R 221147Z JAN 07
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC 6731
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNFRG/FRG COLLECTIVE
RHEHAAA/THE WHITE HOUSE WASHDC

UNCLAS SECTION 01 OF 02 BERLIN 000121 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EUR/AGS FOR O'KEEFFE, EUR/ERA FOR LCATIPON AND DLIPPEAT, 
OES FOR WATSON & REIFSNYDER, THE WHITE HOUSE FOR CEQ 
 
E.O. 12958: N/A 
TAGS: ENGR SENV PGOV PREL GM
SUBJECT: GERMAN REACTION TO EUROPEAN COMMISSION'S ENERGY 
PACKAGE 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
¶1.  (SBU) SUMMARY.  On January 10, the European Commission 
unveiled its proposals for the EU's first common energy 
strategy, to be released in March.  The German government's 
reaction was mixed.  The Ministry of Economics criticized 
plans for "unbundling," i.e., the separation of energy 
generation from the distribution and supply systems.  German 
energy companies complained that unbundling would lead to 
under-investment in energy infrastructure and could also open 
the way for foreign ownership (e.g., Russian) of strategic 
European energy networks.  Chancellery officials have made 
this same point in discussions with Emboffs.  In its 
Presidency role, Germany feels it must present the 
Commission's proposal to the other member states to see if 
there is consensus, but seems confident that others support 
the German view that unbundling and a European-wide regulator 
are unnecessary.  However, the Environment Ministry praised 
the plan's call for significant cuts in greenhouse gas 
emissions targets and the goal of fostering clean energy 
technologies.  END SUMMARY. 
 
¶2.  (U) The European Commission's energy package is the 
result of a year-long review of EU energy policy.  It focuses 
on combating climate change, fostering new energy technology 
goals and increasing competition in European energy markets. 
The proposals lay the groundwork for the EU's first common 
energy policy.  The EU heads of government are expected to 
approve most of the plan elements, or to offer alternative 
proposals, when they meet in March. 
 
CRITICISM ON UNBUNDLING 
----------------------- 
 
¶3.  (SBU) A major concern for Germany in Brussels is the 
Commission's proposal for a separation of energy generation 
from distribution and supply activities, i.e., "unbundling." 
The Economics Ministry is also resisting calls for a 
European-wide energy regulator.  Economics Minister Michael 
Glos (CSU) said forcing German energy companies to divest 
themselves of strategic assets is questionable from a legal 
standpoint.  While the Commission contends such a move would 
lead to more competition and lower prices, critics charge it 
could result in under investment and open the door for 
foreign ownership of European energy networks and 
infrastructure.  One Chancellery official said under such a 
scheme, Gazprom or other Russian firms could pick up 
significant pieces at "firesale prices."  This charge seems 
designed to exploit lingering energy security fears following 
the recent oil supply disruptions due to a conflict between 
Gazprom and Belarus. 
 
¶4.  (SBU) The Chancellery's Office Director for EU Economic 
Affairs, Andreas Hermes, reported on the outcome of an 
internal government meeting on the Commission's proposal, 
held on January 18.  Hermes said that while the government is 
opposed to the measure on unbundling, it believes that in its 
Presidency role it must present the proposal to the other 
member states in a neutral manner and see if there is 
consensus.  Hermes said there are several other EU members 
states, in addition to Germany, who are opposed to this 
measure, so Germany can afford to remain in the background on 
this proposal.  Hermes also stated that there appears to be 
little support among the member states (with the possible 
exception of the Netherlands) for a European-wide energy 
regulator. 
 
¶5.  (U) The head the world's largest private energy company, 
E.ON AG, Wulf Bernotat, sharply criticized the Commission's 
proposal.  Bernotat called the different measures 
"conflicting and contradicting," and argued the unbundling 
proposal would not increase efficiency but would lead to 
supply disruptions.  Bernotat believes the Commission should 
continue its policy of regulation to ensure competition in 
this market.  He praised the work of the German regulator, 
BNetzA, claiming that no energy company has more than a 17 
market share as evidence that no energy oligopoly exists in 
Germany.  Bernotat also called the Commission's backing for 
an EU-wide energy regulator "premature."  He said the EU 
should focus on creating a true internal market, first 
regionally and then Europe-wide.  Only at that point should 
there be discussions over a European regulator. 
 
¶6.  (U) The German Electricity Association (VDEW) greeted the 
plan with more enthusiasm, calling it a "groundbreaking step 
towards a unified European energy policy."  The VDEW lauded 
the Commission's desire to integrate security of supply, 
competition, and environmental concerns.  However, like 
Bernotat, the VDEW also opposes the Commission's call for 
unbundling, stating it would lead to under investment in 
power stations and the energy grid by companies that would no 
longer have an interest in maintaining this infrastructure. 
The EU regulations currently require energy companies to 
create subsidiaries to administer their energy networks by 
July 2007.  The VDEW believes the Commission should wait 
until this measure is implemented to evaluate whether it 
brings the necessary competition to the network. 
 
PRAISE FOR THE CLIMATE CHANGE AGENDA 
------------------------------------ 
 
¶7.  (SBU) Martin Schoepe, Deputy Director of the Office of 
International and EU Affairs at the German Environment 
Ministry, told ECONOFF that the most important part of the 
plan, from his ministry's perspective, is that it "frames 
climate change as the driver of European energy policy."  The 
key elements for Germany, he said, are the EU-wide energy 
review and focused R&D funding for clean energy technologies 
such as carbon capture and sequestration (CCS).  The plan 
specifies a goal of building 12 CCS demonstration plants by 
2015; German energy companies have announced plans to develop 
two such plants. 
 
¶8.  (SBU) Schoepe noted Germany is recommending that the EU 
adopt a goal of lowering greenhouse gas emissions by 30% 
below 1990 levels by 2020.  The German target would be more 
aggressive than the European Commission's, which calls for a 
reduction in greenhouse gas emissions of 20% below 1990 
levels by 2020.  Schoepe also wants the EU to set this 
emissions target of a 30% reduction from  1990 levels as a 
benchmark for all OECD members, including the U.S.  The 
Council of Ministers will decide on the emissions reduction 
target on February 20 in Brussels. 
 
¶9.  (U) The German Renewable Energy Association (BEE), which 
represents solar and wind energy interests, considers the 
EC's Energy Policy Proposal for Europe too meager.  The BEE 
has called on the German government to use their EU 
presidency to establish minimum levels of renewable energy 
use in the heating and electricity sectors and to push for an 
increase in the amount of renewable energy in the overall 
energy mix to 25% by 2020.  The current plan does not set 
targets for specific energy sectors but states a general goal 
of deriving 20% of energy from renewable sources by 2020. 
TIMKEN JR