efficiency policies. To a certain extent, this is due to the fact that municipal waste management departments require a very complex system that uses an efficient collection system, an efficient sorting system and appropriate and technological solutions for the conversion of municipal waste into energy.

1. Population growth It is estimated that the world's population will grow by more than one billion within the next 10 years, reaching 8.5 billion in 2030 and increasing further to 9.7 billion in 2050 and 11.2 billion by 2100. Approximately 60% of the world's population lives in Asia (4.4 billion), 16% in Africa (1.2 billion), 10% in Europe (738 million), 9% in Latin America and the Caribbean (634 million), and the remaining 5% in North America (358 million) and Oceania (39 million).285

285 UN. (2019). World urbanization prospects: The 2019 revision. New York: United Nations

150 In India, Bangladesh, Nepal, Sri Lanka, Bhutan, Pakistan, Afghanistan and the Maldives, population growth is gradually flattening (logistic growth), while in China growth will soon decline due to one-child family policies. Population growth patterns are different across the globe. Many countries in Africa are still growing exponentially. What is common between all the regions is the trend of increasing urban population. Urbanization will continue both in more developed and less developed regions, so that by 2050 urban dwellers are likely to represent 86% of the population in the more developed regions and 64% in the less developed regions. Overall, the world population is expected to be 67% urban in 2050. Therefore, urban areas around the world are expected to absorb population growth over the coming decades. This means that urban energy needs are also growing rapidly.286

2. Homes Most people live in cities. There are more than 400 major cities (urban areas with more than one million inhabitants) and 23 metropolitan areas (areas with a population of over 10 million). Most of these metropolitan areas are in Asia. The United Nations (UN) estimates that 54% of all people live in cities, and by 2050 this will increase to 66%. In developed countries this percentage is even higher (more than 80%).287 Global urbanization is taking place at a high rate. In 1970, for example, there were only two metropolitan areas (Tokyo and New York); in 1990 there were 10; in 2011 there were 23; and by 2025 there will be 37 metropolitan areas. Tokyo, the largest metropolis, will grow from 37 million to about 40 million in 2025. The UN estimates that between 2015 and 2050 the world's population will increase from 7.32 billion to 9.55 billion. At the same time, urban population will increase from 3.96 billion to 6.34 billion, while the number of people living in rural areas will decrease. Due to population growth and rural to urban migration, around 190,000 people a day will need to find a new place to live. In other words, over the next 40 years, we will be building around 3,000 large cities with populations equaling that of Amsterdam. It should be noted that there are large differences in population growth and urbanization rates in different regions of the world.288

286 UN. (2019). World urbanization prospects: The 2019 revision. New York: United Nations 287UNEP. (2013). City-level decoupling: Urban resource flows and the governance of infrastructure transitions. A report of the working group on cities of the International Resource Panel. Swilling, M., Robinson, B., Marvin, S., & Hodson, M. Nairobi: United Nations Environment Programme. 288Klein Goldewijk, K., Beusen, A., & Janssen, P. (2010). Long-term dynamic modeling of global population and built-up area in a spatially explicit way: HYDE 3.1. The Holocene, 20(4), 565-573

151 Developing countries generate 93% of the world's new urbanized territories, 40% of these territories are due to the growth of urban poor neighborhoods. Typical examples of high urbanization are the regions of Africa and Asia, where by 2030 the urban population will double.289

3. Solid waste Cities generate huge amounts of solid waste; thus, its management is another challenge for urban areas of all sizes – from metropolitan areas to small towns and large villages. The Waste Management Order, also known as the Lansink ladder, is an internationally recognized method and has been widely used in many regions of the world. A typical example of the widespread use of this method is its application in the OECD (Organization for Economic Co-operation and Development) Member States.290 In short, the Lansink method is the following: waste prevention, preparation for re-use of generated waste, recycling of waste, other recovery (e.g. energy recovery) and disposal of hazardous waste.291 Solid waste data in many cities is largely unreliable. Available data show that cities can improve significantly their municipal waste management systems, as waste collection rates for cities in low- and middle-income countries range from 10% in suburban areas to 90% in urban areas and centers. The waste recovery process, on a global scale, ends with recycling without the subsequent treatment of other non-recyclable waste - by landfilling. Recycling leads to significant resource savings and a significant reduction in greenhouse gas (GHG) emissions. GHG emissions from open landfills are around 1,000 kg CO2-eq. tonne 1 of solid waste, while this can be reduced to 300 kg CO2 eq. ton-1 for conventional landfills. The total GHG emissions of solid waste landfill sites are expected to be approximately 5-20% of global anthropogenic methane emissions, which is equal to about 1-4% of the total anthropogenic GHG emissions.292 Despite the benefits of solid waste recycling for the economy andthe environment, the recycling rate remains too low regionally and globally. This is due to various economic and political factors.293

289 C40Cities. (2015). Powering climate action: Cities as global changemakers. London: C40 Cities. Cashman, A., & Ashley, R. (2008). Costing the long-term demand for water sector infrastructure. Foresight, 10(3), 9-26 290 OECD. (2013). International Futures Programme Pension funds investment in infrastructure. A survey 291 Dobbs, R., Smit, S., Remes, J., Manyika, J., Roxburgh, C., & Restrepo, A. (2011). Urban world: Mapping the economic power of cities. Washington, DC: McKinsey Global Institute 292 IPCC. (2006). CH4 emissions from solid waste disposal. Background paper expert group CH4 emissions from solid waste disposal. Geneva: Intergovernmental Panel on Climate Change 293 EEA. (2019). Recycling rates in Europe. Copenhagen: European Environment Agency

152 It is worth noting that despite the low rates of recycling and the high rates of waste disposal, more and more organizations such as the OECD, UN and others are developing methodologies for sustainable management of municipal waste in urban areas and regions.294

4. Regional challenges As mentioned above, the choice of cities, in which methods of dealing with municipal waste were explored, is by no means accidental but regionally biased to Western Europe. This is due to the fact that most of them are in EU Member States and have common laws, making it easier to adapt successful models. Therefore, further study of cities in other global regions is needed. The challenges of waste development and climate change vary from region to region.295 Given this limitation, general observations for the different continents can be made, while illustrating these with some concrete examples: • South Asia – Rapid population growth and rapid socio-economic changes are putting increasing pressure on natural resources. Excessive water abstraction, declining groundwater levels, lack of sustainable solid waste strategies and policies for their collection, recycling and utilization can be seen in many Southeast Asian cities as an energy resource. This is in line with UNESCO observations. • Africa – By 2030 the urban population in Africa will double. To illustrate the solid waste policy and its correlation with the growing population in the region, the situation in Dar es Salaam, Tanzania, will be reviewed as an example. It is among the ten fastest growing cities in the world. Just over half of Dar es Salaam's population has access to some form of sewage, but sewage from 15% of the city's residents connected to the sewage system is discharged into the sea untreated. There is also no regular collection of waste and many residents simply burn it. Based on other cities evaluated in Africa, Dar es Salaam's challenges are no exception. Security of water, food and energy are major challenges, and sustainable development is perhaps more important for Africa and other regions of the world. • Australia – Melbourne is the only city in this world region that has been evaluated with the City Blueprint approach.296 Melbourne's challenges in a changing and uncertain climate became apparent during the “millennial drought”, a period of more than a decade of extreme dry conditions in South Australia in the 2000s. Building energy efficiency and solid waste utilization are

294 More about the different technologies and methods used on the European continent https://www.cewep.eu/ 295 UN. (2019). Sustainable cities. Facts and figures 296 Koop-Leeuwen. The Challenges Of Water Waste And Climate

153 topics for improvement. In addition, greenhouse gas emissions in Australia are relatively high. • Latin America – Belém is the only city in this region that has been evaluated with the City Blueprint project.297 Flooding is a very serious concern for Belém. Environmental concerns in cities, such as utilization policies for municipal waste and air quality, are immediate problems for most Latin American residents simply because 81% of the population already lives in cities. • North America – New York is the city in this world region that has been evaluated with the City Blueprint approach. Parts of the North American continent suffer from drought, while in 2012, New York suffered from Hurricane Sandy. Sandy's impacts included the subway flood in New York and flooding in many suburban communities and road tunnels entering Manhattan. Sandy damaged 200,000 homes and was charged with 117 deaths in the United States. The total damage in New York was estimated at about $19 billion. The US emits double the average GHG amount.298 In addition, New York produces vast amounts of solid waste and can improve its solid waste recycling and waste utilization, by converting it to energy. UNESCO concludes that increasing resource efficiency, reducing waste and pollution, influencing consumption patterns and choosing the right technologies are major challenges for Europe and North America.299 • Europe – It is the only continent for which an adequate number of municipalities and regions have been evaluated using City Blueprint. The differences between Western and Eastern Europe are striking. Some ofthem can be explained by nonexistent, poorly maintained or outdated municipal waste management systems and the lack of infrastructure and technologies for their utilization in Eastern Europe. Details are to be found in the OECD's conclusions.300 The above mentioned reviews indicate that the prosperity of cities and regions is directly linked to the proper management of solid waste. All methodologies and policies regarding municipal waste management in the member states of the OECD are combined by the following three indicators:301 • Improvement of solid waste collection (solid waste collected per capita, i.e. collected kg / cap / year). • Increasing recycled solid waste (% of the combined non-industrial solid waste that is recycled or compiled).

297 Koop-Leeuwen. The Challenges Of Water Waste And Climate 298 Much of the gas generated is due to improper management of solid waste 299 UN. (2019). World urbanization prospects: The 2019 revision. New York: United Nations 300 OECD. (2013). International Futures Programme Pension funds investment in infrastructure. A survey 301 UN-Habitat. (2010). Solid waste management in the world’s cities. London: United Nations Human Settlements Programme

154 • Utilization of solid waste and converting it into green power (% of the combined non-industrial waste incineration with energy recovery). The analysis made so far clearly illustrates the seriousness of the problem of urban waste generation and population growth, and the resulting climate change. There is a way to deal with it, and it consists in turning waste into a clean energy resource. This is possible through the use of modern technologies.302

5. Solid waste – clean energy resource Nowadays, the world needs more and more electricity and at the same time the resources for extraction are becoming more and more expensive. In this line of thought, all new resources that would contribute to the production of new clean energy are of indisputable benefit to society and the economy. One such resource is solid waste.

* * * In 2017, world Total Primary Energy Supply (TPES) was 13,972 Mtoe, of which 13.5%, or 1,894 Mtoe (from 1,845 Mtoe in 2016), was produced from renewable energy sources (Figure 1).303

Figure 1: 2017 fuel shares in world total primary energy supply

Other* 0.3% Natural Nuclear Hydro Gas 4.9% 2.5% 22.2% Biofuels Renewables Oil and 13.6% 31.8% waste 9.2% Coal 27.1%

Solar, wind, geoth., tidal 1.8% * Other includes non-renewable wastes and other sources not included elsewhere such as fuel cells. Note: Totals in graphs might not add up due to rounding.

302 Green City Index. (2019) 303 IEA. Renewables Information: Overview (2019 edition)

155 Due to its widespread use in developing countries (i.e. residential heating and cooking), solid biofuels / charcoal is by far the largest renewable energy source, representing 60.7% of global renewables supply (Figure 2).304 Figure 2: 2017 product shares in world renewable energy supply

Liquid biofuels Geothermal 4.6% 4.5% Solar, Tidal 3.9% Renewable municipal waste 0.9% Solid Biofuels biofuels/ and waste charcoal Wind 67.9% 60.7% 5.1%

Hydro 18.5% Biogases 1.7% Note: Totals in graphs might not add up due to rounding

The second largest source is hydropower, which provides 2.5% of world TPES and 18.5% of renewables. Liquid biofuels, wind, geothermal, solar, biogases, renewable solid waste and tidal each hold a smaller share making up the rest of the renewables energy supply. Since 1990, renewable energy sources have grown at an average annual rate of 2.0%, which is slightly higher than the 1.7% growth rate of world TPES. Growth has been especially high for solar photovoltaic and wind power, which grew at average annual rates of 37.0% and 23.4%, respectively, from very low bases in 1990. Biogases had the third highest growth rate at 11.9%, followed by solar thermal (11.2%) and liquid biofuels (9.7%) (Figure 3).305 In 2017, 83.4% of solid biofuels were produced in non-OECD countries, where developing countries, situated mainly in Asia and Africa, use biomass for residential cooking and heating. Africa, which accounted for only 5.8% of the world’s total TPES in 2017, accounted for 32.0% of the world’s solid biofuels supply. This was almost equal to the 31.9% share in non-OECD Asia, excluding China. Non-OECD countries supply 71.5% of the world’s renewable energy which accounts for 9.7% of world TPES. While OECD countries supply 28.5% of world renewables, these renewables constitute only 3.9% of world TPES. Consequently, in OECD countries, the share of renewables in total energy supply is 10.2%, compared to 47.3% in Africa, 31.7% in non-OECD Americas, 23.9% in Asia and

304 IEA. Renewables Information: Overview (2019 edition) 305 IEA. Renewables Information: Overview (2019 edition)

156 9.0% in China (Figure 4).306 However, OECD countries play a major role in “new” renewables, a loosely defined term comprising solar, wind, tidal, renewable solid waste, biogases and liquid biofuels. In 2017, OECD countries accounted for 61.9% of “new” renewables.

Figure 3: Average annual growth rates of world renewables supply from 1990 to 2017

Solar PV 37.0%

Wind 23.4%

Solar Biogases thermal Liquid 11.9% 11.2% biofuels 9.7% Geo- Solid Total thermal biofuels Renewables Hydro TRES 3.5% Charcoal 2.0% 2.4% 1.7% 1.0%

Figure 4: 2017 regional shares in renewables supply

47.3%

31.7%

23.9%

10.2% 9.0% 4.1% 0.4%

OECD Africa Non- Non- China Non- Middle Total OECD OECD OECD East Americas Asia Europe excluding and China Eurasia

306 IEA. Renewables Information: Overview (2019 edition)

157 They accounted for 24.5% of world generation in 2017, after coal (38.5%) and ahead of gas (23.0%), nuclear (10.3%) and oil (3.3%). After surpassing natural gas in 2016, renewables further increased their share by 0.7 percentage points in 2017. Historically, the relative positions of renewables and natural gas have been influenced by various factors, amongst which weather conditions have played a key role. Policies which favor renewables over fossil fuels have also contributed to the increasing importance of renewables in world electricity production. Hydroelectricity supplies the vast majority of renewable electricity, generating 15.9% of world electricity and 65.1% of total renewable electricity. Although growing rapidly, geothermal, solar, wind and tidal energy accounted for 6.5% of world electricity production, which is 26.6% of total renewable electricity in 2017. Biofuels and solid waste, including solid biofuels, play a minor role in electricity generation, supplying 2.0% of world electricity. Since 1990, renewable electricity generation worldwide grew on average by 3.8% per annum, which is greater than the average growth rate of total electricity generation (2.9%).307

Figure 5: Fuel shares in world electricity production in 2017

Other* Natural 0.4% Gas Nuclear 23.0% 10.3%

Hydro** Oil 15.9% 3.3% Renewables 24.5% Biofuels and Coal waste 38.5% 2.0%

Solar, wind, geoth., tidal 6.5% * Other includes electricity from non-renewable wastes and other sources not included elsewhere such as fuel cells and chemical heat, etc. ** Excludes pump storage generation. Note: Totals in graphs might not add up due to rounding.

Whilst 19.4% of global electricity in 1990 was produced from renewable sources, this share increased to 24.5% by 2017. Over this period, hydroelectric power saw its share of total world electricity production falling from 18.1% in

307 IEA. Renewables Information: Overview (2019 edition)

158 1990 to 15.9% in 2017. The share of the remaining renewable sources used to produce electricity grew from 1.3% in 1990 to 8.5% in 2017.

6. Concluding remarks This analysis clearly illustrates the seriousness of the problem of urban waste generation and population growth, and the resulting climate change. There is a way to deal with it, and it lies in the transformation of waste into a clean energy resource. Different regions have different policies, leading to differences in green energy consumption from this renewable energy source. Despite these differences, the transformation of waste from a problem into a solution by using it as a renewable energy source, leading to the reduction of harmful emissions into the atmosphere and a positive impact on the climate, must continue to rely on technological development and responsibility for the future. Generally, specific comments or recommendations to the different regions and countries in Europe, and in particular to the EU Member States, are possible, but will not be quite correct at this time, due to the unfinished negotiations on the green package.

BIBLIOGRAPHY C40Cities. (2015). Powering climate action: Cities as global changemakers. London: C40 Cities. Cashman, A., & Ashley, R. (2008). Costing the long-term demand for water sector infrastructure. Foresight, 10(3), 9-26. https://www.cewep.eu/ Accessed March 10, 2020. Dobbs, R., Smit, S., Remes, J., Manyika, J., Roxburgh, C., & Restrepo, A. (2011). Urban world: Mapping the economic power of cities. Washington, DC: McKinsey Global Institute. EEA. (2019). Recycling rates in Europe. Copenhagen: European Environment Agency. http://www.eea.europa.eu/about-us/what/public-events/competitions/waste- smart-competition/recycling-rates-in-europe/ image_view_fullscreen. Accessed December 15, 2019. Green City Index. (2019). http://sg.siemens.com/city_of_the_future/_docs/gci_ report_summary.pdf Accessed December 21, 2019. IEA. Renewables Information: Overview (2019 edition). IPCC. (2006). CH4 emissions from solid waste disposal. Background paper expert group CH4 emissions from solid waste disposal. Geneva: Intergovernmental Panel on Climate Change http://www.ipcc- nggip.iges.or.jp/public/gp/bgp/5_1_CH4_ Solid_Waste.pdf Accessed December 21, 2019. Klein Goldewijk, K., Beusen, A., & Janssen, P. (2010). Long-term dynamic

159 modeling of global population and built-up area in a spatially explicit way: HYDE 3.1. The Holocene, 20(4), 565-573. Koop-Leeuwen. The Challenges Of Water Waste And Climate OECD. (2013). International Futures Programme Pension funds investment in infrastructure. A survey. http://www.oecd.org/sti/futures/ infrastructureto2030/48634596.pdf Accessed January 15, 2020. UN. (2019). Sustainable cities. Facts and figures. https://www.undp.org/content/ undp/en/home/sustainable-development-goals/goal-11-sustainable-cities-and- communities.html Accessed January 15, 2020. UN. (2019). World urbanization prospects: The 2019 revision. New York: United Nations. https://population.un.org/wpp/ Accessed January 15, 2020. UNEP. (2013). City-level decoupling: Urban resource flows and the governance of infrastructure transitions. A report of the working group on cities of the International Resource Panel. Swilling, M., Robinson, B., Marvin, S., & Hodson, M. Nairobi: United Nations Environment Programme. UN-Habitat. (2010). Solid waste management in the world’s cities. London: United Nations Human Settlements Programme. UN-Habitat. (2013). The state of European cities in transition. Taking stock after 20 years of reform. Nairobi: United Nations Settlement Programme.

Tsvetozar Zahariev has been working for BNP Paribas, CEZ Bulgaria and other international companies and organizations. He is also developing his doctoral dissertation at the Technical University in Sofia. Mr. Zahariev has various articles in specialized scientific magazines.

160 MORE ABOUT THE BULGARIAN DIPLOMATIC INSTITUTE

The DIPLOMATIC INSTITUTE (DI) was created on 23 September, 2003, pursuant to a Decree of the Council of Ministers. Its status and functions were regulated by the Diplomatic Service Act adopted by the National Assembly on 13 September, 2007. Its work meets the high demands and professional expectations pursuant to Bulgaria’s membership in EU and NATO, and displays continuity that allows the Bulgarian diplomatic profession to have the place it deserves in the large Euro-Atlantic family. Our mission is to: - Guarantee the high-level expertise and skills of the diplomatic staff and the public administration by applying up-to-date professional standards of training; - Enhance continuity in the Bulgarian Foreign Service by promoting exchange of experience and good practices among generations of diplomats; - Promote the diplomatic profession and Bulgaria’s foreign policy by reaching out to the general public; - Provoke exchange of expertise on foreign policy issues by providing a platform for debate among government and non-government actors; - Support the diplomatic profession and the foreign policy debate by research and publications; - Develop national and international cooperation by implementing joint projects.

TRAINING PROGRAMMES We provide trainings for both Bulgarian and foreign diplomats and government officials, as well as experts from the NGO and private sector. They meetall demands of modern diplomacy and use the good practices of our counterparts from all over the world. To respond to the need of high-quality training, we focus on interactive and practical sessions and have as trainers Bulgarian and foreign diplomats, university professors and other highly qualified experts, providing the benefit of a broad range of opinions and approaches. Among our major training programmes are the courses for the MFA trainee attaches and consular staff, foreign language training, courses for diplomats, representatives of the public administration and of the NGO and private sector in the field of regional issues and security, energy diplomacy, economic diplomacy, environment, public diplomacy, diplomatic protocol, as well as tailor-made trainings for foreign diplomats and our traditional Winter School of Diplomacy.

161 PUBLIC POLICY AND COOPERATION To provoke public interest and debate on current foreign policy issues, we hold public lectures by prominent public figures, leading politicians and diplomats. We also organize conferences and round-table discussions with Bulgarian and foreign experts, to contribute to the exchange of expertise and to the foreign policy theory and practice. We interact actively with the young public by organizing essay competitions on foreign policy topics, visits of school and university students within our “Open Doors” programme, and by implementing a coherent internship programme. To enhance our public outreach, we aim at strong media and digital presence, and maintain our own radio broadcast, a webpage in Bulgarian, English and French, Facebook and Twitter account. The Institute’s national and international partnerships with government, research, NGO and academic institutions is visible in the implementation of joint projects and exchange in the field of training, research and public activities and EU policies.

RESEARCH AND PUBLICATIONS A strategic task of the DI is to provide comprehensive analyses by internal and outside experts on international topics to meet the needs of the MFA and to enhance the expertise in foreign policy theory and practice. As of 2013 the Institute also holds national contests for applied research projects. Among our publications, in Bulgarian and/or English, are the Foreign Policy Research Papers series, the Energy Diplomacy collection, books and textbooks on EU matters, security and environment issues, diplomatic skills and practice, as well as the long-established Diplomacy Journal which has already grown into an online platform for foreign policy analysis and research. To assist its activities and programmes, the DI manages a library of over 65 000 titles in over 20 languages, in the field of international relations, European Studies, security, international organizations, diplomacy, law, history, sociology, political sciences, economy, etc.

162 MORE ABOUT THE HANNS SEIDEL FOUNDATION

“In the service of democracy, peace and development” – this motto is present in the work and mission of the Hanns Seidel Foundation. This motto applies both to its domestic activities – especially Bavaria – as well as its engagements abroad. Former German President Roman Herzog once described “education on democracy” as a “permanent and intrinsic duty of political foundations”. It contributes to “citizens of an open society being able to participate in the democratic development process with as much knowledge as possible”. Understanding of democracy must be secured again with each generation. Political contexts must be made clear, especially to young people. Only then can they be motivated to get involved themselves and take on responsibility. To put it briefly: Democracy needs political education. Lobbying like this for our democracy and our social order that celebrates freedom and the rule of law also involves reassuring our citizens of this and anchoring in their consciousness the tenets and standards of our polity. The profound and rapid shift our country is currently experiencing reinforces the need for value orientation and rooting ourselves in reliable structures and straightforward regulatory frameworks. To put it another way: The growing pressure to innovate facing the State, society, the economy, science and technology makes returning to our historical roots and our intellectual and cultural foundations all the more necessary. Since its founding on 11 April 1967, the Hanns Seidel Foundation has been engaged in political education with the aim of promoting the “democratic and civic education of the German people on a Christian basis” , to quote its statutes. The foundation, which is politically aligned with the CSU, is named after the former Bavarian prime minister and CSU chairman, Hanns Seidel. Political foundations are financially, legally and organisationally independent of each party, although they do operate within the bounds of their respective party’s ideology. The Hanns Seidel Foundation embodies Christian-social values, which influence our work both domestically and abroad. The Hanns Seidel Foundation’s political education work is based on an idea of man that incorporates the free development of personality and personal responsibility just as much as social responsibility and solidarity. Particularly in our own era, a time in which we need greater individual responsibility, our mission is to do even more to bring about a new “culture of independence” and an “active civil society”, now more than ever.

163 Editor-in-chief: Slavtcho Neykov Corrector: Grigor Manovski Prepress and Print: Veles Publishing Ltd. Graphic Design and Cover: Veles Publishing Ltd.

ISBN 978-619-7200-19-5

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