Internal Energy Market (IEM)
The Internal Energy Market (IEM) is an initiative by the European Union established in 1988 with the aim of creating a more integrated and competitive energy sector across Europe. The IEM seeks to eliminate barriers to cross-border energy trade, allowing consumers access to a variety of gas and electricity suppliers, thus fostering competition and potentially lowering prices. Historically, the integration of European energy markets has faced challenges due to nationalistic interests and the reluctance of member states to fully unify their utilities. The IEM aims to support the development of renewable energy sources, enhance energy security, and provide equitable access to energy networks, particularly benefiting regions that have been historically underserved.
Despite various legislative efforts, including the introduction of multiple energy packages, the full potential of the IEM has yet to be realized. Issues such as political will, national regulations, and the influence of monopolistic practices have hindered progress. The European Commission, while striving to promote competition and sustainability, often encounters limitations in its capacity to enforce a unified energy policy across member states. As the IEM continues to evolve, achieving a cohesive internal energy market remains a complex goal, requiring ongoing cooperation among European nations to address the diverse challenges they face.
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Internal Energy Market (IEM)
Summary: The Internal Energy Market was enacted by the European Union in 1988, but it has yet to come to full fruition as of the 2020s. The market was meant to remove barriers and establish common rules to open energy markets.
Early after World War II, Europe integrated coal and nuclear power, but the European nations proved reluctant to consolidate various utilities that retained their national focus, even after the shift from coal and the redefinition of nuclear as a future option. Although powered by international oil, utilities were powerless in the face of national politics. The 1973 oil embargo began a long struggle to overcome parochial interests in favor of a continental grid.
Thus, the European Union (EU) has long sought to create a true internal energy market, because it would provide consumers a choice between competing gas and electricity providers, thereby reducing cost. It would also allow entry to all suppliers, including the smallest and the alternative/renewable energy providers. Proper completion of a European energy market requires that the governments of European nations establish consistent and compatible tax rates and policies, particularly in oil. In instances where the energy market is a government monopoly, integration of markets should enhance competitiveness despite that monopoly. These were the goals in 1988, when the EU established the Internal Energy Market (IEM).
Energy networks that span Europe should allow the flow of energy throughout Europe. The supply should be cheap, diversified, and clean. It should prove a boon to the less fortunate regions that in the past have lacked access to the major networks for gas and electricity; that lack has been both the cause and the consequence of those regions’ historic underdevelopment. Networks promote competition; without networks, an integrated market is not realistic. Thus, it is appropriate that the European Commission be notified of all projects in the petroleum, electricity, and natural gas sectors (including those for developing renewable sources for creating electricity). Oversight should help to anticipate problems, encourage best practices, and make development of the EU energy system more transparent.
In 1974 and again in 1986, the EU attempted to prescribe a broad energy policy for both economic and security reasons. Nonbinding resolutions were weak, unenforced, and therefore useless. The Single European Act of 1986 and subsequent 1988 enactment of a single European market gave teeth to the energy policy. Still, Europe has not yet achieved an internal energy market.
In 2006, the European Commission (EC) showed signs of stepping up to its responsibility. Without an EC intervention, wind generation was hamstrung, because gas and electricity markets were not fully competitive, cross-border competition was blocked by nationalism, third-party (wind) access was hampered by major provider hindrance, and state aid to the conventional sources made competition by nontraditional sources more difficult. The nuclear energy sector was exempt from the internal energy rules as a result of the Euratom Agreement.
When member states failed to implement the renewable electricity and internal market laws or to meet their commitments fully, the EC began legal proceedings. The renewable sector, specifically wind, applauded the measure because it showed the EC was committed to giving renewables a level playing field.
In June 2009, the European Council adopted a package of internal energy measures approved by the European Parliament. The package included common rules for the internal market in electricity, rules for access to the network for cross-border exchanges, establishment of Agency for the Cooperation of Energy Regulators, common rules for natural gas markets, and rules for access to natural gas transmission networks. Rules were in place for offering of tenders and for unbundling transmission from generation and supply businesses. The package set down standards of service and rights of consumers. The gas legislation was comparable to that for electricity.
The intent of the package was to guarantee smooth operation of the internal market systems for the benefit of consumers and for improved EU energy security, sustainability, and competitiveness. Consumer benefits include lower prices. Suppliers benefit by greater access, particularly those offering sustainable energy. Fair competition between the EU suppliers and suppliers in third countries was also a goal. In short, common rules were established for generation, transmission, distribution, and supply of electricity, as well as for consumer protection.
In 2019, the EU introduced a Fourth Energy Package, which set out new rules for renewable energy and increased consumer incentives. A Fifth Energy Package, passed in 2024, outlined the target parameters for the EU’s net-zero climate policy.
Although the EU was trying to liberalize and deregulate the Internal Energy Market into the 2010s and 2020s, the goal remained elusive. When Russia and Ukraine experienced a natural gas crisis in January 2009, some European countries had shortages while others had none or found questionable solutions. The tendency remained for national governments to maximize internal gas supplies to keep their constituents pacified. They defined the market as a national, not a European, one. Critics cited the lack of political will as well as failure to act properly when Russia restricted the flow of gas through Ukraine. In a crisis, the member states showed not only that they had no cooperative approach but also that the EU remained too weak to intervene in a crisis.
The European Commission has no power to make energy policy; instead, it uses competition or environmental policies to go through the backdoor, and these efforts are inefficient and unsatisfactory because they do not address the core issue: the absence of an energy policy for all Europe. In the void, national policies remain primary, and the result is desultory development of networks across national lines, companies giving preferential treatment to internal customers, and discrimination in implementing the “common” rules on monopoly and opening markets. The internal energy market requires full application of a stronger EU law pertaining to free movement of goods and services, state assistance, and monopoly. As long as member states persist in citing unique diversity and internal security as reasons to avoid full participation, the Internal Energy Market will fall short of its potential.
Bibliography
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Lala, Fabrizio. The Internal Energy Market. Turin, Italy: Alpina, 2007.
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"What Is the EU Internal Market for Electricity?" Epex, Nov. 2022, www.epexspot.com/sites/default/files/download‗center‗files/Factsheet%20EU%20IEM-2211.pdf. Accessed 2 Aug. 2024.