IEA Commends Introduction of New Energy Efficiency Measures, but Stresses Need for More Competition in Belgiums Energy Sector

While giving Belgium good marks for most of its energy policies, the International Energy Agency today criticised the slow progress of decision-making in many key policy issues including important details of energy market design and environmental protection, caused by the complexity of the government structure and occasional disparities between federal and regional policy objectives and targets. The IEA also found that although electricity and gas market liberalisation has begun, true competition is only emerging slowly. Belgium should also exercise prudence in the implementation of its phase-out of nuclear power. This is essential if the country is to face the challenging task of reducing greenhouse gas emissions.

Robert Priddle, Executive Director of the IEA, today released the Agency's new in-depth review of Belgium's energy policies. The review was conducted by an international team of energy experts from the Member countries of the IEA.

Mr Priddle commented that "Belgium has emphasised energy security in its energy policies and has successfully continued the diversification of energy sources. There have also been clear advances in energy efficiency, with the introduction of new measures, the results of which will be seen in a few years. While the regions have a high degree of autonomy in energy policy, the federal and regional responsibilities are clearly defined; effort has been made for federal-regional and inter-regional co-operation."

Energy Supply
Belgium is an important gas transit country and this role will strengthen in the future. Capacity in the gas transmission network has been increased. However, the electricity transmission network and interconnections have not been strengthened due to environmental concerns and since Belgium has sufficient generation capacity to meet domestic demand, it has little incentive to strengthen the interconnections. This may become an obstacle to electricity trade in Europe.

Gas consumption has increased substantially over the last few years, but future growth is likely to be modest. Gas has mainly replaced the use of coal. Neither renewable energy nor combined heat and power generation, which could limit carbon emissions, can be easily introduced in Belgium, because they are more expensive than other generation methods there. The regions have introduced "green certificate schemes" in an attempt to address this problem.

Belgium is committed to phase out nuclear power from 2014. This will not create difficulties for reaching the national Kyoto target but it will be a challenge in the future. Nuclear accounts for almost 60% of electricity generation and for 22% of total energy supply in Belgium. The team recognised that finding a cost-effective and low-emission alternative for nuclear power may be difficult, so it recommended that the government keep its nuclear options open until alternatives have been identified. The AMPERE Commission, a national group composed of academics which was established to investigate policies for future electricity generation, reached the same conclusion.

Regulatory Reform
Belgium is trying to open its electricity and gas markets at a faster pace than required by the relevant EU directives. Some progress has been made, for example, a federal regulator for the electricity and gas sectors has been established, and the timetable for the unbundling of supply, transmission and distribution activities has been mostly set. However, implementation has been delayed and is currently being re-defined. Given the progress being made in neighbouring countries, Belgium should make further efforts to ensure that true competition emerges as planned.

Indeed, many important details remain undecided in both the gas and electricity markets. The electricity Transmission System Operator has not been named. Both the electricity and gas markets are dominated by single companies and there are no clear prospects for new entrants. There is no plan to break up incumbent monopolies and, as a result, international competition is the only realistic way to achieve real competition in Belgium. Legislation and regulation have not been completed and the regulatory regime is complex. This is partly due to the complicated relationship between the federal and regional governments. The federal government is responsible for generation, transmission and pricing in the electricity market, while the regional governments are in charge of distribution, energy efficiency and promoting the use of combined heat and power production, and of renewables. Close co-operation, and ideally integration, of these regulatory bodies is essential if they are to operate effectively.

Allowing all consumers to buy electricity from the market could help to reduce the electricity bill of smaller consumers. Currently, they pay one of the highest prices in the OECD countries whereas industrial consumers enjoy competitive prices. The team advised the government to ensure that prices for captive consumers are properly cost-based.

Energy and the Environment
Energy-related greenhouse gas emissions grew in the 1990s and are currently about 15% higher than in 1990. Belgium's Kyoto target is a 7.5% reduction of emissions by 2008-2012 compared to 1990. The commitment to this target was made by the federal government but real reduction will depend on actions by regions.

The first Federal Plan for Sustainable Development was published in 2000 and provides a framework for federal schemes, including a National Climate Plan that is already in preparation. No quantitative policy goals have been set, however. The Federal Plan provides for the introduction of national taxation if no EU-wide carbon tax is introduced. Impact studies on a national carbon tax have been done and first steps towards implementation announced for 2002.

Energy intensity grew in the 1990s and by 1999, energy consumption in all consumer sectors was 20% - 30% higher than in 1990. Since the regions are not committed to the same energy efficiency and environmental target, harmonisation and strong policy measures will be needed. During the last few years Belgium has introduced many measures to improve energy efficiency, but many were introduced only recently and their effect has yet to be seen. However, their impact will depend on how actively they are enforced and monitored. The in-depth Review calls for speeding up the development of a national plan for reducing GHG emissions and establishing an effective monitoring system, in collaboration with the regional governments, to achieve national energy policy objectives, in particular energy efficiency targets.