Ideas for liberty The Energy Challenge for Europe – and Lithuania Vilnius, 21 October 2008 Carlo Stagnaro Director, Research & Studies Istituto Bruno Leoni

Energy security A priority for 35% of Europeans (Eurobarometer January 2007); Security = Availability of reliable, sustainable energy at a reasonable price; An economic, environmental, and geopolitical issue.

Istituto Bruno Leoni Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.

Istituto Bruno Leoni Economics of security Security = cost; Security ≠ price stability; Trade off tra between “security”, “price stability”, and “low prices”; Liberalizations: the system becomes more flexible and reactive –Investments need to be driven by the markets; –Network unbundling. Globalization: arbitrage becomes easier.

Istituto Bruno Leoni What does “liberalization” mean? Competition between sources –Nuclear; –Renewables; Competition between companies –Privatization; Deregulation –Demand; –Supply; –Prices; Unbundling –Proprietary is better – require less regulation; –Non discrimination; –Investment policies.

Istituto Bruno Leoni ‣ Fail to meet a target? Commit to a stricter one! ‣ 20% less consumption below the baseline ‣ 20% emissions reductions below 1990 levels ‣ 20% renewables ✦ Three major questions 1. Is it feasible? 2. Is it significant? 3. Is it efficient ?

Istituto Bruno Leoni The Death of the Free Market Investments displacement: who needs more natural gas? ✦ Demand control (consumption reduction) ✦ Supply control (renewables + emissions reduction) ✦ Price control (renewables + emissions reduction)

Istituto Bruno Leoni Economic freedom as an alternative

Istituto Bruno Leoni

Geopolitics Peace is the best strategy to pursue (energy) security; Integration vs. Protectionism –EU integration; –Integration with Russia; The Challenge is not to reduce reliance on imports, but to better integrate our economies; Europe can play a major role –Internally: Build networks, promote unbundling; –Externally: create conditions for the free market; –Create a market, not a bureaucracy; –Avoid inconsistencies! Promote an Energy Doha.

Istituto Bruno Leoni Lithuania and Europe How to pursue economic growth while achieving security and sustainability? Are Lithuania’s interest opposed to Europe’s interests? Environment Russia Renewables, nuclear power (Ignalina), power trade, and natural gas.

Istituto Bruno Leoni Lthuania’s per capita emissions…

Istituto Bruno Leoni …and carbon intensity

Istituto Bruno Leoni Lithuania’s challenges / 1 ✦ Meet its energy demand ✦ New power plants – especially to substitute for Ignalina nuclear power plant (state-owned, 70% of the country’s need) – but not “too many”! ✦ More interconnections with the rest of Europe; ✦ Deregulate electricity/gas imports ✦ “Electricity interconnections with Western and Scandinavian electricity systems would enhance the level of competition.” (Source: National Control Commission for Prices and Energy, 2007)

Istituto Bruno Leoni Lithuania’s challenges / 2 ✦ Deregulate prices even though “this may lead to increasing electricity prices for small, thus more vulnerable customers whose electricity consumption is usually less efficient” (NCCPE, 2007); ✦ Rationalize consumption ✦ Technological improvement; ✦ Remove regulatory barriers; ✦ Let the market do its job!

Istituto Bruno Leoni Lithuania’s challenges / 3 ✦ Create a real market for energy ✦ Ownership – not just legally – unbundling; and privatize! ✦ Privatize state-owned former monopolists: ✦ “In the absence of competition in both the generation and supply sector, the actual opening of the electricity market is equal to 13% out of possible 74% of the national electricity consumption” (NCCPE, 2007); ✦ European integration; ✦ Consistent policies.

Istituto Bruno Leoni Final thoughts ✦ You (and we) need more Europe… ✦ …but the right Europe, not the wrong one: ✦ The market for power is not a national market; ✦ More imports, but also more security ✦ The Russian problem; ✦ Impact of financial crisis: need for fresh capitals… ✦ …to fund economically efficient, socially desirable investments: ✦ More capacity, more competition, more interconnections.

An energy policy like… Kung Fu Panda?

Istituto Bruno Leoni Thank You for Your Attention Carlo Stagnaro Director, Research & Studies Istituto Bruno Leoni