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RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHC #0237/01 0841528
ZNR UUUUU ZZH
R 241521Z MAR 08
FM SECSTATE WASHDC
TO EU MEMBER STATES COLLECTIVE
EUROPEAN POLITICAL COLLECTIVE
RUEHBS/USEU BRUSSELS
INFO RUEHBJ/AMEMBASSY BEIJING 8833
RUEHNE/AMEMBASSY NEW DELHI 6666
RHEHNSC/NSC WASHINGTON DC 0044
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 STATE 030237 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
SENSITIVE BUT UNCLASSIFIED 
 
E.O. 12958: N/A 
TAGS: ENRG EUN KGHG SENV
SUBJECT: U.S.-EU STRATEGIC ENERGY REVIEW 
 
¶1.  SUMMARY:  On March 3, EU Energy Commissioner Andris 
Piebalgs and Under Secretary Reuben Jeffery co-chaired 
the second annual U.S.-EU Strategic Energy Review, 
established at the June 2006 U.S.-EU Summit to review 
progress in U.S.-EU energy cooperation.  Discussions 
covered cooperation on energy technologies aimed at 
lessening dependence on imported hydrocarbons and the 
geopolitical aspects of energy security, including 
diversification of hydrocarbon sources and suppliers. 
The two sides:  (1) briefed each other on recent energy 
policy developments; (2) agreed to continue to increase 
cooperation on energy technologies, and in particular 
on sustainability standards for biofuels; (3) exchanged 
views on enhanced International Energy Agency 
engagement with China and India; and (4) reviewed key 
Eurasian gas diversification proposals and projects. 
END SUMMARY. 
 
¶2.  U.S. participants in the meeting included NSC Senior 
Director for European Affairs Damon Wilson; EEB A/S 
Sullivan; Special Envoy  for European Union Affairs 
Boyden Gray; Department of Energy DAS Carmen Difiligio; 
NSC Director for European Union Relations and European 
Economic Affairs Lauren Catipon; USEU Economic Counselor 
Peter Chase; EUR/ERA Director William Lucas; and 
EEB/ESC/IEC Director Steve Gallogly.  EU participants 
included Roland Kobia, Member of Piebalgs' Cabinet; 
Ferran Tarradellas Espuny, Spokesperson for Energy; 
Laurent Muschel, Head of Unit, International Relations, 
Directorate General for Energy and Transport; Ulrich 
Eckle, Policy Officer, DG RELEX; and Mr. Igor Salamun, 
Director General, Directorate for Energy, Ministry of 
the Economy. 
 
Piebalgs: EU Starting to Pull Together on Energy Policy 
--------------------------------------------- ---------- 
 
¶3.  Commissioner Piebalgs spoke with enthusiasm about the 
growing role of the European Commission in formulating 
European energy policy and the increasing coordination 
among member states.  While energy policy has been a 
member-state competency, with the Commission relying on 
its prerogatives in competition policy, environment, and 
consumer protection to influence it, Piebalgs said 
that the Lisbon Treaty would give the Commission greater 
control in energy policy.  He saw progress in three areas: 
(1) development of an integrated internal energy market; 
(2) promotion of cleaner energy, renewable energy, and 
energy efficiency to reduce greenhouse gas emissions; 
and (3) greater unity on external energy relations and 
the need to diversify energy sources.  On internal 
market integration, Piebalgs noted the Commission's 
September 2007 package, which, if adopted, would 
institute improvements in EU-wide regulatory 
cooperation and the implementation of corporate asset 
unbundling and competition rules for all gas and power 
companies operating in the EU.  Piebalgs indicated that 
he aims for a member-state political agreement on the 
package by June, and adoption by co-decision with the 
European Parliament before the end of 2008. 
 
¶4.  Turning to the Commission's January 2008 climate 
change and energy package, Piebalgs asserted that its 
"20-20 by 2020" binding targets on individual member 
state emissions and renewables use - including in the 
transportation sector - as well as its efficiency 
requirements for all appliances, would be critical 
to providing a guaranteed framework and stability to 
encourage investment in alternative energies.  Piebalgs 
also noted progress on diversification of energy 
sources and coordination of external energy policy, 
including establishment of an agency or institute to 
examine energy issues and forecast global energy supply 
and demand.  Piebalgs argued that European demand 
projections may provide a rationale for moving 
forward simultaneously with multiple new pipeline 
projects, for example, development simultaneously 
of Nabucco with Russia's new South Stream proposal 
that would reach the same geographic sub-market. 
 
 
STATE 00030237  002 OF 004 
 
 
Difiglio: EISA Promotes Commercialization of Cleaner, More 
Efficient Energy 
--------------------------------------------- ------------- 
 
¶5.  Department of Energy DAS Carmen Difiglio briefed the 
EC delegation on: (1) the Energy Independence and Security 
Act of 2007 (EISA) - signed into law in December 2007 - 
explaining the difference between Congressional 
appropriations and authorizations; and (2) the 
restructuring of the Department of Energy's FutureGen 
program.  Difiglio indicated that the most significant 
provision in EISA is the mandate to increase the national 
fuel economy standard to 35 miles per gallon by 2020 - 
which will increase fuel economy by 40% and save billions 
of gallons of fuel; this requirement represents the first 
statutory increase in automobile fuel economy standards 
since 1975.  EISA also requires fuel producers to use at 
least 36 billion gallons of renewable fuels by 2022 (a 
nearly five-fold increase over previous requirements), 
which combined with restrictions on the types of land 
used for biofuel production, will encourage a shift from 
first-generation biofuels to second-generation 
cellulosic-based biofuels.  EISA also calls for a 30% 
increased energy efficiency of light bulbs, which will 
effectively lead to a phase-out of most incandescent 
light bulbs by 2012. 
 
¶6.  DAS Difiglio also explained that EISA - and President 
Bush's FY09 budget requests - significantly increase the 
potential resources available for carbon capture and 
storage (CCS) development and authorize seven large-scale 
CCS projects.  Difiglio noted that the recent 
restructuring of FutureGen was a change in the right 
direction, as it will push CCS technology out of the 
publicly-funded research institutes and non-governmental 
organizations and into the realm of commercial 
development.  The restructured FutureGen should nicely 
complement the EC proposal to fund as many as a dozen 
CCS systems in EU Member States.  Commissioner Piebalgs 
indicated that the EC is working on enabling legislation 
for CCS projects to address issues such as liability and 
will consider 100% state aid, on a project-by-project 
basis. 
 
Biofuels:  Cooperation and Public Relations Challenges 
--------------------------------------------- --------- 
 
¶7.  Reviewing the four principal areas of energy 
technology cooperation, Commissioner Piebalgs considered 
U.S.-EU work on biofuels to have been the most 
successful, with only limited results having been 
achieved in our collaboration on CCS, energy efficiency, 
and energy research and development.  He noted a strong 
public concern - fanned by arguments from the oil 
industry - on sustainability of biofuels, particularly 
their impact on food prices, water, and land use. 
Biofuel sustainability standards proposed by the EC, 
developed in close consultation with industry, mandate 
that biofuels contribute to a minimum of 35% reduction 
in CO2 and prohibit the use of wetlands and other 
areas of biodiversity for cultivation of biofuel 
crops.  Arguing that the U.S. and the EU need to develop 
a united approach on biofuel sustainability criteria, 
Piebalgs pressed for regulatory and technical cooperation 
to develop the next generation of biofuels.  He 
highlighted the need to address in future discussions 
the problem of distortions caused by biofuel subsidies, 
and asserted that the U.S. system of subsidizing 
production causes more market distortion than the EU 
system of subsidizing consumption.  The result, he said, 
is that U.S. exports of biofuels to the EU market 
enjoy a double subsidy, while European producers are 
disadvantaged. 
 
¶8.  U/S Jeffery acknowledged the importance of cooperation 
on biofuels - including trilateral efforts with Brazil 
- to develop standards on sustainability.  Special 
Envoy C. Boyden Gray observed that the challenges are 
both technical and public in nature, noting Brazil is 
nervous that biofuels are developing a negative image in 
the U.S., EU, and elsewhere.  Gray elaborated that the 
main source of the publicity challenge in Europe is 
public concern over genetically modified organisms, 
sustainable use of resources, and biodiversity impacts, 
 
STATE 00030237  003 OF 004 
 
 
whereas the main source of contention in the U.S. is the 
energy industry's aversion to competition and OPEC 
opposition.  He commented with irony that some wealthy 
OPEC countries, by virtue of their membership in the G-77 
group of developing nations, are demanding compensation 
for the corresponding decrease in oil use due to fuel 
substitution linked to climate change concerns. 
 
¶9.  SE Gray suggested using the Transatlantic Economic 
Council to promote U.S.-EU cooperation on sustainability 
standards, while using the G8 process to address the 
biofuels public relations challenge.  A/S Sullivan, the 
G8 Sous Sherpa for the U.S., agreed that the G8 could be 
an appropriate venue for a statement underscoring the 
importance of biofuels to nations' energy security 
strategies.  Piebalgs suggested issuing a joint statement 
on sustainability through U.S.-EU dialogue. 
 
¶10. Finally, SE Gray noted that U.S. legislation will 
require a cap of CO2 emissions in preparation of land 
for biofuels cultivation, i.e. - a limit on the amount 
of CO2 released per acre in order to make the land 
"biofuels ready."  Gray cautioned that the EU should 
work with the U.S. on this issue or risk being "trumped" 
by U.S. regulation taking the lead. 
 
IEA Outreach:  Eventual Membership for China, India 
and Russia 
--------------------------------------------- ------- 
 
¶11.  (SBU) Moving to questions of International Energy 
Agency outreach and enlargement, Commissioner Piebalgs 
noted that the EC does not have a set position on 
eventually extending IEA membership to China, India 
and Russia, but cautioned against any moves that would 
dilute the IEA's effectiveness by bringing in members 
that didn't share the organization's values.  U/S 
Jeffery noted that the U.S. is supportive of enhanced 
IEA engagement - and possibly expansion - while 
agreeing that it is not in U.S. or EU interests to 
dilute the IEA's efficacy.  However, U/S Jeffery told 
Piebalgs that U.S. policy on this issue is evolving 
and we should continue our dialogue on IEA expansion. 
 
¶12.  (SBU) A/S Sullivan argued that since the IEA is 
dedicated to energy-consuming countries, IEA member 
states' interests converge in many areas with those of 
China and India.  He stressed the importance of 
bringing China into a transparent market system and up 
to IEA standards, which would strengthen, not dilute, 
the IEA.  Sullivan also noted that China and India 
participated in the IEA's Committee Week in December 
2007, and that IEA engagement and expansion would be 
discussed at the upcoming March 12-13 Governing Board 
meeting.  He advocated beginning discussions with the 
two countries now, considering that the process will 
take a number of years, even in a best-case scenario. 
Russia, in contrast, has not indicated the same level 
of interest in IEA engagement, Sullivan noted, perhaps 
because it sees its interests more in line with those 
of other energy-producing countries.  Ulrich Eckle of 
the EU's Directorate General for External Relations 
asked if this is an issue the G8 could address, to 
which A/S Sullivan responded that the G8 is waiting 
for the outcome of the IEA Governing Board meeting 
before taking action. 
 
Diversity of Supply and External Strategies 
------------------------------------------- 
 
¶13.  (SBU) U/S Jeffery invited Commissioner Piebalgs to 
provide views on competing natural gas pipelines, the 
economic and political benefits of each, and how best 
to engage as governments to increase available supplies. 
U/S Jeffery added that the EU could not ignore engagement 
with Russia on energy issues.  Piebalgs responded with a 
comprehensive discussion of upstream potential, Ukraine, 
and an overview of competing gas infrastructure projects. 
 
¶14.  (SBU) On Central Asia, Piebalgs spoke of the need to 
go slow with Turkmenistan and not let negative incidents 
feed Turkmen fears that foreigners want to rob them of 
their natural resources, referring to a recent commercial 
development involving a European company.  He foresaw no 
 
STATE 00030237  004 OF 004 
 
 
gas from Kazakhstan available for the EU in the near term 
but possibly some from Uzbekistan.  Piebalgs alluded to 
tensions between the EC and Algerian natural gas company 
Sonatrec related to the Commission's unbundling 
proposals, and expressed strong interest in importing gas 
from the Akkas field in Iraq's Anbar province into 
Europe.  Piebalgs expressed little sympathy for Ukraine, 
arguing that its system of middlemen makes no sense. 
In the ongoing negotiations between Ukraine and Gazprom, 
Piebalgs found the Russians more transparent with him 
than the Ukrainians.  He considered the underlying problem 
to be the continuing political rivalry between Tymoshenko 
and Yushchenko, which feeds corruption in Ukraine. 
 
¶15.  (SBU) Piebalgs said the Commission's prime interest 
is diversification of energy supplies, and that Nabucco 
is the Commission's priority project for bringing Caspian 
and Middle Eastern gas to Europe.  He added that after 
Nabucco, other proposed pipelines would be welcome if they 
bring new sources of gas to the EU.  Piebalgs outlined the 
Commission's current thinking on a variety of gas 
infrastructure projects: 
 
-- Nord Stream:  The Commission would not actively 
discourage Member States from advocating an alternative 
land-based routing of the pipeline that is more palatable 
to the Baltic States and Poland, nevertheless Piebalgs 
predicted that Nord Stream will be built as currently 
projected, adding that the EC's role is to encourage 
transparency on the part of the partners. 
 
-- South Stream:  Piebalgs said flat out that he initially 
thought South Stream was a political ploy and never 
expected it to be built due to the costs and questionable 
project rationale.  He questioned spending billions of 
dollars to put a pipeline under the Black Sea, but 
answered himself by noting that South Stream's purpose is 
to bypass Ukraine.  However, in light of recent 
developments in the Balkans and Black Sea region, he is 
not ruling the pipeline out; and the Commission's 
position on South Stream is neutral, neither 
encouraging nor discouraging South Stream's construction. 
 
-- Nabucco:  The proposed Nabucco pipeline is the EC's top 
priority for diversification of natural gas supplies.  The 
challenge is securing the natural gas supplies from 
Azerbaijan, Iraq, Egypt, and other sources.  Piebalgs 
indicated that Turkey is a problem due to the disagreement 
over transit arrangements with upstream producer 
Azerbaijan.  While Piebalgs said that in reality it does 
not matter who contracts with the EU to supply the gas - 
Azerbaijan or Turkey - the disagreement between the two 
is an impediment, so Turkey needs to come to a fair 
agreement with Azerbaijan. 
 
-- White Stream:  Despite the fact that the European 
Commission is considering funding a feasibility study on 
the White Stream pipeline, Commissioner Piebalgs does not 
support the project, as it is designed to bypass Turkey; 
he indicated that the EC is not in the "bypassing 
business" and prefers to deal with Turkey, encouraging 
it to become a responsible transit country. 
 
-- Turkey-Greece-Italy (TGI):  Despite the fact that the 
Greece-Italy portion of the pipeline has not been built 
and there are no substantial gas sales and purchase 
agreements for the pipeline, Piebalgs indicated that he 
sees this project as complete, requiring no Commission 
action. 
 
-- Trans-Adriatic Pipeline (TAP):   Piebalgs sees this 
proposed pipeline as a competitor for TGI, and so is not 
supportive at this time. 
 
-- Trans-Caspian Pipeline (TCP):  The EC supports an 
eventual trans-Caspian pipeline to transport Turkmen gas 
westward but, similarly to the current U.S. view, favors 
connecting Turkmen offshore fields as a first step/proof 
of concept. 
RICE