Europe

The Vulnerability of Europe and its Economy to Energy Crisis

Terms of Reference

The need to ensure secure and reliable energy supplies at affordable and stable prices is vital to economic and social development and should constitute an integral part of any sound and consistent energy policy. However, in the current context of increasing globalisation and economic integration, which are reaching far beyond the borders of the European energy market, the concern over energy availability and supply security is receiving increasing public and political attention in those parts of Europe which are resource-poor. The growing dependency of many European Countries on energy imports and the anticipated further rises in energy prices in the coming years, due to a variety of reasons, including unstable political climate in the major supplying countries and substantial energy demand growth in emerging economies, as demonstrated during 2004 reinforces the concerns. Another rising concern related to the European energy market is uncertainty about the full implications of market liberalisation and competition and their impacts on security of supply and transmission network reliability. A few cases of major blackouts that occurred in Europe and North America in 2003 provided a clear warning that electricity market reform must be most carefully designed and implemented.

With this in mind, the objective of the proposed study is:

1. To assess the vulnerability of the European economies to a possible energy crisis caused by a sudden price surge, by comparing the cases of a few selected European countries with different economy and energy sector structures, and

2. To develop a set of recommendations for mitigating the impacts of such a crisis.

Scope of the study:

• Explain and define energy vulnerability in Europe and analyse energy import dependencies compared across countries and markets and through time.

• To develop and introduce indicators of the economic value of energy vulnerability.

• Assess the vulnerability of European energy users to an energy crisis taking into account both social and economic factors.

• Perform a pan-European and sectoral case study: The vulnerability of the electricity markets in Europe to prolonged high carbon based fuel prices.

• Perform two regional case studies focusing on Europe's economies in transition.

• Recommend energy strategies and policies to mitigate Europe's vulnerability to an energy crisis due to prolonged high carbon based fuel prices.