The US & Europe’s Regional Giant by Antall József Tudásközpont

A J R C A N A LY S E S

ANTALL JÓZSEF RESEARCH CENTRE AJRC2021E29

Kasey Golding

THE US & EUROPE’S REGIONAL GIANT: CENTRAL EUROPE’S ROLE IN TRANSATLANTIC ENERGY SECURITY

d i g i t a l i s t u d a s t a r. a j t k . h u

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THE US & EUROPE’S REGIONAL GIANT: CENTRAL EUROPE’S ROLE IN TRANSATLANTIC ENERGY SECURITY KASEY GOLDING

INTRODUCTION During the 2018 Three Seas Initiative Summit, former US Energy Secretary Rick Perry commented, “Transatlantic energy security is fundamental to the national security of all of our nations.”1 Given the critical need for the EU and the US to ensure sustained access to diverse and affordable energy sources, cooperation within this transatlantic community is essential. Over the past few years, the transatlantic community has made significant progress in leveraging global energy resources to increase energy security. However, European energy security remains a challenge for both sides of the Atlantic. The EU continues to struggle with diversifying its energy portfolio while individual member states, such as Germany, continue to rely heavily on single-energy suppliers for the majority of their energy needs. As the region grapples with competing economic interests and differing perspectives, the US and the EU have struggled to create a comprehensive energy-security partnership. Many EU member states have discovered that their particular concerns and objectives regarding energy often diverge from the proposed EU agenda and have moved to develop their own internal approach to energy security. In particular, the states of Central Europe have been especially aggressive in asserting their own agency in the energy-security debate. By establishing a regional approach through partnerships like the Three Seas Initiative, the Visegrad Four (V4) have diverged from the EU on a number of key issues, decisions that strengthened markedly their influence within the union. Significantly, the US has taken note of this stronger, more autonomous position. This paper will seek to analyse the role of Central Europe—specifically the V4 regional cooperation—in transatlantic energy security policy. It will first attempt to present a bigpicture view of the EU energy agenda as well as an overview of the energy portfolio of the individual V4 countries. It will then discuss the importance of regional cooperation within the V4 on energy policy and the emerging role of the US within these partnerships. Finally, this analysis will touch briefly on the current security dilemmas plaguing the transatlantic security relationship and will conclude with a short look at the long-term security threat of climate change within the Central European region.

U.S. Secretary of Energy Rick Perry at the Three Seas Initiative Business Forum. U.S. Embassy in Romania. <https://ro.usembassy.gov/secretary-of-energy-rick-perry-at-the-three-seas-initiative-business-forum/ > Accessed: 29 November 2021. 1

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THE EU ENERGY AGENDA & TRANSATLANTIC COOPERATION The EU energy sector is largely dependent on imports from third countries to meet the energy needs of its consumption. In 2019, the EU only produced roughly 39% of its own energy, while it imported 61%.2 In that same year, the energy mix in the EU, meaning the range of energy sources available, was mainly made up by five different sources: petroleum products, including crude oil, (36%), natural gas (22%), renewable energy (15%), nuclear energy, and solid fossil fuels (both 13%).3 One facet of the EU’s energy sector that causes concern for the US—as well as certain EU member states—is the region’s over-reliance on Russian natural gas. Currently, the EU imports roughly 41% of its natural gas supplies from Russia, and the introduction of a completed Nord Stream 2 pipeline (a controversial project that would connect Russia to Germany via the Baltic Sea) will only increase this number.4 While proponents of this pipeline claim that it would create new economic opportunities within Germany and mend Europe’s relationship with Russia, detractors fear that Nord Stream 2 will only serve to solidify Russia’s energy monopoly on the European continent. In a joint statement made by Bob Menendez, chairman of the US Senate’s Foreign Relations Committee, and eight other European nations, including Poland and the Czech Republic, Germany was urged to reconsider this deal in spite of the US’s recent decision to greenlight the project: We, the Chairs of Foreign Affairs Committees of our respective national parliaments, continue to oppose the Nord Stream 2 pipeline project and with regret note the recent decision of the United States and Germany on Nord Stream 2, which entails resuming completion of the pipeline. We consider Nord Stream 2 a geopolitical project geared towards expanding Russia's influence on Europe by dominating the energy market […] and will endanger the national security of EU member states and the United States ...5 Though the two sides of the Atlantic have not shared the warmest of relationships over the past few years, US influence remains strong in European energy decision-making—thus rendering transatlantic cooperation in this sector pivotal to establishing a more energy secure Europe. One specific component of the EU–US energy sector is the increased trade of US liquefied natural gas (LNG) to Europe. The United States is the biggest gas producer in the world, and since the Trump–Junker agreement in July 2018, there has been a steep increase of US LNG imports to EU member states.6 While the US enjoys the economic benefits of increased exports, the geopolitical hope is that this diversification of the

Where Does Our Energy Come from? Shedding light on energy on the EU. <https://ec.europa.eu/eurostat/ cache/infographs/energy/bloc-2a.html > Accessed: 1 December 2021. 2

Idem, pg. 1.

Mark Temnycky: Europe Must Reduce Its Dependence on Russian Gas. Euronews. 1 November 2021. <https://www.euronews.com/2021/11/01/europe-must-reduce-its-dependence-on-russian-gas-view > Accessed: 1 December 2021. 4

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EU-U.S. LNG Trade. European Commission. 8 January 2020. <https://ec.europa.eu/energy/sites/ener/files/ eu-us_lng_trade_folder.pdf > Accessed: 30 November 2021. 6

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European gas market will be a step towards reducing over-reliance on Russia and ensuring an energy-secure Europe. Still, increased LNG trading is not the only significant aspect of transatlantic energy cooperation. Through its partnership with Europe, the US has a number of opportunities to invest in the innovation of new technologies, to develop competitive new energy markets, and to identify new energy sources and routes. Although there are a number of emerging challenges in this field, it is important to note that each new challenge also presents a new area of opportunity for the US and the EU to cooperate.

AN OVERVIEW OF THE (V4) ENERGY PORTFOLIO While the countries of Central Europe have their own domestic energy platforms and objectives, they each follow the same three general strategic priorities: supply security, affordability, and environmental sustainability, which are also referred to as the “energy trilemma”.7 These strategic priorities can be further defined as follows: I. The first strategic priority is supply security. This is the ability of the government and/or the market to ensure adequate access to energy and energyrelated products at any given moment in time.8 This specific priority ties in Russia’s geopolitical role and energy—particularly its crude oil and natural gas— exports to Europe. Due to the contentious historical past of Russia within Central Europe, this reliance on Russia for energy has stoked fears that the country could use its role as an energy provider to leverage domestic politics. Therefore, it is a key priority for Central European countries to achieve supply security through the diversification of energy import routes and of the types of energy sources consumed. II. The second strategic priority is affordability. In a region stricken by domestic poverty, the affordability of energy is crucial to any energy policy platform. More specifically, maintaining competitive energy prices ensures that individual countries can support local economic growth while also combatting poverty on a societal level. III. The third strategic priority is environmental sustainability. This priority correlates with the longer-term fight against climate change. Though it is not necessarily an immediate concern, mitigating the unknown effects of global warming is quickly becoming a cornerstone of the global security agenda.9 As members of the European Union, the V4 are bound by the EU’s ambitious climate goals (oftentimes limiting the V4’s ability to manoeuver freely in the field of energy politics). However, it is important to note that this particular strategic priority is emerging as a nexus point for future political turmoil between the EU and the countries of Central Europe—an idea that will be further explored at the end of this paper.

7 Diána Szőke: Energy Policy Goals and Challenges for Hungary in the 21st Century. Institute for Foreign Affairs and Trade. 2018. <https://kki.hu/assets/upload/16_KKI-elemzes_HUN_Szoke_20180423.pdf > Accessed: 20 November 2021.

Idem.

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HUNGARY The legal framework for Hungarian energy policy is the “National Energy Strategy 2030” document, which was published by the Ministry of National Development in 2012. In alignment with the three strategic priorities outlined above, the three explicit goals of Hungarian energy policy are to “guarantee supply security, improve the competitiveness of the Hungarian economy, and create a shift in energy usage that is more environmentally sustainable.”10 Hungary’s total primary energy supply is predominately fossil fuel based, with natural gas and crude oil accounting for approximately two-thirds of the energy mix.11 However, the role of nuclear energy cannot be understated, especially in regard to electricity production. Currently, Hungary has one nuclear plant in operation: the Paks Nuclear Power Plant located in south central Hungary. However, the plant is nearing the end of its life cycle and the domestic political debate over the Paks expansion project continues to be waged at the national political level. Domestically, the affordability of consumer energy is a crucial component of Hungarian politics. Social factors remain high on the policy agenda—with approximately 15% of the population living below the poverty line—so competitive energy prices are imperative to supporting economic growth in Hungary and combating rising poverty levels.12 For example, one of the Orbán government’s greatest policy achievements was its decision to cut household energy utility costs on several different occasions (starting in 2012–2013).13 Furthermore, Hungary is situated in a position that affords it the opportunity to enjoy certain geographic benefits. Not only does it sit at the crossroads between the V4 and the Western Balkans, but the country is also well-equipped for underground natural gas storage.14 This essentially means that Hungary has the potential to become a regional energy infrastructural hub, which would be crucial to increasing its supply security and establishing itself as a major player in energy policy.15 Still, Hungarian energy policy is largely limited by external factors. Unlike many of its neighbours, Hungary does not have large-scale fossil fuel reserves or access to the sea. In fact, as a small, landlocked country with relatively small amounts of domestic energy sources, Hungary is dependent on its energy imports and has the difficult task of finding ways to leverage its domestic energy goals with the EU energy platform. Thus, the country relies heavily on regional cooperation in energy matters to strengthen its bargaining position. POLAND Energy policy is an important part of Polish national politics, and the implementation of this policy sector ties together economic, social, and geopolitical interests. Within Poland, coal dominates the power sector. It is the largest source of greenhouse emissions—and a major

Idem.

Idem, pg. 3.

Idem.

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employer in the country.16 In 2020, hard coal accounted for 47% of primary energy production, followed by lignite (24.9 %), natural gas (9.1 %), crude oil (1.6%), and renewables (10.75 %).17 Still, the rising importance of gas in the Polish energy mix cannot be understated. While the domestic production of this fuel has steadily declined, the demand has been replaced by imported gas. This new trend has made it increasingly more important for Poland to prioritise the diversification of its gas portfolio. For example, in its contracts for the purchase of LNG, Poland largely receives its gas imports from Qatar and the United States.18 Imports from Russia account for less than 50% of Poland’s domestic gas supplies.19 In fact, Russian gas is scheduled to be completely phased out by the end of 2022.20 Poland’s goal is to become completely energy secure, and, as such, it is in the process of building new gas infrastructure to become more energy independent. In terms of its approach to climate policy, Poland continuously lags behind in many of the EU’s climate policy goals. However, the government is still actively trying to reduce the country’s reliance on coal and transition its economy into a greener future. “The Energy Policy until 2040” (PEP2040), adopted in February 2021, assumes that Poland will gradually reduce its use of coal.21 By 2030, Poland’s energy mix is to decrease to at least 56% reliance on coal.22 Therefore, the country is also exploring new avenues for energy production, such as nuclear energy and offshore wind power. More specifically, in July 2021, Poland announced the launch of front-end engineering and design (FEED) work under a grant from the United States Trade and Development Agency (USTDA) “to progress” the nuclear energy programme in Poland.23 FEED is one of the key elements in the implementation of the Intergovernmental Agreement (IGA) between Poland and the US to cooperate on the development of Poland’s civil nuclear power programme.24 This thirty-year agreement, which is the first of its kind, represents the special relationship shared between the US and Poland.25 CZECH REPUBLIC Unlike some of its neighbours, the Czech Republic generates an electricity surplus that allows it to be the third-largest electricity exporter in the EU.26 To create this surplus, fossil

Poland - Countries & Regions. International Energy Agency. 28 November 2018. <https://www.iea.org/ countries/poland > Accessed: 1 December 2021.

Poland - Energy Sector. International Trade Administration. <https://www.trade.gov/country-commercialguides/poland-energy-sector > Accessed: 4 December 2021.

Idem.

Idem, pg. 4.

Idem.

Czech Republic - Energy. Privacy Shield. <https://www.privacyshield.gov/article?id=Czech-Republic-Energy > Accessed: 2 December 2021. 26

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fuels, notably coal, still dominate the energy and electricity generation mix of the Czech Republic. The Czech energy mix was once made up of 57.4% fossil fuels, 35% nuclear power, and 7.6% renewable energies (3.6% biomass, 2.1% solar, 1.4% water, 0.45% wind energy, etc.).27 In 2019, coal accounted for one-third of total energy supply, 46% of electricity generation, and over 25% of residential heating.28 Thus, at one point, the country had the third-largest total greenhouse gas emissions per capita in the EU, and it was one of the EU’s top three coal burners.29 However, climate targets at the EU level continue to make the use of coal increasingly less competitive—making it even more important for Czech officials to find new ways to fuels the country’s energy needs. While the Czech Republic is fully reliant on gas and oil imports, it has placed an increasing emphasis on nuclear energy. Currently, the country has two nuclear power plants at Dukovany and Temelin that generate a substantial amount of energy. The country’s June 2015 “National Action Plan for the Development of the Nuclear Energy Sector in the Czech Republic” states that “nuclear energy should constitute about 50% of the Czech energy mix by 2040.”30 The goal of this prioritisation of nuclear power is to work towards establishing a diversified energy portfolio and meeting the specified EU climate targets. SLOVAKIA Finally, Slovakia is a relatively small country with an even smaller market for electric-power generation. According to the US International Trade Administration, approximately 54.7% of the total production of electricity in Slovakia was obtained from nuclear power stations, 21% from conventional power stations, 14.4% from hydro stations, and 8.9% from renewable sources.31 However, in the last decade, the Slovak Republic has made significant progress in its energy policies. The key objectives of the Slovak energy policy agenda are “increasing efficiency in the power and end‐use sectors, reducing energy intensity, reducing dependence on energy imports, expanding the use of nuclear power, increasing the share of renewables in the heat and electricity sectors, and supporting the use of alternative fuels for transport.”32

Idem.

Czech Republic 2021. International Energy Agency. <https://www.iea.org/reports/czech-republic-2021 > Accessed: 1 December 2021. 28

29 David Hutt: Is Climate a Key Election Issue in the Coal-Craving Czech Republic. Euronews. October 8, 2021. <https://www.euronews.com/2021/10/08/czech-election-is-climate-change-a-key-issue-in-coal-craving-czechrepublic > Accessed: 25 November 2021.

Czech Republic - Energy. Privacy Shield. <https://bit.ly/czechenergy >. Accessed: 2 December 2021.

Slovakia Renewable Energy. International Trade Administration. <https://www.trade.gov/market-intelligence/ slovakia-renewable-energy > Accessed: 1 December 2021. 31

Slovak Republic - Countries & Regions. International Energy Agency. 1 February 2012. <https://www.iea.org/ countries/slovak-republic > Accessed: 27 November 2021. 32

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THE V4 & THE GROWING IMPORTANCE OF REGIONAL COOPERATION Individually, the countries of the V4 are relatively small, but collectively they have the potential to form a strong regional bloc within the EU. Thus, the importance of regional cooperation between Central European member states cannot be ignored when discussing transatlantic energy cooperation. This Central European cooperation is already seen through the Visegrad Group and the Three Seas Initiative (3SI). More specifically, the Visegrad Group aims to represent the common interests of the V4 within wider European integration efforts and it is arguably the “most clearly profiled initiative in Central Europe.”33 While the Visegrad cooperation is not formally institutionalised in any manner, its periodic meetings of representatives at various levels allows the region to form a unified position on key issues before entering into discussions with the European Union. There is no obligation for the V4 countries to act together; however, the region has seen much success when they do. For example, in 2019, the Czech Republic and Hungary (in collaboration with France) were able to pressure the EU into saying that nuclear energy was acceptable as part of the bloc’s effort to create a carbon-neutral economy by 2050.34 Conversely, the Three Seas Initiative brings together Central Europe with its neighbours along the Baltic, Black, and Adriatic Seas. It is an initiative that covers one-third of the EU in area and promotes unity and cooperation for the development of infrastructure in the energy, transport, and digital sectors.35 Ultimately, it targets new investments, economic growth, and energy security. With the backing of the United States, the 3SI hopes to act as a regional counterbalance to the Russian energy monopoly in Europe and it is focussed on developing a new north–south gas pipeline infrastructure. The increased US support for the 3SI is indicative of the United States’ larger geopolitical interests in the region. Not only does US leadership see this regional initiative as a way to drive a wedge between Russia and its former zone of influence in Central Europe, but it also sees the initiative as a competitor to China’s Belt and Road Initiative—though this competition will not be heavily explored in this paper due to China’s lack of interest in Central Europe’s energy markets.36 Furthermore, the 3SI promises the likelihood of increased US trade and the promotion of other US interests in the region. While the emerging importance of regional cooperation within Central and Eastern Europe may sometimes be a thorn in the side of EU officials, the US is taking note and fully supporting these initiatives. The creation of the Visegrad Group and the Three Seas Initiative has reinvigorated the cooperation between Central and Eastern neighbours and increased their leverage in the field of EU energy-related policymaking. Although the long-term effectiveness of these initiatives is yet to be seen, it is clear that they will remain relevant as Europe continues to navigate its energy agenda.

33 Aims and Structure. The Visegrad Group: the Czech Republic, Hungary, Poland and Slovakia. 20 September 2006. <https://www.visegradgroup.eu/about/aims-and-structure > Accessed: 1 December 2021.

Idem.

Three Seas. Three Seas Initiative. <https://3seas.eu/ > Accessed: 2 December 2021.

David Morris: The Three Seas Initiative— a European Answer to China's Belt and Road. Lowy Institute. 17 May 2021. <https://www.lowyinstitute.org/the-interpreter/three-seas-initiative-european-answer-china-s-beltand-road > Accessed: 1 December 2021. 36

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CURRENT SECURITY DILEMMAS Within Central Europe, energy issues cannot be contained to one policy arena. While economic factors and environmental sustainability remain high priorities for each individual country, it is important to note that energy is oftentimes linked to security concerns and highlevel politics. Energy-related policies within this region are shaped by the wider geopolitical landscape and deep-rooted historical fears play a massive role in how Central European countries approach the current EU energy platform. However, over the last decade, the global political landscape has evolved in such a way that has brought forth new security concerns. Outside of the traditional security concerns, both sides of the Atlantic are being forced to reckon with growing cyber threats to critical energy infrastructure—a concern that will require a vastly different approach than the one developed to maintain physical security. Additionally, the looming threat of climate change will also pose a number of social and economic threats to both Central Europe and the wider European continent. While climate change is a longer-term security risk, it will require swift, coordinated action in the present to mitigate future consequences. This particular threat will be discussed in further detail in the next section.

THE CLIMATE POLICY DEBATE: AN ANALYSIS OF AFFORDABILITY Though an important region in the fight against climate change, the V4 has never been among the avant-garde of climate policy. Conversely, the European Union is regarded as one of the world’s most ambitious entities in the fight against climate change, and as member states of the EU, the framework for the V4’s climate policy initiatives is largely determined by Brussels.37 The EU has ultimately set a binding target of achieving complete carbon neutrality by 2050, and their immediate steps to meet this goal can be found in their 2030 targets and include:    

a 40% reduction in greenhouse gas emissions (compared to 1990 levels); at least 27% of EU energy must be generated from renewable sources; energy efficiency must be increased by a minimum of 27%; 15% of electricity markets must be integrated.38

The European Commission has targeted Central and Eastern Europe with both funds and concessions to incentivise these regions to start taking action within their own countries, and this has proven to be successful. For example, the Hungarian renewable energy target of 13% by 2020 was surpassed (sitting at roughly 14% in 2017), and Slovakia also exceeded its renewable energy target of 14% by 2020 (sitting at roughly 16.9% in 2019).39 However, these modest gains fall well below EU expectations, and there is increasing pressure for Central European states to work even harder (and faster) to meet the union’s more ambitious

37 Diána Szőke: Energy Policy Goals and Challenges for Hungary in the 21st Century. Institute for Foreign Affairs and Trade. 2018. < https://bit.ly/33e7YQi > Accessed: 20 November 2021.

Idem.

Idem, pg. 7.

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climate targets—pressure that is being met with increasing internal resistance. Political leaders of this region are wrestling with the economic growing pains of transitioning from a fossil fuel–heavy energy sector, and they are arguing that the only way they will meet the EU’s stringent climate goals is if Brussels cuts the countries some slack. Still, the EU is not backing down; rather, it is moving forward with its ambitious agenda and attempting to revise and update EU climate legislation with the “Fit for 55” proposal. If passed, this proposal would require that all member states cut their emissions by at least 55% by 2030, and it would heavily influence national policies and the lives of individual EU citizens.40 The union is also bearing its teeth on this matter. Just recently, the EU Court of Justice ruled that Poland has to pay the European Commission around EUR 500,000 per day as a fine for failing to comply with an EU order in May to immediately halt operations at the Turow lignite mine over environmental concerns.41 Though Polish authorities have refused to cease operations, this legal crisis serves as a clear example of the EU’s shift in approach to a member state’s refusal to heed its climate-policy initiatives. Although challenging, there are political incentives for the countries of Central Europe to meet these EU climate goals. The aforementioned policies suggest that Brussels is shifting its soft approach to climate policy enforcement, and any foot dragging towards carbon neutrality could affect the local economies of this region—especially given that Brussels is tightening up the environmental conditions attached to certain funds. More specifically, the V4 economies rely heavily on EU structural funds, and each country is a major recipient of funds associated with the Resilience and Recovery Fund. The Czech Republic alone will receive approximately EUR 7 billion (and 37% of it must be spent on projects associated with climate change).42 Ultimately, the cleavage between Brussels and Central Europe is growing, especially as it pertains to climate policy. Though each individual country must reckon with its own internal energy needs, the region shares a common history and a sort of regional comradery that has enjoyed significant success in the past. It is unclear exactly how the V4 (and each respective country) will react to the growing ambitions of the EU, and the looming growing pains for this region could become a stressor for the union. Thus, as the EU approaches its 2030 deadline, the climate-policy sector and the debates on affordability, cost efficiency, and the role of nuclear energy will all be important aspects of the transatlantic energy security agenda in the coming decade.

CONCLUSION Transatlantic energy cooperation is vital for both the US and the EU to maintain energy security and lead the global charge on climate change—and the Central European region is an important player in this arena. With the V4’s increasingly complex national energy platforms, Fit for 55. Consilium. <https://www.consilium.europa.eu/en/policies/green-deal/eu-plan-for-a-greentransition/ > Accessed: 3 December 2021

David Hutt: Is Climate a Key Election Issue in the Coal-Craving Czech Republic. Euronews. October 8, 2021. <https://bit.ly/31VCxtk > Accessed: 25 November 2021. 41

Idem.

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their geopolitical concerns over European energy dependence, and their pushback to the EU’s ambitious climate targets, the countries of Central Europe are leveraging their regional cooperation initiatives to make their voices heard within the wider European context. This, in turn, affords the US a number of opportunities to influence the European energy sector by providing innovative technologies and financial support to this region. Overall, cooperation between the EU and the US across the energy sector is paramount to the future success of the transatlantic energy alliance. By working together to forge a strong partnership on energy and to address the looming security threats, such as climate change, infrastructural cybersecurity, and geopolitical concerns, the US and Europe can ensure a reliable, sustainable, and affordable energy supply for Europe.

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