7th February 2013

Franco-German energy cooperation – from a joint declaration to measurable results

by Georg Zachmann on 7th February 2013

At the celebrations of the 50th anniversary of the Elysée treaty the Franco-German Council of ministers issued a joint declaration on guidelines for future cooperation [link]. The document called, in the expectable diplomatic language, for a closer Franco-German cooperation in the energy sector.

But is there policy space for a new initiative of Franco-German energy cooperation when coordination of energy policies is already high on the European agenda? In fact, energy was one of the earliest issues of European collaboration (European Coal and Steel Community, Euratom). And the EU continues to strive for the internal market and a European approach to energy security of supply.

But, space for improving Franco-German energy cooperation remains large. Despite all European initiatives France and Germany have in the last 50 years consistently resisted to engage into a deep cooperation on energy issues. Both countries were so far largely unwilling to work together when cooperation required surrendering sovereignty over their respective energy sectors. Different national priorities and preconditions remained the basis for very different energy policy choices. Only in very few areas – such as European climate policy – cooperation allowed a joint policy to be more than the sum of its parts. In other areas national policies merely coexist without reaping obvious benefits from cooperation. The planning and funding of electricity transmission networks, for example, remains national. The lack of coordination leads to underbuilding the transmission capacities needed for effectively pooling volatile local power sources such as wind solar and hydro. Even more, there is also a number of national energy policies with adverse spillovers on neighbors: Attempts to use energy pricing to gain competitiveness vis-à-vis other countries are undermining energy efficiency policies and the single market idea of using power where it is most valuable. Unpredictable policy changes to redesign the power plant park affect electricity prices, investments and hence supply security throughout Europe. The strong use of uncoordinated national incentives for supporting generation assets (capacity mechanisms, feed-in tariffs) leads to a costly overbuilding of generation assets. [The high level of implicit support to some technologies (renewables, nuclear) makes other technologies needed for system security less competitive (e.g., gas turbines). Consequently, several individual member states including Germany and France are considering an uncoordinated introduction of national incentives for those technologies.]. All this increases the cost of electricity for citizens and industry above what could be achieved in a well-coordinated system.

Under these circumstances closer cooperation could produce measurable benefits for the citizens of France and Germany by reducing the cost of energy for final customers and industry as well as improving the international competitiveness of European energy technology providers. But for this to happen, small progress on issues everyone could agree on or spending large sums of money on symbolic projects will not be enough.

In the past, the benefits of more coordination on critical issues such as transmission system operation and planning, renewables support or funding for rarely used power plants have not been perceived big enough to outweigh the significant political and transaction costs. However, recent developments (unbundling, renewables, increased cross-border trade) have substantially increased the value of greater coordination. Thus, it is the right time to envisage a bolt step towards increased cooperation. If they want to, France and Germany could become the avant-garde of cross-border energy cooperation in continental Europe and could thus set the standards for Europe. What would happen if a joint Franco-German renewable support scheme or a joint capacity mechanism would be proposed? Or if Germany and France encourage their electricity system operators to merge in order to effectively deal with electricity transmission between the Baltic Sea and the Mediterranean? Or if France and Germany agree on a consistent proposal for a joint market design that allows full decarbonisation by 2050?

Many continental European countries will be unable to resist the advantages of joining such a strong cooperation if France and Germany could positively sort out the important redistributive effects involved in these questions in order to share the benefits of cooperation. And the Elysée treaty could once more become a catalyst for more European integration to the benefit of its people.