"Understanding the Politics of European Energy Policy: The Driving and Stopping Forces, the Politics of European Energy, the Energy of European Politics and Maastricht II", By CHRISTIAN EGENHOFER

For almost thirty years, energy policy has been conducted chiefly in narrowly defined sectors such as nuclear energy and coal, with occasional but unsuccessful attempts to extend the EC's jurisdiction in times of real or perceived threats to energy supplies. The basis for these actions were the Treaties on the European Community on Steel and Coal (ECSC) of 1952 and the Treaty on the European Atomic Community (Euratom) of 1957. Outside these two sectors, EC policy has been limited to a series of broad and well established horizontal policy goals, such as promoting the rational use of energy and reducing Europe's oil import dependency. The creation of a single market for energy was not envisaged in any of the Treaties nor in the Single European Act which established the EU's single market. With the single market becoming more and more of a success, this restrictive approach was given up in favour of integration of EC energy markets.

All attempts to establish an independent energy chapter in the EEC/EC Treaty failed. Member states could not agree on EU competencies in the field of energy going beyond the existing ones of ECSC and Euratom. The most recent failed attempts to include an energy chapter in the Treaty date from the Maastricht and the Amsterdam (Maastricht II) negotiations.

2. EU Energy Policy to Date

The declared objective of the ECSC Treaty was to transfer control of national coal and steel industries from national authorities, notably in Germany and France to a supra-national institution. It would then become impossible for individual European countries to singly possess their heavy industry and armaments industries, in particular, and thereby would make a new war unfeasible. The ECSC Treaty of 1952 provides far-reaching competencies regarding market organisation as well as selected horizontal policies, such as research and development and restructuring of the coal and steel industries. Now that the substantive provisions, notably in the field of restructuring have been incorporated in the EC/EU Treaty, member states are currently discussing whether the ECSC Treaty should be abolished altogether with its expiration in 2002, especially since its economic importance has diminished.

The Euratom Treaty in 1957 brought the peaceful use of nuclear energy under the umbrella of the EC. This Treaty was a direct result of the Suez crisis. Euratom was meant to reduce the growing energy import dependence on the Middle East. It was also designed to create a European counterbalance to the military (and political) hegemony of the two superpowers USA and USSR that was firmly established after the Suez crisis. Since member states for reasons of both economic and national souveranity have continued to insist on keeping nuclear programmes ultimately under national control, no further progress was achieved.

The Rome Treaties, that led in 1957 to the foundation of the European Economic Community (EEC) did not foresee a separate energy chapter (although the Spaak report, which must be considered as draft EEC treaty, identified energy as an area for urgent attention). Member states did not accept an energy chapter since they were loath to lose their autonomy over energy policy.

In the absence of a legal basis for energy, EU energy policy was driven by a great number of EU competencies that have a strong bearing on energy policy, such as the single market provision (e.g. technical and tax harmonisation and public procurement) and competition policy. In a number of core EU policies such as the environment, regional policy, research and development policy and more recently, Trans-European Networks (TENs), energy has played an important role. A summary is provided in Table 1.

In addition, from time to time, attempts were made to enlarge the energy competencies of the EC. This happened mostly in times of real or perceived supply crises, such as in the beginning of the 1970s or, most recently, in the context of the Gulf war. In the 1970s, the promotion of research on coal and exploration activities in the North Sea through Community funds was on the agenda, and the mid 1980s saw the definition of common energy objectives. These objectives, which partly quantitative were designed to improve energy efficiency and with it, to reduce import dependence. With falling energy prices, the objectives were soon forgotten. Member states neglected targets on energy efficiency and other energy objectives to which they committed themselves. For example, the 1985/95 energy objectives foresaw a 20% increase in energy efficiency. A mere 5.7% was finally achieved. Intergovernmental co-ordination in the field of energy policies has not worked.

3. Maastricht: The Missed Opportunity

In the run-up to what would later be known as the Maastricht Intergovernmental Conference (IGC) of 1992, member states once again discussed the question of whether an energy chapter should be introduced in the EU Treaty. Although the original draft treaty of 1991 tabled by the Commission had still foreseen it, it soon became evident that an energy chapter would not stand a chance. Subsequent draft treaties by both the Luxembourg and the Dutch Presidencies of the Council of Ministers did not foresee an energy chapter. In good European tradition, however, member states agreed in Declaration No. 1 annexed to the new Treaty "that the question of introducing into the Treaty Titles relating to the spheres referred to in Article 3(t) ... will be examined, ... on the basis of a report which the Commission will submit to the Council by 1996 at the latest". The new Treaty added in Article 3(t) measures in the field of energy as legitimate Community activities. This amounted to little more than a legal "foot-in-theoor" and was by no stretch of the imagination an EU competence in the field of energy.

Member states were not ready to accept any curbs on their perceived or real autonomy in the energy field. Those countries with own reserves, such as the UK, the Netherlands or coal-rich Germany have always been against any energy competencies in "Brussels". The UK did officially not have an energy policy. Why should it concede competencies to Brussels? It did not matter that those without energy resources such as Italy, Spain or Belgium were in favour of a common energy policy (CEP). Another factor that worked against a CEP was the very different structures of national energy systems. While the UK relies on market forces, France tends to rely on government intervention. Nowhere is this better documented than in the network-based energy sectors gas and electricity. Primary energy fuels supply is another area where interests differed. While Southern members states are traditionally oriented towards the Mediterranean - until recently a rather neglected area - Central and Northern European countries wermore concerned with Eastern co-operation. Finally, very serious differences exist concerning the desired stringency of environmental legislation. While standards in Denmark, Germany or the Netherlands tend to be high, cohesion countries - with the exception of Ireland - generally experience problems in this area. The latter countries were afraid that a CEP would further toughen environmental standards making their industries uncompetitive, while others feared a lowering of standards through an EU energy policy.

None of the member states has declared the CEP as a national priority, preferring to concentrate their negotiations on "more important issues". This was also true for the Commission. The then Commission President Jacques Delors had only limited interest in energy and moreover, he had to accommodate fears of the French government that an EU energy policy would undermine the structure of the national gas and electricity industries. The then Energy Commissioner, Cardoso e Cunha in any case had already lost much of his credibility both with members states and with industry - which has traditionally been close to the Energy Commissioner - when he tabled proposals whose adoption proved to be entirely unrealistic.

4. Amsterdam: Lack of Interest

Although the question of an Energy Chapter was formerly part of the agenda for Maastricht II or as it afterwards come to be known as the Amsterdam Intergovernmental Conference, the failure of Maastricht was decisive. The Maastricht I ratification debates in various member states have revealed the deep mistrust governments and citizens feel towards new Community competencies. Maastricht was definitively the last "jumbo IGC" that tried to touch on almost every point. Nobody would have really wanted another IGC so close after Maastricht, if it had not been decided in Maastricht and therefore been part of the Treaty. The same holds true for energy which would not have been revisited if the Treaty had not demanded it. Not surprisingly, support for an Energy Chapter was lukewarm or non existent. Those involved in the run-up to the negotiations knew perfectly well that the new Amsterdam IGC would not concede - with the exception of an Employment Chapter - new EU competencies to the Treaty. Negotiators tried concentrate on the key issues which were reform of the common foreign and security policy, strengthening of co-operation in interior and home affairs, bringing the Union closer to its citizens and institutional matters such as the role of the EP, the Commission's organisation or voting procedures. Maastricht also brought a relative weakening of the European Commission which was to date the most fervent supporter of an Energy Chapter. One could argue though, that the European Parliament (EP) which is steadily gaining in influence could compensate for this. But it soon became clear that also the EP would not - in reality - oppose member states' reluctance to add an Energy Chapter. The EP was not interested in new EU competencies but rather enlarging the areas where it has co-decision power.

The lack of interest in energy was soon evident when the first documents for the IGC were published. The so-called Reflection or Westendorp Group, which was asked to prepare the IGC could not be convinced to propose an Energy Chapter. The majority was against such a chapter and proposed instead enhancing co-operation mechanisms. It is interesting to note that the opposition to an Energy Chapter has not been argued in any substantial way. This is just another indication of the deep-rooted differences that exist among the member states.

It was Finland that initially pushed for an energy chapter, in the hope that it would help to speed up implementation of gas and electricity liberalisation. Consequently, the Finnish proposal foresaw harmonisation of energy legislation and deregulation based on reciprocity. To give a flavour of how different the interests of member states can be, let us also consider the case of France which was in favour of an Energy Chapter, too, at least initially. France wanted to safeguard its service public. Current EC law stipulates that utilities, like all other sectors are subject to the EU's single market and competition provisions. In the light of imminent electricity and gas liberalisation, France attempted to include a clause in the Treaty that would exempt utilities from the single market and competition policy, creating in fact an "opt-out" of the single market for electricity and gas. After it became evident that the opt-out clause was highly unlikely, the French government lost its interest in an Energy Chapter. A somewhat different interest underlies Belgium's call for a Chapter. Belgium as well as other countries that lack their own resources expect that a CEP would enhance energy security through solidarity and flexibility in the single market. As background to Belgium's position, it should be noted that subsequent natural gas exports to Belgium from the Netherlands have been blocked in 1978 and immediately after by the Dutch government on grounds of supply security concerns placing Belgium a difficult situation to cope with extra demand and times of energy crisis. To date, the Belgium minister responsible for energy has argued for either the adoption of a CEP that would ensure Belgium's energy supply or a decision that grants national ministries the right to organise their national energy supply independent of EU intervention.

The European Parliament has been among the strongest supporters of an energy chapter. In various resolutions, it has demanded the integration of the ECSC (soon to expire) together with all relevant aspects of competencies in the EC treaty into an energy chapter under the heading "Environment and Security of Supply". This demand may, however, been fuelled rather by the EP's desire to gain further co-decision power - one of the overriding and less controversial issues of the IGC. So far the EP's right to co-decision in the ECSC and Euratom Treaties is limited. For example, it has real co-decision powers in the area of non-nuclear research but may only be heard in the nuclear field. Some MEPs went as far as to argue that the Treaty should give the Commission the task of setting the energy policy framework that would consist of internal and external orientations in questions such as supply security, climate policy or nuclear safety. But when asked in May 1996 about the EP's position regarding an energy chapr, Elisabeth Guigou, member of the Reflection Group, thought that the IGC had to discuss more important topics.

Against this background, it was not surprising that the debate on an energy policy, except in the early period after Maastricht I never really took off. Although the Commission launched various initiatives in the immediate post-Maastricht phase to re-start the dialogue with member states and industry, these efforts became fewer and fewer as the date of negotiations approached. As mandated by the Maastricht conference, the Commission tabled a proposal for an energy chapter which either would consolidate the provisions of the three treaties or introduce an energy chapter pursuing the completion of the single market, environmental protection and measures to improve energy security. The proposal, however, was never seriously discussed by the Council of Ministers. By then the spirits were already low and the lack of discussion in the Council meetings only confirmed formally what everybody knew, that there would be no energy chapter. Two months before the IGC, the Commission made another attempt to relaunch aga the debate but with no success. The question of an Energy Chapter no longer figured on the Amsterdam agenda.

5. EU Energy Policy after Amsterdam

In parallel with the discussions on an energy chapter, the European Commission has attempted to get an agreement among member states to create a formal co-ordination mechanism. In the light of the evident disinterest of member states to even discuss an energy chapter, the Commission was well advised not to rely too much on member states' "goodwill" but rather, to table a strategy based on existing competencies.

After intensive consultations with member states and leading industries and trade associations, the Commission has presented its White Paper Towards an EU Energy Policy. It tried to prove that energy policy formulation suffers as a result of the lack of coherence that could not be guaranteed by the existing competencies in the field of (single market) regulation, competition policy, environment or external relation. The White Paper criticised the fact that there was no body within the EU that deals with security of supply, an issue with a decided collective (read: EU) dimension. As a result, energy policy within the EU risks being dominated by environmental or competition policy. Instead of calling for new competencies, the European Commission has proposed the creation of a formal co-ordination mechanism to focus and reconcile the various energy policy objectives. The White Paper formulated four key objectives of EU energy policy based on non-energy competencies: competition, external relations, environment and research. In intensive consultations with industry, member states and the European Parliament, the European Commission managed to get an agreement in principlelthough the adoption of the co-ordination mechanism as well as the formal adoption of the agreed objectives are still pending.

The value of this initiative may not be the co-ordination mechanism. Its real importance lies in the fact it seems that the European Commission will manage to secure an agreement on the broad objectives of energy policy. This is a good starting point from which muster support from the European Parliament, member states, industry, unions and consumer groups which previously were opposed to an EU energy policy, not knowing what such a policy would look like.

6. Driving Forces of EU Energy Policy in the Next Century

In the absence of an energy chapter in the EU Treaty and thus, no legal basis, EU energy policy will continue to be conducted - as it has been in the past - by a number of existing EU competencies, notably competition, environment and external relations. The Commission has identified deregulation, better management of external relations and environmental policy as three of the four key instruments. They are all backed up by strong EU competencies. The single market (i.e. market integration) along with monetary union and common activities such as environmental or consumer protection, trans-European networks is one of the three means to achieve the EU's Treaty objective. The increasing external identity of the EU (further reinforced in Amsterdam) is likely to provide good opportunities to the EU to play a more prominent role in relations with producer countries whether in the East or the South.

A. The Completion of the Internal Energy Market will Alter the Game

The lack of both interest and success of energy policy must also be attributed to the Community's failure to implement a common market for energy, especially electricity and gas. It is indeed difficult to understand why a Community based on the internal market and the principles of a competitive, open-market economy, free from the distortions of restrictive agreements, the abuse of dominant positions or the granting of state aid by governments, was not able to implement such an internal market. This is not to criticise the European Commission, although it may have committed some tactical or even strategic errors. Rather most of the blame should be placed on the member states and perhaps, to some extent the European Parliament. Without retelling in full the sad story of the (un)common market of gas and electricity, some of the reasons for its failure so far nevertheless must be given.

The creation of an internal market for energy was not part of the Single European Act which launched the EC-1992 programme. Only as late as 1988 was the creation of a single energy market actively started after it was evident that energy markets were deeply affected by single market legislation. Key areas of legislation included public procurement which, despite a delay, soon had to be applied to the energy sector. Tax harmonisation and environment legislation also affected the sector. But the most important was the active application of the hitherto dormant competition rules (e.g. Art. 90 and competition rules 85, 86) to utilities for the first time.

Still, it took nine years to reach an agreement on electricity. It took a decision of the Florence European Council (Summit) in June 1996 to secure agreement on a very complicated common position which in an equally complicated way, was accepted by the European Parliament on 11 December 1996. Not surprisingly, the adopted Directive (96/92/EC) is cautious and competition may to be slow to take off. In the case of the single buyer, some have expressed doubts whether it will ever make an impact on competition at all. After 8 years (including 2 years for implementation), 33% of the market will be opened to competition in all member states. In addition, there is a safeguard clause which stipulates that in case of unequal market opening between two member states, cross-border competition can be curbed.

This overlooks that EU liberalisation will be speeded up through national initiatives. The Nordic countries, notably Sweden, Norway and Finland have a competitive environment without parallel. New initiatives are being launched in the Netherlands, Spain and Germany. Gas liberalisation will have its biggest effect on the power sector. And with eligible customers for electricity shopping around, new market dynamics will be initiated. The breakthrough in electricity subsequently speeded up the negotiations in gas. The Energy Council on 3 December 1996, confirmed that the internal gas market should be opened as soon as possible. The Dutch presidency (first half of 1997) has advanced the dossier considerably. A common position seems within reach for the Energy Council on 8 December 1997.

Convergence of National Energy Markets

A first effect of liberalisation on EU energy policy will be convergence of national energy systems. Convergence is likely to take place regarding primary fuel supply (i.e. more gas to the detriment of coal), generation technologies (i.e. combined heat and power, CCGT) but also through regulatory and tax competition within the internal market. Converging energy economies in member states will smooth out national differences and align policy orientations, the many variations of which have so far hampered formulation of a common energy policy.

Strengthening the EU 's Regulatory Capacity

In parallel, liberalisation will lead to a diminishing role for governments. Markets and expected profits, not governments, will dominate investment decisions. Liberalisation, however, does not eliminate the need to regulate "competition" for network-based industries at least in the transition period. Nor will it make other forms of economic regulation or competition policy obsolete. These functions, however, are typically undertaken at EU level.

It is difficult to speculate on the extent to which regulatory functions will be centralised at EU level, that is how will the interaction between national and EU regulators (Commission backed up by the ECJ) develop. This issue has so far been intentionally avoided in both the gas and electricity directives due to political sensitivities and legal and technical complexities. It may, however, emerge as soon as competition emerges. The telecoms sector may prove to be a good pointer.

In telecoms, there are increasing concerns about excessive decentralisation of crucial areas such as licensing and interconnections. In the absence of centralised regulators, as in the UK or the US, implementation is based on the formulation of principles and fairly general obligations for the national regulatory authorities. This bears the risk that national regulators support incumbents with market power. In addition, operators will be faced with the fact of 15 different interconnection and licensing frameworks. This challenge is less overwhelming for established "global players" or incumbents than for new entrants which might be deterred. Not surprisingly, incumbents in telecoms are opposed to a strengthening of EU regulatory powers although, ideally, they should be in favour of a harmonised European market with one-stop-shopping. Secondly, there is a danger that EU regulation is not backed up by a suitable executive machinery that has technical expertise and is able to speedily react in case of diutes. The current procedures under Art. 169, 90 II may be too slow and heavy.

This is not to say that the European Commission will find open doors provided that it proposes a strengthening of the EU level regulatory (not competition policy) capacity. Member states are afraid of losing further powers and the EP will be watching carefully to see that it is properly represented in the process. But there are important pressures pushing towards such a strengthening of the EU-level regulatory capacity.

Broadening of Regulatory Considerations

As the UK regulators show, the regulatory process tends over time to broaden the scope of "legitimate" concerns to be addressed. Increasingly environmental and consumer aspects become the central areas of concern diverting attention away from "regulating competition". A similar process may unfold in the EU. With the reinforced environment and consumer protection chapter, partly, a result of the discussions on utilities (but not solely), pressures from the EP, environmental NGOs or consumer groups will mount on the European Commission and eventually, will more readily be translated into policy. This is even more so because transparency, citizen rights and more generally, what the EU can do for its citizens, have been and will be in the future one of the main themes in the EU. The consumer protection directorate (DG XXIV) has been completely revamped, doubled its staff and enlarged its competencies. Since re-organisation, consumer protection of utility customers has become part of their remit. Even befo, in its communication on the European gas supply and even more so the proposal for mandatory demand side measures (Draft Directive on Integrated Resource Planning - IRP), the European Commission acknowledges that security of supply and environmental concerns are in the remit of EU regulation. And one should not be surprised to find in the light of climate change policy, additional regulation regarding, for example, quotas for renewable energy sources in the energy supply sector, as pushed for by the EP or mandatory energy efficiency measures.

B. Lending Support to EU Energy Policy Formulation

While completion of the single energy market will be the main driving force towards a stronger involvement of the EU level of governance, two other long-term developments will further reinforce this evolution: the growing external identity of the EU and climate change policy. While the former is likely to be evolutionary, the latter's progress will be less predictable depending on the outcome of international negotiations such as the Kyoto conference in December this year.

Growing External Identity of the EU

The creation of the external identity has for a long time been a steady feature of EU development. The Community has its origins in security concerns and, despite failings and shortcomings, has constantly increased its standing in international negotiations as well as although with very mixed results in international crisis management, including the military dimension. The Amsterdam IGC made some progress towards the strengthening of its external and military identity. This will in the medium-term make the EU a stronger or at least more present partner in the world arena which will be more readily accepted as partner. In return, the EU should be able to exert greater influence in the international arena and in the longer run play a more active policy in support of its energy companies as has been the experience of the US.

Implicitly, the EU accepts the fact that it has to play a greater role in energy security. Nowhere was this better demonstrated than in the cases of the Energy Charter Treaty (ECT) and the Euro-Mediterranean Partnership.

Both the ECT and the Euro-Mediterranean Partnership have been initiated as part of a broader security partnership with a strong energy dimension. The ECT has its origins almost entirely in energy. The original idea was modelled very much on the ECSC but soon it became clear that the economies of the then, still USSR and the Western Europe were too divergent to allow a ECSC-style supranational co-operation to develop. Seen in the original approach, the energy Charter (as it then was) would have been the external imposition of an energy chapter. Such an approach did not, of course, not stand a chance.

One result of the discussions on the ECT was to highlight the role of the EU in securing Europe's energy supply. The Commission, which is a signatory, was the main driving force for the signature of the Charter and the ECT. This alone, as we have seen, does not mean that the EU has enlarged its competencies. Nonetheless, if the ECT will be filled with life, the EU as a supra-national body might gradually take a bigger role in ensuring the application of the ECT provisions.

The adoption of the EU-Mediterranean co-operation programme in the follow-up of the Barcelona conference of November 1995 was a mixture of security (stability of neighbouring countries, immigration) and energy issues. There is a clear link with the ECT. Some of the biggest primary fuel suppliers to the EU, namely the Mediterranean countries, are not members of the ECT. Although, and this is the paradox, these countries would probably better fit into the general framework than, for example, Russia, which has a very special position. Currently, the European Commission is exploring whether Mediterranean countries are interested in joining the ECT. Independent of adhesion, the European Commission has proposed a number of activities in the spirit of the ECT, linking collective security concerns with co-operation in the energy field. Measures include EU-Mediterranean as well as regional and local energy co-operation which is seen as a means to launch intra-Mediterranean energy trade and with it to improve t security structure in the Southern Mediterranean. Reference point is the EU rather than member states.

It is important how the EU's external image will develop. This will depend, among other, on how the EU manages the current governance issues that emerge in international negotiations (e.g. GATT/WTO) or in peace-keeping or crisis prevention missions but also how it handles the proposed enlargement to the East. Speedy and efficient negotiations and accession will enhance the EU's image. By far the biggest influence on the EU's international standing will be the completion of European monetary union which will fundamentally alter the projection of the EU's image world-wide.

The Predominance of Climate Change Policy

Most greenhouse gas (GHG) emissions are more or less related to energy production or use. CO2 and CH4 (methane) alone are responsible for about 85% of the contribution to global warming. Almost all CO2 and CH4 emissions are related to energy production and use. Climate change is in fact almost a synonym for energy conservation and efficiency and therefore energy policy. Independent of the outcome of Kyoto, GHG reductions of a significant magnitude are on the agenda, at least in the long run.

The EU has proposed a 15% reduction of GHGs by the year 2010 (reference year: 1990). One can argue whether the EU is serious about 15%, but it is undoubtable serious about 10% - for which it has already worked out a difficult burden-sharing scheme.

The voices that flatly refuse to accept the available scientific evidence that climate change is a problem become fewer and fewer. The Geneva Conference of the parties has endorsed the second IPCC Report as "the most comprehensive and authoritative assessment of the science of climate change". The report comes to the conclusion that "the balance of evidence suggests a discernible human influence on global climate" despite some provisos. GHG reductions, be they of in the magnitude of 10%, 15% or "only" 7%, will alter the way energy is consumed and produced. Such reductions are most likely only to be achieved with the help of pro-active policies.

This is confirmed by the European Commission's Communication on EU Climate Change Policy in the run-up to the Kyoto conference that has recently been published. The document proposes for the energy field a combination of energy liberalisation (e.g. leading to better efficiency, fuel switching) and a pro-active policy, for example, regarding the promotion of renewables or combined heat and power. Renewables are also supported by the EP. For example, it calls for a 15% contribution of renewables in the primary energy consumption. Suggested instruments include e.g. green VATs, tax incentives, quotas, obligations, taxes and voluntary commitments of the supply industry.

It is far too early to speculate about the final shape of climate change policy. This will not be known before Kyoto and most likely only after a number of follow-up conferences. But it is clear that all major players in the OECD are prepared to commit themselves to stabilise GHG emissions. Even such a "minimum" solution would mean for the EU to reduce 8% of GHG emissions until 2010 compared with a business as usual scenario. In these circumstances, the EU and member states will have to take measures that will influence the energy sector profoundly. These measures do not necessarily have to be undertaken by the EU; however, the EU will have to ensure that national measures do not undermine the single market. And the Commission's responsibility is first and foremost to ensure that the single market is maintained intact.

7. Conclusions

The discussion on the need of a CEP in the EU has shown that, de facto, the European Union in the past has pursued policies that have had a strong bearing on energy policy and the energy sector. First, a number of direct competencies existed in the field of coal and steel and nuclear energy based on the ECSC and the Euratom Treaties. The EEC, later EC Treaty, has no direct energy chapter but the completion of the internal market (e.g. common regulation, tax harmonisation, environmental legislation, public procurement) has had a strong bearing on energy.

In the absence of a true internal market for energy, notably in electricity and gas, member states could not agree on a common energy policy codified in an energy chapter. Given the institutional context of the EU, notably member states' unwillingness to grant new competencies to the EU, such a chapter will not become reality in the near or even medium-term future.

The completion of the internal energy market will completely alter the rules of the game. It will lead to a convergence of national energy sectors and thereby national energy policies. In the medium-run, it will lead to an enhancement of the EU's regulatory capacity most likely stretching from pure internal market aspects (standardisation, harmonisation of policies, etc.) and competition policy to a new area, regulation of network industries. Via this regulation, the EU will have to increasingly incorporate more and more flanking policies such as the environment, consumer protection, etc.

Another driving force, climate change policy, will submit the energy sector and energy policy to a pro-active environment policy. From a legal point of view, the absence of an energy chapter does not matter since these policies will be adopted under the EU's environmental or single market chapters. Another question is whether the environmental legislation is the appropriate base to ensure a healthy energy sector. In this area, the absence of an energy chapter to balance environmental policy may prove to be negative.

The growing external identity will in the longer run increase the importance of the EU in terms of long-term security of supply and relations with suppliers countries. The gradually emerging - although still embryonic - military capacity will enhance foreign recognition of the EU. Supplier countries may be more willing to negotiate with a capable military power than with a paper tiger.

Both the ECT and the Euro-Mediterranean Partnership represent an implicit acknowledgement of a collective responsibility of the EU for energy security.

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