In terms of volume of transactions, Europe has become a focus for the process of electricity liberalisation globally. Therefore Europe must also become the proving ground for integrating environmental considerations into this new model of electricity markets.

The emergence of consumer choice that allows for Green Power schemes so far appears to have been small compensation for some of the more worrying trends for human health, the environment and the wider economy that the process of liberalisation has set in motion. The problems arise from the inadequacy of current regulations in safeguarding clean production methods, efficient energy use and energy security. Strengthened regulation is needed to balance the adverse effects of the purely commercial, competition-based rules that are currently in place.

These key trends of concern identified in the report are:

1. End user price reductions - which will tend to drive increased consumption
2. Price volatility - which weakens position of clean energy industry
3. Market domination by major retailers regardless of environmental integrity of supply
4. Legally challenged renewable energy promotion mechanisms
5. Energy insecurity - projected increases in fossil fuel concentration and import levels
6. Persistent inherent subsidising of non-sustainable energy generation

1. Price reductions
The domestic and industrial consumer price of energy is dropping. This provides a disincentive to use energy more efficiently. In fact, the energy providers' ability to sell power at low cost reflects the fact that the polluter is still not required to pay for the damage to the environment that their use of conventional energy causes. The true cost of power must be reflected in the new market electricity production is to be de-coupled from rising CO2 emissions and other environmental degradation.

2. Price volatility
So far, there has been inadequate protection at a European level for small but growing sustainable energy industries such as the renewable energy sector. Starting industries are considerably more vulnerable than established sectors and are currently exposed to short-term energy price volatility and price wars. This volatility is a predictable effect of the transition from captive (static) customers to contestable customers, and the simultaneous transition from many small and medium-sized suppliers to only few large suppliers. Adequate provisions for assisting vulnerable industries to manage the transition into the liberalised market have so far not been made, leaving Member States to individually fill the gap and protect their promising growth industries in isolation.

3. Market Domination
The dominance of Electricité de France (EdF) clearly demonstrates the vulnerability of the European market to national monopolies which use their secure home base to build regional monopolies. The degree to which a handful of players has come to dominate the current system indicates the degree of market dominance that can be anticipated, and the concentrations of financial and political influence that will result if this trend continues unchecked. In the light of inadequate environmental regulations, control and enforcement mechanisms at EU level, it can be expected that the shareholder demand for dividend in a competitive market will dominate any potential margin for environmental responsibility, unless that responsibility is legally imposed.

4. Threatened renewable energy promotion mechanisms
The European Commission appears to be at odds with itself in how to deal with the renewable energy sector. On the one hand, for the Commission’s plans require this sector to supply 22.1% of electricity consumed by 2010. On the other hand, the European Commission is challenging the German renewable energy feed-in law. In light of this discrepancy it cannot be discounted that the up-coming guidelines on State Aid for environmental protection may also be used undermine the basic aim of the EU Directive on Renewable Energy (to boost renewable energy generation in the EU). The German feed-in law case may give an insight into the Commission’s ambivalence towards actually promoting renewables: this lack of policy co-ordination is very damaging to Europe’s new clean energy generation industries.

5. Energy insecurity: Increased fossil fuel concentration and import levels
Predictions of a gradual increase in Europe's fossil fuel imports show that the issue of energy security has not been addressed as part of the liberalisation process. Leaving Europe with a high-risk energy supply, and moved away from, rather than towards, increasing indigenous energy production through renewable resources.

6. Persistent inherent subsidising of non-sustainable energy generation
There is significant cause for concern when substantial national subsidization of the conventional energy sector is combined with international liberalisation. Subsidies can be used to allow energy producers from non-sustainable sources (predominantly fossil fuels and nuclear) to undercut other players that use more environmentally sound energy generation methods. The fact that both the European Commission and the European Parliament are only now attempting to quantify subsidies in the electricity sector, shows that this issue has not been seriously considered to date.

CONCLUSION
Many of these recommendations can be addressed by the European Commission within the process of refining and adopting the Renewable Energy Directive and State Aid Rules, and should thus be acted upon forthwith. The European Council will assess the progress of the electricity market at its March 2001 summit in Stockholm. That summit will be a key opportunity to assess the success or failure of addressing the environmental holes in the single electricity market and applying appropriate corrective measures where necessary.

Dr. Karl Mallon
Director of Energy Solutions
Greenpeace International