Ideas for liberty

The Energy Challenge for Europe – and Lithuania

Vilnius, 21 October 2008

Carlo StagnaroDirector, Research & Studies

Istituto Bruno Leoni

Istituto Bruno Leoni

Energy security

• A priority for 35% of Europeans (Eurobarometer January 2007);

• Security = Availability of reliable, sustainable energy at a reasonable price;

• An economic, environmental, and geopolitical issue.

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Fear is the path to the dark side.

Fear leads to anger.

Anger leads to hate.

Hate leads to suffering.

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Economics of security

• Security = cost;• Security ≠ price stability;• Trade off tra between “security”, “price

stability”, and “low prices”;• Liberalizations: the system becomes more

flexible and reactive– Investments need to be driven by the

markets;– Network unbundling.

• Globalization: arbitrage becomes easier.

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What does “liberalization” mean?

• Competition between sources– Nuclear; – Renewables;

• Competition between companies– Privatization;

• Deregulation– Demand;– Supply;– Prices;

• Unbundling– Proprietary is better – require less

regulation;– Non discrimination;– Investment policies.

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20-20-20‣ Fail to meet a target? Commit

to a stricter one!‣ 20% less consumption below

the baseline‣ 20% emissions reductions

below 1990 levels‣ 20% renewables

✦ Three major questions

1. Is it feasible?

2. Is it significant?

3. Is it efficient?

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The Death of the Free Market

Investments displacement: who needs more natural gas?

✦Demand control (consumption reduction)

✦Supply control (renewables + emissions reduction)

✦Price control (renewables + emissions reduction)

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Economic freedom as an alternative

Istituto Bruno Leoni

Istituto Bruno Leoni

Geopolitics

• Peace is the best strategy to pursue (energy) security;

• Integration vs. Protectionism– EU integration;– Integration with Russia;

• The Challenge is not to reduce reliance on imports, but to better integrate our economies;

• Europe can play a major role– Internally: Build networks, promote

unbundling;– Externally: create conditions for the free

market;– Create a market, not a bureaucracy;– Avoid inconsistencies!

• Promote an Energy Doha.

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Lithuania and Europe

• How to pursue economic growth while achieving security and sustainability?

• Are Lithuania’s interest opposed to Europe’s interests?• Environment• Russia

• Renewables, nuclear power (Ignalina), power trade, and natural gas.

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Lthuania’s per capita emissions…

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…and carbon intensity

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Lithuania’s challenges / 1✦ Meet its energy demand

✦ New power plants – especially to substitute for Ignalina nuclear power plant (state-owned, 70% of the country’s need) – but not “too many”!

✦ More interconnections with the rest of Europe;✦ Deregulate electricity/gas imports

✦ “Electricity interconnections with Western and Scandinavian electricity systems would enhance the level of competition.” (Source: National Control Commission for Prices and Energy, 2007)

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Lithuania’s challenges / 2

✦ Deregulate prices even though “this may lead to increasing electricity prices for small, thus more vulnerable customers whose electricity consumption is usually less efficient” (NCCPE, 2007);

✦ Rationalize consumption✦ Technological improvement;✦ Remove regulatory barriers;✦ Let the market do its job!

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Lithuania’s challenges / 3✦ Create a real market for energy

✦ Ownership – not just legally – unbundling; and privatize!

✦ Privatize state-owned former monopolists:✦ “In the absence of competition in both the generation and

supply sector, the actual opening of the electricity market is equal to 13% out of possible 74% of the national electricity consumption” (NCCPE, 2007);

✦ European integration;✦ Consistent policies.

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Final thoughts

✦ You (and we) need more Europe…✦ …but the right Europe, not the wrong one:

✦ The market for power is not a national market;

✦ More imports, but also more security✦ The Russian problem;

✦ Impact of financial crisis: need for fresh capitals…✦ …to fund economically efficient, socially desirable

investments:✦ More capacity, more competition, more

interconnections.

An energy policy like…

Kung Fu Panda?

Istituto Bruno Leoni

Thank You for Your Attention

Carlo StagnaroDirector, Research & Studies

Istituto Bruno Leonicarlo.stagnaro@brunoleoni.it