BACHELOR THESIS LIBERAL ARTS AND SCIENCES UNIVERSITEIT VAN TILBURG 2012/2013 THE EUROPEAN UNION ENERGY FOREIGN POLICY:

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1 BACHELOR THESIS LIBERAL ARTS AND SCIENCES UNIVERSITEIT VAN TILBURG 2012/2013 THE EUROPEAN UNION ENERGY FOREIGN POLICY: A COMPARATIVE CASE STUDY ANALYSES AND ASSESSMENT OF TWO MEMBER STATES BEHAVIOR. 1

2 ACKNOWLEDGMENTS This thesis would not have been possible without the guidance and the support of several individuals who in one way or another contributed and extended their treasured assistance in the preparation and completion of this study. Above all, I would like to acknowledge my financial sponsor, Ulrike Arlt without whom this project would not have been possible. My friends and family have given me their unequivocal support throughout, as always, for which my mere expression of acknowledgments likewise does not suffice. This thesis would not have been possible without the help, support and patience of my thesis supervisor, Dr. Raymond Kubben, not to mention his recommendation and unsurpassed knowledge of History and Theory of International Law and International Relations. The library facilities and computer facilities of the University of Tilburg library, as well as the Freie Universität Berlin Library facilities, has been indispensable. I also thank the staff of Liberal Arts and Sciences Department for their unyielding support and assistance since the start of my BA Programme since September 2009, especially the student advisor, Mr. E.J.C (Geno) Spoormans, and Gaby Twilhaar, the Secretary of LAS Department. I assume the responsibility of any errors or inadequacies that may result from this research work. Edeh Stanley Tilburg, 2 July

3 Abstract The European Union Energy Foreign Policy: A Comparative Case Study Analyses and Assessment of Two Member states Behavior LEVEL: BACHELOR THESIS DATE: JULY 2, 2012 AUTHOR: STANLEY U. EDEH STUDENT ANR: INSTITUTION: UNIVERSITEIT VAN TILBURG FACULTY: TILBURG SCHOOL OF HUMANITIES DEGREE PROGRAMME IN LIBERAL ARTS AND SCIENCES MAJOR IN EUROPEAN LAW/ MINOR IN INTERNATIONAL RELATIONS SUPERVISORS: DR. RAYMOND KUBBEN The purpose of this thesis is twofold: Firstly, to provide an empirical insight into the current issues in European energy foreign policy and the EU sphere of influence in this largely new policy domain, secondly; to examine which obstacles promote or hinder a common energy foreign policy in the European Union. Using a rational choice approach and sociological institutionalism as the working theoretical models, this thesis will systematically compare the behavior of two EU member states, namely Germany and Poland toward an EU energy foreign policy. The thesis will argue that a combination of variables such as the political power, the recognized (in) security and the subsequent framing of the problem at the national level are some of the most important factors the EU member states rely on when they contemplate whether or not to transfer sovereignty to the supranational governance level in energy foreign policy. Throughout the analyses, insights will be drawn from legal, political, economic, and sociological arguments so as to ensure that the study is sufficiently interdisciplinary. In addition to secondary source, the empirical basis for this study also consists of series of surveys conducted in all 27 member states and qualitative analyses of primary source such as official documents on energy policy. 3

4 Key words: European Union, energy foreign policy, actor, energy security, Gas, Institutionalism, member states, international relations. ACRONYMS AND ABBREVIATIONS BMWi ECSC EAEC ECSC EFP EP EU EURATOM IEA LNG NATO OPEC PGNiG PNSS TPES TFEU WTO Bundesministerium für Wirtschaft und Technologie and Auswärtiges Amt European Coal and Steel Community European Atomic Energy Community European Coal and Steel Community Energy Foreign Policy European Parliament European Union European Atomic Energy Community International Energy Agency Liquefied Natural Gas North Atlantic Treaty Organization Organization of Petroleum Exporting Countries Polish Petroleum and Gas Mining Polish National Security Strategy Total Primary Energy Supply Treaty on the Functioning of the European Union World Trade Organization List of Tables Table 1. Research Design (p. 31) Table 2. Key Findings (p. 47) 4

5 Table of Content ACKNOWLEDGEMENTS ABSTRACT ACRONYMS AND ABBREVIATIONS 1. Introduction The Re-emergence of Energy Policy in the European Union The Problematique of European Energy Foreign Policy Scope and Outline of the Study Empirical Insights into the EU-27 Energy Dependency The Current state of affairs in the EU s Energy Policy Domain The Legal Basis and Status of EU Energy Foreign Policy External Factors that influence EU s roles in international energy politics Methodological and Theoretical Foundations Concentrating on the Member State Level Choice of Cases and their Justifications Theoretical Insights into Energy Foreign Policy Institutionalism Rational Choice Institutionalism Sociological Institutionalism Research Design: Power, Context, Ideas and Historical Legacy Qualitative and Comparative Case Analyses The growing bilateralism in German-Russo Relations Poland: Proposing for the Principle of Solidarity Key Findings Conclusions and Discussions Suggestions for Further Research Executive Summary..50 5

6 Reference 51 1 Introduction 1.1 The Re-emergence of Energy Policy in the European Union The early phases of European integration revolved around the issue of energy as a means to contain or limit the possibility of one state from dominating the energy domain and thus warmaking possibilities in Europe. From this perspective, the 1952 ECSC treaty was partially designed to adapt a cross-jurisdictional regulation on the energy resources of the parties to the treaty, and was considered an extra ordinary achievement in that it helped resolve the perpetual coal and steel conflicts between Germany and France and thus gave room for greater economic cooperation which spiraled into other policy domains. However, this founding treaty failed to provide a sound legal and institutional structure to enhance the development of a common energy policy. A weak legal and institutional framework at the supranational level meant that energy policy remained an area of national competency. When Russia cut off gas supply to Ukraine in January 2006 over a gas price dispute between the two states resulting in the interruption of gas deliveries to the EU through a gas pipeline that runs from Russian to Ukraine, the EU and its member states recognize the full extent of the national security implication of their dependence on Russian energy. This was a shock to the EU because approximately 80 percent of its energy consumption comes through Ukrainian gas pipelines (Westphal, 2006:pp.45). Since this incident, the issue of energy security has been placed high on the EU foreign policy agenda, as the EU and its member states have undertaken a number of new initiatives in energy foreign policy, the most concrete outcome from the EU level being the March 8, 2006 Green Paper A European Strategy for Sustainable, Competitive and Secure Energy : aimed at balancing sustainable development, competitiveness, and security of energy supply and shall be realized through the EU pattern of multilateral governance at the member-state, internal-market, pan-european, and global levels (Westphal, 2006:pp.46). Energy scarcities (whether through partial disruption of pipeline facilities or through an arbitrary increase in price) carry enormous consequences not only for national energy producers and consumers in the EU, but also for external security of the EU Member states. 6

7 This is especially the case since Russia (as it is clear from its action towards Ukraine) is using its status as energy producer as some sort of foreign policy bargaining leverage. Russia uses the energy dependence of some of these member states on Russian gas and oil as a political instrument and in the past has suspended energy supply and implemented politically driven pricing mechanisms to wield its influence in the region. This indicates that those states which fall prey to this Russian foreign policy weapon are particularly those states which do not have alternative supply routes and whose sources of energy are not diversified. This has led to a tremendous transformation in how EU views its role in energy foreign policy after a stretched period of time in which energy was perceived as just another commodity deserving no attention. Energy policy has become part of foreign policy and will be one of the central security issues of the 21 st century (Helm, 2007a:pp. 1; Truscott, 2009: pp. 1). This shifting perspective on the nature of energy security due to the Russo-Ukraine gas price standoff which led to the 2006 and 2009 energy crisis in Europe is further complemented by a structural transformation in the patterns of production and consumption of energy produces (Baumann,2010:pp.79). The growing demand from emerging economies such as China and India, climate change concern and the increased need for investment in energy infrastructure are some elements of the background against which energy foreign policy has to be formulated. From this perspective, the scale and breadth of the energy challenge facing the EU is enormous (IEA, 2009c:pp. 41). With this change in pattern, there is a need to reexamine the policy instruments previously used in energy foreign policy such as privatization, liberalization and competition; otherwise not only Europe but the global economy might not be too far away from another great energy crisis (Helm, 2007a:pp. 12, Mueller-Kraenner, 2008:pp. 1) capable of bringing the global economy to an absolute standstill. There are diverse reasons for this change in patterns. With regard to change in the pattern of energy consumption, the global energy consumption is projected to grow by 50% by 2030 (Mueller-Kraenner, 2008:pp. 1). The oil and gas price has already tripled just between 2002 and 2007 (Youngs, 2009:pp. 1). A further business-as-usual would lead to a speedy increase in fossil fuels dependency with enormous implications not only for the climate change but also for energy security. A further change in patterns can be seen from the fact that many EU member states have now taken an assertive position in energy foreign policies with the specific intent of protecting their long-term security of energy supply (van der Linde, 2008:pp. 18). Last but not least, extremist groups have come to see energy infrastructure (i.e. gas pipelines facilities) as a profitable target for constant attacks (Baumann, 2010:pp. 79). Accordingly, the time-honored negligence of energy foreign policy as a domain 7

8 that is best left to the free operation of market mechanisms has been substituted with a more geopolitical approach. This new development has many conspicuous implications for international politics, where energy security has recently become one of the most debated subject matters (Baumann, 2010:pp. 80). The traditional articulation of foreign energy policy as a mere trade policy is no longer viable and can no longer be defended (McGowan, 2008:pp. 102), as there has been a structural shift in power from energy consuming states to the producing states. The scope of energy policy which comprises not only domains such as trade, social environment and climate policy, but also a hard security dimension (Westphal, 2006:pp. 47 and 60) makes its classification a formidable task, which in turn makes it interesting to have a deeper knowledge about this emerging policy domain. Although the re-emergence of energy policy is a global issue, Europe is particularly affected due to its increasing energy import dependency and its geographical location close to energy-producing states. Hence, security of energy delivery or supply is now one of the major issues in EU energy foreign policy-making. However, the problem of security of energy supply is not limited to this state or that state and as such, cannot be resolved through national foreign energy policy unaided by other higher political forces (Helm 2007a:pp. 4-5, van der Linde 2007:pp. 299). Apart from the significant rise in the price of fossil fuel since 2004, the interruption of gas deliveries from Russia in 2006 and 2009 respectively, served as a catalyst for European debates in the policy domain and elevated energy security to be recognized as one of the most important challenges currently facing the 27 member states of the EU (IEA, 2008:pp. 78f). However, the EU has been severely criticized for its inability to speak with a single voice when it comes to energy foreign policy which accordingly, limits its sphere of influence in European energy politics (Keukelaire and MacNaughtan, 2008:pp. 245). However (Matláry, 1997:pp ) quickly explained that the reason for this lack of collective voice is because the issue of security of energy supply has been a traditionally reserved policy domain for national energy policy makers. Experts and diplomats commonly agree that energy security is the most pre-eminent international issue of the 21 st century. This assessment is also in line with the perception of the European general public, which listed climate change and energy dependency as their top two security concerns for the century. European citizens are also in favor of a more common EU foreign energy policy as Euro barometer polls indicate (Youngs, 2009:pp. 1-2 and pp. 24). The majority of national governments in the EU rejected all forms of hard-power approaches to energy security, while simultaneously recognizing the fact that 8

9 the market mechanism being the foundation for many of EU legislation on energy policy is not applicable to energy producing states outside the EU (Youngs, 2009:pp. 49). This divergence of perception led the EU to acknowledge that its energy foreign policy bargaining power was waning relative to other authorities which articulated this policy domain in a more strategic and geopolitical manner (Umbach, 2008:pp. 5). More specifically, the reaction to the Russo-Ukrainian gas price conflict has revealed that the EU was taken for granted by the assertive use of energy by Russia as a geopolitical (foreign policy) instrument and therefore led to a moment of perceived crisis (Youngs,2009:pp ). From the above characterization, it has become apparent that the concept of energy policy is quite broad and is problematic to define as it is a multidimensional concept consisting not only energy sustainability, and competitiveness but also security of supply. There is indeed a wealth of definitions and sometimes the three dimensions of energy policy are mixed up into one definition even though each of these dimensions stands for different things. Just like energy policy, the concept of energy security can be rather difficult to define. This is because the scope of energy security includes a somewhat different set of issues in the gas sector than in the electricity sector. For example, while electricity can be produced in every member states of the EU, the same is not true of natural gas which can be extracted in a limited number of member states (Norway, UK, and the Netherlands). As a result, the scarcity of gas in the EU presented an opportunity for many member states, to take some important energyrelated steps without consulting or assessing their impact on other Member States. To be precise, energy policy entails all kinds of intervention (whether from national or supranational body) in the production, distribution and consumption of all sources of energy (Pointvogl, 2009:pp ). Energy security is therefore a subdomain of energy policy. Despite the problem of definition, the concept can be generally defined as reliable supplies or deliveries of energy products at a reasonable price (Baumann, 2008:pp. 4) or by emphasizing the security dimension as the capability to have access to the required energy resources for the sustained development of national power (Tagarinski and Avizius, 2009:pp. 2). In this thesis, it is the third dimension of the energy foreign policy, namely security of supply, which will be the center of analysis. This concept again consists of several other sub-dimensions, namely security of energy infrastructure, energy external relations, the internal market for energy etc. However, the focus will be on the external dimension of the security of energy 9

10 supply in the EU, thus the EU, and its member states foreign relations with third energy producing states (particularly Russia) in energy issues. 1.2 The Problematique of European Energy Foreign Policy Against the background of what has been provided above, it becomes fathomable that individual member states and supranational organizations such as the EU have to respond to these challenges in order to avert potential energy crisis. It is precisely within this contextual background that the central research problem of this thesis is arises. Granted that the EU, due to uncertainties is vulnerable when it comes to the security of its energy supplies, and considering the fact that the demand for energy will continue to rise on the long run, it is reasonable to expect that the EU member states would advance a common energy policy (Baumann, 2008:pp. 10) in which the EU will be recognized as an actor and consequently, delegate sovereignty to the EU level in other to effectively protect the energy interest of the union and especially those states which fall prey to the Russian use of energy as a geopolitical armament. Therefore, the central research question is: Why are member states hesitant to recognize the EU as an actor, and to transfer sovereignty to the supranational governance level in energy foreign policy? Although the notion of European integration coalesced with energy concerns as can be seen in the two founding treaties, namely the ECSC in 1952 and the EURATOM in 1957, energy security remains a very much a divisive topic (Youngs, 2009:pp. 15).What has become obvious over the recent years is the fact that energy governance takes place in an atmosphere of increasing tension between a system of governance based on free market mechanism and institutions on the one hand, and state-centered, power-based geopolitics on the other hand. There have been indeed some strong tendencies from national governments to retain the right to formulate, pursue, and to secure their own energy security (Westphal, 2006:pp. 58). In other words, states are hesitant to transfer sovereignty and the implication is that member states are now becoming more and more authoritative in outlining their respective internal as well as external measures with which to pursue their own energy policy (Baumann, 2010:pp. 83). Notwithstanding the appeals for the principle of solidarity in the European energy policy from states such as Poland, the majority of the EU member states still basically depend on bilateral arrangements with international oil and gas suppliers sometimes with zero 10

11 coordination at the EU level as well as with other member states (Tagarinski and Avizius, 2009:pp. 29). Furthermore, the state is commonly perceived as the principal actor in the formulation and implementation of energy policy and as such energy is thought to be an essential component of state sovereignty and considered as high politics (Sauter, 2008:pp ). In sum, energy foreign policy is probably the most disputed policy-making domain in the European Union (Pointvogl, 2009:pp ). Thus far, decisions in this policy domain have only been taken within the umbrella of other related policies, such as environment and climate, technology, competition and the internal market (Westphal, 2006:pp. 52). The fact that certain EU member states are hesitant to transfer sovereignty to the EU institutions in Brussels does not (itself) entails that the motivations for such behavior are clear. Since it is already clear that member states are not willing to transfer sovereignty to the EU in energy foreign policy, it becomes essential that we review the member states themselves to find out their rationale for not wanting to do so. Implementing a comparative case-study analysis, this thesis will utilize institutional theoretical framework to explain the factors and conditions that influence member states behavior in the EU EFP. Accordingly, the central hypothesis of this study is that member states are hesitant to recognize the EU as an actor, and to transfer sovereignty to the supranational governance level in energy foreign policy due to a combination of factors such as power, the particular context, ideational factors and historical legacies originating from individual member states. 1.3 Scope and Outline of the Study The thesis focuses on the period between 2005 and The year 2005 serves as a departing point because it was the date of birth of the Russo-Ukrainian gas price disputes which took a new shape in January 2006 when Russia decided to cut off all gas deliveries passing through Ukrainian territory. It was also the period in which the EU leaders held a summit in Brussels in March 2006 based on the suggestions presented by the Commission in a Green Paper published in the beginning of March the same year which aims to develop a new Energy Policy for Europe (EPE) in response to the Russo-Ukrainian gas dispute. This indicates that energy policy ranked high in the EU agenda during the period under study. Furthermore, the analysis will principally focus on one particular source of energy, namely natural gas as a regional source of energy (Helm 2007c:pp. 444). In contrast to oil, for which an operational international market already exists and which can be stored relatively easier than gas, the market for gas is more restricted and is driven mostly by geopolitical considerations (Noël, 11

12 2008:pp. 2). This is likely because any decision on a pipeline route, once made, might prevent the development of an alternative source of energy delivery for a considerable time to come. Thus, the global gas trade consists of geopolitical as well as strategic behaviors (Westphal, 2006:pp.49). Besides, unlike oil, the demand for gas is projected to drastically increase due to its relatively clean energy source (with low greenhouse-gas emissions) and obtainable in the European continent (IEA, 2009c:pp. 49). This makes it convenient for the European Union member states (who perceive gas as the cornerstone of their energy supplies), and therefore a stimulating subject matter to examine in more detail. Given its position in the EU policy in general, the idea of an EU energy foreign policy has not only failed to attract the attention of the EU institutions; the academic world too has not paid much attention to this domain. Prior to the fall of the USSR and the subsequent unification of East and West Germany in early 1990s, energy foreign policy was not a subject of great importance for the EU. Issues concerning sources of energy, security of supply, and markets were principally undertaken by certain designated ministries in individual member states. However, with the advent of the 1993 Maastricht Treaty, the EU has tried to liberalize the member states domestic energy markets and to integrate this domain into the EU policy agenda. As such, a considerable amount of research has been conducted with regard to these facets of energy policy i.e. integrating member states energy markets (Matláry, 1997) to foster competition and efficiency. Furthermore, in the early-2000s environmental and climate policy also received a lot of academic attention probably because it deals with certain elements of sustainability which was a hot topic at the time. Above and beyond these three variables (internal market/competitiveness, sustainability) the third dimension of energy policy, namely security of supply, did not attract attention from member states as well as from the academic world until the Russo-Ukrainian 2006 gas price disputes where it became clear that energy producer state (such as Russia) is using its natural resources as a strategic instrument to conducts its foreign policy. From that time onward, researchers have come to rediscover energy security as a legitimate domain of international relations (IR) (Umbach,2008 and 2010), under the internal market perspective (Noël,2008) or in between (Westphal, 2006).This is especially the case if the action of one state against another(in this case Russia against Ukraine which was mainly meant to punish the newly western leaning democratic government) could affect 27 other states who depend on the Ukrainian pipeline for their energy deliveries. With regard to energy policy under the internal market perspective, the issues of security of supply and demand are vital. In terms of foreign policy, assuring 12

13 diversity in supply in order to reduce European energy dependency on one source of energy supplier and creating political security through a proper management of energy sources with foreign policy instruments are becoming more and more important. Given that the scope of the issues involved in the domain of energy security is broad and problematic, this thesis will focus exclusively on Euro-Russo relations. Modern research on the EU EFP generally claim that member states do not want to transfer sovereignty to the supranational decision making body, or that they ought to do so the latter is particularly true for normative studies. Until now, the academic community is yet to receive any systematic analyses that explain why or under what conditions can the EU member states transfer sovereignty to (Brussels) in energy policy domain. Many of these scholars who conclude their research enquiry by simply claiming that member states do not want to transfer sovereignty (without attempting to explain why) also argue that certain variables such as the extent of energy import dependency, and the specific geographical location of member states are some of the factors that influence their behaviors in the supranational setting (Matláry, 1997) or that energy policy is finely situated between geopolitical, and free market approach (Youngs,2009; Westphal,2006).The scholars making such claims simply provide bold conclusions but without systematically evaluating the how and why of the problems they claim to resolve. In short, no systematic comparative analysis has been conducted in this policy domain that accounts for why some member states are more averse than others to transfer sovereignty to the EU in energy foreign policy. An inquiry focusing on this specific issue is also important given that the security dimension of energy policy now ranks high on the EU policy agenda, and constitutes one of the most pivotal challenges not only to Europe but also to the entire world in the 21 st Century. Furthermore, when it comes to international energy politics, the EU is an invaluable political organization to analyze because to a certain degree, it can be conceived as a unit of the global energy structure (Belyi, 2003:pp. 355). So, why then are member state still hesitant in recognizing that fact, and simply transfer sovereignty so as to make the EU an effective actor in the domain? is the question this thesis attempts to answer. The thesis is organized as follows: chapter 2 provides a concise empirical analysis and general background information concerning the actors in international and European energy politics, different types of energy sources and empirical figures showing the extent of the European Union energy import dependency. From this perspective, the legal basis of EU competency 13

14 and status in energy foreign policy will be identified and briefly discussed. In chapter 3, the methodological and theoretical approach that will be applied in chapter 4 will be systematically and analytically discussed. Chapter 4 will implement a comparative case study analysis of two EU member states Germany and Poland. Comparing their respective behavior toward the EU EFP, the aim of this chapter is to reach a conclusion that makes it possible to generalize the key findings of this thesis to the extent that what holds true for Poland and Germany will more or less, also hold true for the unanalyzed 25 members of the European Union. Chapter 5 concludes with a summary of some of the most important findings, and provides suggestions for further study. 2 An Empirical Insights into the EU-27 Energy Dependency 2.1 The Current Conditions in the European Energy policy domain When it comes to energy related affairs, the EU and Russia are solid allies specifically because Europe is one of the biggest energy markets in the world (after the USA, China and India), and Russia is one of the world s producer of fossil fuels. This interdependence is also reflected in energy trade statistics: The EU27 imported 65% of all Russian gas exports, 50% of its total gas imports and 30% of its oil from Russia in 2009 (Youngs, 2009:pp. 80). This high dependence on one supplier was at the epicenter of energy security dialogues in the last couple of years (Mueller and Kraenner, 2008:pp. 77). There are concerns that Russia could not maintain its current levels of production output, as domestic gas consumption is on constant rise, just like there is also optimism that point to the fact that the Russian production is relatively mature and thus needs investment (Youngs, 2009:pp. 80). Accordingly, the EU- Russo energy relations can be better described as one of mutual interdependence (Truscott,2009:pp.22), for the reason that Europe depends on Russian energy exports and Russia in turn, relies on European investment and technological know-how for its energy infrastructure as well as for its market. In the EU, member states can be categorized in accordance with their respective level of dependency on Russian energy products: on the one hand, while states such as the UK, the Netherlands, Belgium, Sweden and Spain are considered to have a low dependency level of energy import from Russia, and states such as Germany, Italy and France on the other hand, are considered to have a medium level of dependency on Russian energy products, States such as Poland, Romania, Austria, Finland and Greece are group of states with the highest energy import dependency on Russia (Youngs, 14

15 2009:pp ). However, the biggest clients of Gazprom are Germany and Italy, with trade from both states accounting for more than the half of all Russian gas export to the EU (Noël, 2008:pp. 2). The global energy market structure is asymmetrical in nature since the distribution of energy demand and supply is enormously imbalanced, with the remaining reserves of fossil fuels often located in states that are geographically difficult for other states to access (Tagarinski and Avizius, 2009:pp. 3, Truscott, 2009:pp. 18). Europe is a vital player in this developing great game (Truscott, 2009:pp. 3), as it is currently one of the largest importer of energy products with a high degree of external dependency and is expected to further rise: from approximately 52% in (2003) to 95% in (2030) for oil, and from 36% to 84% for gas (Youngs, 2009:pp. 2). Besides, the EU s energy dependence is mainly directed towards Russia. Its own declining production from the North Sea oil and gas fields will further intensify the level of dependency. Even if the EU intensifies the use of alternative energy sources, it remains questionable whether the use of these alternative sources such as renewable energies could break this incremental trend toward energy dependency. The situation becomes even sterner when there are no clearly defined rules and procedure for engaging in energy relations between states, as in other domains, such as in international trade where the rules of the game was embedded in the legal framework of the World Trade Organization (international energy policy was unequivocally excluded in the WTO Accord) (Youngs, 2009:pp.46). Although the EU and Russia are long-standing energy allies, events in the past few years have revealed that there are divergent in their interests, norms and values. Whereas the EU aims to depoliticize the energy relationship dominated by political calculus and to instill the spirit of free market mechanism, Russian on the other hand, prefers to use political mechanism in its energy relation with the EU (Noël, 2008:pp. 2). However, one should not only concentrate on the EU level, but also focus on the member states themselves, as some of them tend to also pursue their own respective bilateral and multilateral relations with Russia. This is especially true for the more financially buoyant member states such as Germany (Westphal, 2006:pp. 56). As a result, there is an increasing divergence between the EU on the one hand, and the member states on the other hand on how to relate with Russia in this policy domain. Diplomats have warned that the Russian policymakers could easily play a game of divide and rule by simply engaging in bilateral energy deals with a self-selected number of EU 15

16 member states (Youngs, 2009:pp. 82) which then makes it almost completely futile for any EU common approach to energy relations with Russian to materialize. The infamous Nord Stream pipeline deal between the German and Russian governments exemplifies this argument. The Nord Stream pipeline project was a gas deal concluded between the Former German Chancellor Schröder and the then Russian President Putin. The gas pipeline in the Baltic Sea was expected to run directly from Vyborg in Russia to the German coast. This pipeline project would sidestep the apparent transit states such as Poland and the Baltic states. For example, by negotiating such project which runs directly from Russia to Germany, Russian policy makers ensures that any presumed energy policy bargaining chip that any of these obvious transit states may believe to have possessed, have been effectively neutralized (Westphal, 2006:pp. 57). In order to articulate a comprehensive view of the energy state of affairs in the EU, there is a need to distinguish between the different kinds of energy products because just as energy products are different, so too are their market structures. For instance, natural gas is projected to become one of the most important energy sources in the EU because the demand is expected to rapidly increase in the next few decades. According to (Youngs, 2009:pp. 7), the basis for this projected increase in gas demand is that gas is a relatively cleaner energy source when compared to crude oil and will as such; change from being a marginal energy source to a central source in the coming decades. As at 2005, the EU still covered 43% of its natural gas consumption from internal suppliers mainly from the United Kingdom, Norway and the Netherlands. However, this estimate is likely to quickly drop due to the fact that, while the demand for gas is constantly growing, the production capacity of its internal suppliers is on constant decline (IEA, 2008:pp. 61). It is precisely because of this trend that import dependency has been projected to increase up to 80% for the next three decades; with the share of gas in total energy demand in the EU climbing from 23% in 2010 to 32% in 2030 (Umbach,2010:pp. 1236). Currently, gas supply to the EU come from Russia which supplies (42%) of its gas to the EU, Norway and Algeria supply about 84% of their gas to the EU (IEA, 2008:pp. 62). Gas imports to the EU are usually transported using tank ships as Liquefied Natural Gas (LNG) approximately (13% of the total imports are transported through this method) or through pipelines which remains the most popular means. The most important gas pipeline routes to the European Union are either a direct route from Russia or via Ukraine or Belarus and Poland; pipelines from Algeria usually go through Morocco and Tunisia; pipelines from Libya, Iran and Azerbaijan go through Turkey to the EU (IEA, 2008:pp. 67). 16

17 The condition is completely different for crude oil. Although the EU gets only about 14% of its total oil consumption from internal production, Russia and Norway are responsible for approximately 44% of EU total oil imports (IEA, 2008:pp. 63), the condition is not similar to the gas market since the EU can depend on the already existing global oil market for its oil needs (Noël, 2008:pp. 8).Hard coal and lignite, as well as nuclear materials are other sources of energy in the EU. With regard to nuclear materials, the main trading partner is Canada exporting 24% of its nuclear materials to the EU, followed by Russia and Niger (IEA, 2008:pp ). When dealing with such issues as energy politics in the EU, it is important to not disregard the kind of harmonic relationship that sometimes exist between the state and market. For instance, in energy trade, it is often the case that private corporations can freely (with the use of free market mechanisms) engage in transnational business deals, even when the extent of state intervention in the free operation of this market can simultaneously be considered to be high. As it will become clear in the course of this study, it is also often the case that state-to-state relations are used to secure corporation-to-corporation deals on both supplies and the infrastructure to facilitate these supplies (van der Linde, 2007:pp. 288). Because energy security is commonly conceived as a public concern, one can understand why an alarming number of states notwithstanding the liberalization and privatization trends in Europe, still feel compelled to protect their respective societies from any potential distresses in the international or regional energy supply structure (Umbach, 2010:pp. 1230). Furthermore, state-owned corporations (or monopoly) as can be seen in Russia, and Saudi Arabia are capable of spending more than their private (non-monopolistic) rivals when paying for such things as licenses, since their investments are shaped by their governments strategic interests as opposed to the short-term profit calculus of private corporations (Youngs, 2009:pp. 151). The conflict between the market governance mechanism and a geopolitical approach is also existent in the EU (Youngs, 2009:pp. 174). Whereas the internal market is structured to privatize and liberalize the EU energy market with minimal or no state intervention, the foreign dimension of energy supplies is different because most of these top suppliers of energy products do not necessarily subscribe to the European neoliberal conception about the functioning of market forces in energy policy (Umbach, 2010:pp. 1230). 2.2 The Legal Basis and Status of EU Energy Foreign Policy 17

18 As far as the early years of European integration, cooperation between member states at the EU level in energy issues has been mainly driven by the member states response to transnational events. Whether in reaction to geopolitical qualms at the dawn of the second World War, or in reaction to developments in the OPEC- states during the late 1970s oil crisis, or the Russo-Ukrainian gas price disputes, historically speaking, European energy policy has been trapped between on the one hand, the inclination of member states to collectively team-up in order to solve or contain a specific collective problem, and the belief at the national level on the other hand that energy security was too vital an issue to leave to the supranational actors. The intrinsic importance of energy to domestic economic growth guaranteed that it is at the heart of strategic arrangement in different member states and thwarted development towards a grander intergovernmental and supranational cooperation. Energy policy was in fact, a traditionally neglected policy domain in the EU (Matláry, 1997:pp. 12). Before the advent of the Maastricht Treaty in 1992, the Commission had attempted to include some provisions that would allow energy policy to be formulated and decided at the EU level, but was however, vetoed by Germany Britain, and the Netherlands because they are concerned that the Commission as supranational organ of the EU might prefer certain kinds of energy sources over other sources (Matláry, 1997:pp.62-64). However, the Commission has de facto agenda-setting prerogatives in European energy policy (Matláry, 1997: pp. 141). As a result of the transformative nature of energy trade and policy in the contemporary time, member states now appear to be reconsidering their position (Adelle, 2009:pp ). This idea is partly reflected in the Treaty on the Functioning of the European Union (TFEU), which in Article 4 (2) enumerates energy as an area of shared competence between the Union and the member states. In Article 176a, the goals to be attained are concretized, such as the functioning of the energy market, the security of energy supply in the European community and the promotion of interconnection of energy networks. What seems to be striking at first glimpse is, however, limited in Article 176a (3) which again requires that measures taken at the EU level may not affect a Member State s prerogatives to determine the means for pursuing its energy policy, its choice amid different energy sources and the overall structure of its energy supply. During the debates on the Lisbon Treaty, it was particularly Poland who showed a more robust commitment toward energy solidarity in the Treaties and threatened to use its veto if this concept is not included. In the end, the spirit of solidarity between member states which is set out in Article 122 TFEU was a Polish success, 18

19 although the provision is not as concrete as the Polish government had anticipated (Youngs, 2009:pp. 26). In sum, from the history of the European integration process, member states have continuously feel hesitant to delegate competence to the EU institutions in a way that echoes the spirit of the treaty (van der Linde,2007:pp.282) due to the fact that energy was located in the domain of high national politics (Braun,2009:pp. 430). As the European Commission s President José Manuel Barroso opines; the Union has the necessary size and necessary instruments but it lacks the political motivation to forge a common European energy foreign policy (Geden,2006:pp.11). 2.3 External Factors that influence EU s roles in international energy politics Bretherton and Vogler propose a three framework dimensions namely; opportunity, presence and capability which are all thought to be either boosting or limiting EU s role in the domain of energy policy. It will be interesting to briefly consider these dimensional frameworks in order to understand under what conditions the EU is expected to act. However, I shall consider only the opportunity, and presence framework because (having said elsewhere in this thesis) the reemergence of energy foreign policy in the EU agenda was based on the Ukrainian-Russo gas price dispute which share certain characteristic of these two framework dimensions. The first of these dimensional frameworks as presented by Bretherton and Vogler is opportunity. In this domain, one must consider the factors in the external background of ideas and events which could restrain or empower actorness (Bretherton and Vogler, 2006:pp. 24). From this perspective, opportunity signifies the structural framework within which the EU acts or is expected to act. Within this framework dimension of opportunity, we advanced two sub-frameworks namely; events and Ideas. In EFP, the structural framework of events would directly require an EU action. The growing nationalistic tendencies of resource producing states, the increasing demand for energy in general and for natural gas in particular and the subsequent competition between energy-importing states is for instance, a structural framework within which the EU is well situated and positioned to provide solutions. Its multilateral structure, its dialogues with energy producing states and its geographical location close to resource-rich states would make the EU a key player in the global energy affairs. 19

20 Accordingly, the European Commission has attempted to seize a number of opportunities such as the 2006 gas crisis, where the structural background of the crisis made it less difficult for the Commission to present itself as a legitimate negotiator and protector of its member states energy interests. With regard to the second sub-framework; the structural framework of ideas, it is evident that the EU endeavors to construct itself as the legitimate institution to formulate EFP. This is exemplified in the Commission s Gas Supply Directive which presents the EU as the most suitable and appropriate level of governance to formulate and implement solutions with regard to the security of gas supply (CEC, 2009:pp. 3). Through its numerous dialogues with energy-exporting states, the EU also wants to shape what is considered as legitimate in energy trade; this means that the EU mainly depend on market mechanism and a multilateral legal framework such as the Energy Charter Treaty to conduct its energy foreign policy. However, the combination of both the spheres of ideas and events contain the kind of opportunity that poses an inherent danger of what Hill (1993) called a capability-expectation gap for the EU (Hill, 1993:pp. 306). Without doubt, opportunity can be discursively constructed (i.e. Europe has to speak with one voice ), but it will lack reliability in the long term especially if the material conditions for seizing these opportunities are non-existent. In sum, with regard to the opportunity framework dimension, the extent of the EU actorness can be considered to be moderate since the structural background of both ideas and events would facilitate the EU to act, but the lack of proper foreign policy instruments makes this discursively constructed identity far-fetched in the long term. The last of the frameworks dimension under consideration is presence. Presence entails the capability of the EU, by virtue of its existence, to wield influence beyond its borders (Bretherton and Vogler, 2006:pp ). This dimension can further be subdivided in accordance with two main characteristics of the EU such as the physical existence of the union, and its identity, representing the shared conception about what the EU is and what it does. In addition, the external consequences of the EU s internal priorities and policies shape the presence of the EU. First and foremost, observing the primary sources of EU law such as Treaties and Secondary sources of EU Law such as council communications; one notices that the EU lacks a clear legal basis and competences in EFP. However, when it comes to identity, things appear to be rather different, given that there are shared understandings about what role the EU has to play. 20

21 At least oratorically there appear to be a firm commitment of the member states to essential EU values such as solidarity, as evinced in Article 122 TFEU which stresses a spirit of solidarity between member states, particularly in energy affairs in times of crisis. Moreover, in several other Council decisions the member states appear to have committed themselves to a more coordinated energy foreign policy at the EU level. However, these oratorical commitments are challenged by the real life behaviors of some of these member states who on a regular basis, violate the spirit as well as the letters of the legal instrument by either backing up their national champions or by engaging in a bilateral relations with energy exporting states at the expense of the member states who for one reason or the other cannot pursue their own individual policies without the help of the EU institutions. Secondly, the external consequences of the EU s internal priorities and policies are two-folds. On the one hand the EU priority to liberalize the internal gas market did not have an effect on EFP or on the behavior of energy-exporting states. The unsuccessful liberalization and the disjointed position of the European internal gas market make it less difficult for energy exporting states such as Russia, to play a game of divide and rule, thereby fostering the bilateralization of gas delivery deals in the EU. However, the EU 27 would have more impact on the global energy environment due to their collective position as one of the leading energy consumers, thus influencing the regional as well as the global energy market. On the other hand, the EU has succeeded in influencing the international energy political agenda with its continuous insistence on making energy policy an issue within which it pledges to assist the member states in international energy negotiations. The EU priority to internalize the energy policy paved way for the subject matter to be placed high on the international agenda settings such as the G8 (e.g. the 2006 summit in St. Petersburg). It remains, however, debatable whether the EU wields similar influence in bilateral negotiations. In sum, the extent of EU role in the framework dimension of presence is weak. The reason is that the material character of the EU and its identity in energy policies are not strong, and its agenda-setting role is also limited, therefore the external consequence of the EU s internal emphasis on energy has thus far, failed to materialize. 3 Methodological and Theoretical Foundations 3.1 Concentrating on the Member State Level 21

22 Making sense of the weaknesses in the EU Energy Foreign Policy necessitates an examination of the member States which are considered to be the propelling or breaking forces for such an ambitious project (Geden, 2006:pp. 3). Accordingly, the task is to examine the factors that can help explain why some member states (and not the others) recognize the EU as an actor, and are willing to transfer sovereignty to the European Union governance level in this policy domain. The analysis will include a selected number of cases (EU member States) which are systematically compared in terms of their behavior and attitudes toward an EU EFP. A comparative-case analysis is preferred over single-case studies, because it gives room for a greater degree of plausible generalization provided that similar questions are asked about each of the selected cases. Case based studies are generally suitable when the object of the enquiry is to answer the how and why questions (Yin, 2003:pp. 53, George and Bennett, 2005:pp. 84-6). A theoretical design could have certainly aided my attempt to identify the framework conditions (the independent variables) that influence member states behavior in energy foreign policy. However, given the lack of any theoretical framework to analyze this policy domain, this thesis should therefore be considered as a potential first step towards instituting basic theoretical propositions that will identify and account for these independent variables. As George and Bennett rightly assert, case studies are above all worthwhile for this phase in the scientific procedure, because they come in handy where statistical techniques are weak (George and Bennett,2005:pp. 19). The comparative assessment will thus investigate whether or in what ways do certain factors in the member states matter, and less on the extent to which they matter. Therefore the objective of this part of the study is more about understanding the underlying instruments and configurations than about the rate of recurrence of certain outcomes (George and Bennett, 2005:pp ). Besides, additional positive contextual conditions for case based research are; when the researcher has limited control over the events he is researching; when the limits between the phenomenon under study and its context are not easily discernible and; when the emphasis is on a contemporary phenomenon employed in an actual situation (Yin, 2003:pp. 1). All these prerequisites are assumed in EFP. 3.2 Choice of Cases and their Justifications The investigation in chapter four will thus include a comparative study of two EU member States that is qualitatively analyzed. The selected cases will consist of text analysis of 22