Analysis: Polish EU lead could yet set green energy example

LONDON Wed Sep 14, 2011 5:23am EDT

LONDON (Reuters) - Half way into its EU presidency, Poland still has the opportunity to lead eastern Europe in bringing on efficient energy technology and to prove wrong those who see it only as an obstacle to a greener agenda.

Its often tense ties with leading gas producer Russia could also sharpen the debate on how to secure reliable energy supplies as tensions once again mount between Moscow and Kiev, which dominates Russia's gas transit route to western Europe.

Talks next Monday and Tuesday in Wroclaw, southwestern Poland, should bring together the EU's 27 energy ministers to talk informally about the European Union's external energy policy and the development of infrastructure within the bloc, crucial to meeting a so far elusive target to improve energy efficiency.

"Poland brings a new perspective on environmental policy," said Dieter Helm, professor of energy policy at Oxford University.

"Poland is in a very good place to promote security of supply, especially since the Germans and Russians deliberately put the Nord Stream (pipeline to ship Russian gas) round the outside of Poland."

Ahead of the talks in Wroclaw, a draft document obtained by Reuters on "engaging with partners beyond our borders" showed EU proposals to increase the Commission's mandate to be involved in energy negotiations between member countries and those outside the bloc.

Analysts have interpreted that as an attempt to prevent cozy bilateral ties between big gas consumers, such as Germany and Italy, and their major supplier Russia.

The draft also urged closer EU-wide links with Russia and Ukraine, through which some 20 percent of the EU's gas supply travels, according to EU figures, as well as giving mention to renewable energy and improved electricity networks.

Green campaigners want more. The answer, they say, to the security of supply problem for a bloc, which depends on imports for more than 60 percent of its gas and more than 80 percent of its oil, is greater efficiency, not more pipelines or more Commission involvement -- often seen as meddling by the private sector -- in their negotiation.

POLAND'S CHANCE TO LEAD FROM THE EAST

As the biggest economy in central Europe, Poland, which relies on a grid largely dating back to the Cold War era, is well-placed to lead from the eastern fringe of the EU.

"Now is the chance for them to modernize the system and make it more efficient and suitable to renewable energy generation, rather than just replacing and expanding the existing structure that is largely based on centralized coal power production," said Frauke Thies, EU energy policy advisor for Greenpeace European Unit.

"Unfortunately, Poland has not yet shown sufficient determination to move forward."

At the start of its six-month tenure as EU president, Poland in June blocked an attempt by EU environment ministers to strengthen EU action to combat climate change.

However, the nation, which holds the presidency until Denmark takes over at the start of 2012, has pragmatic reasons for shifting toward a more environmental approach.

Its heavy use of carbon-intensive coal means it is keen to lower the cost of the carbon permits its factories and utilities have to buy under the EU Emissions Trading Scheme, designed to help Europe meet its target of a 20 percent reduction in carbon emissions by 2020 compared with 1990 levels.

Greater efficiency could lower a carbon price, which has already shrunk to less than 12 euros a tonne, but could increase once the ETS moves into its next phase in 2013 and a current glut of carbon permits declines.

"Poland will probably be quite pro-efficiency because it's in favor of a low carbon price," said Kash Burchett of IHS Global Insight.

For such a big carbon emitter, some argue progress is almost inevitable.

"As they are around 90 percent dependent on coal, it's difficult for them to come up with higher emissions. There's a lot of low hanging fruit," said Peter Osbaldstone, European Gas & Research Analyst for Wood Mackenzie.

The opportunity of selling power to its neighbors, as the EU edges toward a single European energy market, provides another incentive for Poland to modernize and as a consequence become more environmental.

"If it is to be integrated into the rest of Europe, it has to move toward a lower carbon economy because that's the direction its neighbors are going," said Sanjeev Kumar of environment group E3G.

WARINESS

Poland's geography has also led to difficult relations with Russia and arguments over the transit fees Poland charged for Russian gas to flow through it to Germany.

Equally, Russia has been at odds with another transit nation Ukraine, a neighbor of Poland, in a bitter pricing dispute that in 2009 led to the disruption of gas supplies to European countries, including Poland and Germany.

Tensions have flared again, coinciding with Russian Prime Minister Vladimir Putin's inauguration of the Nord Stream pipeline, which bypasses Ukraine and also Poland by shipping gas through international waters before making landfall in Germany.

As it seeks to reduce its need for Russian gas and move away from polluting coal, Poland is keen to develop its deposits of shale gas -- the largest in Europe.

Shale gas, however, is not free from controversy.

Following environmental concern about the hydraulic fracturing or fracking process for extracting gas from shale rock, An EU spokeswoman said the European Commission had ordered a legal study to assess whether EU legislation is adequate to cover any problems.

Results of the study are not expected before the end of the year.

Poland's wisest strategy, could be to look on as the simmering Russia-Ukraine dispute provides a compelling argument for shale gas.

"Its best option is to sit back and watch the show," said Burchett of IHS Global Insight.

(Reporting by Barbara Lewis)

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