Explanatory Memorandum to COM(2008)775 - Obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2008)775 - Obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products. |
|---|---|
| source | COM(2008)775  |
| date | 13-11-2008 |
The March 2007 European Council underlined the need to enhance the security of supply for the EU as a whole and for each Member State, inter alia by developing more effective crisis response mechanisms. It highlighted in this context the need to review EU oil stocks mechanisms, with special reference to the availability of oil in the event of a crisis, stressing complementarity with the crisis mechanism of the International Energy Agency (IEA).
The mandate of the European Council confirms the Commission’s view that the weaknesses of the current system need to be addressed. Though no particular system in a Member State has to date demonstrably failed to provide for adequate supplies in case of crisis nor has been ruled as inadequate e.g. by the ECJ, the number and character of infringement proceedings in specific instances cast strong doubts on current practices, especially when considered together with other circumstantial evidence of possible irregularities in the current system found e.g. through IEA and/or Commission activities and/or assessments.
In particular, analysis of the current system reveals flaws which might prevent it from functioning suitably in case of an actual supply disruption. There are doubts whether the present systems could guarantee that the stocks held for emergencies would be fully available and could be effectively mobilised as needed. The EU also lacks coordinated intervention procedures, rendering prompt decision making and effective actions, which are crucial in a crisis, very difficult in practice. Better adaptation to the internationally accepted rules of the IEA also seems desirable because this would allow the use of EU stocks to have a better impact in an IEA action.
As a result of these flaws, the system may not deliver the desired results in a crisis, running the risk of exposing the economy to substantial damage. In view of the important role oil plays in modern economies and societies, the costs would be enormous, as evidenced in the impact assessment. Under these circumstances, waiting for hard proof would be irresponsible.
The current system is also prone to free riding: Member States with possibly less reliable systems can count on countries with sound arrangements. This however compromises the emergency preparedness of the EU as a whole.
The overall objective of the revision is to further strengthen the system while at the same time optimising the administrative obligations on Member States. The emergency response system needs to be brought more into line with the European Union’s needs concerning its readiness to react to oil supply disruptions, should they occur, efficiently and in a fully coordinated manner.
Oil is the most important energy source in the EU and the economy is crucially dependent on its continuous, reliable and affordable supply. In the light of high and increasing import dependence, security of oil supply is particularly important.
The EU must be in a position to offset or at least diminish any harmful effects resulting from possible supply disruptions. Experience shows that the release of emergency oil stocks is the easiest and fastest way of making large volumes of additional oil and/or petroleum products available to an undersupplied market, thereby alleviating market shortage and mitigating negative impacts on the economy.
In recent years the risk of oil supply disruptions has grown for a number of reasons. Current global trends, coupled with the EU’s internal development (such as successive enlargements, completion of the internal market, decreasing indigenous production) are all factors calling for updating of the existing EU stock legislation created 40 years ago.
In 2002, the Commission proposed a directive to increase the volume of stocks to be maintained in each Member State to 120 days and to give the EU the possibility to decide how these stocks are used, not only in the event of a physical disruption but also in the event of a perceived risk which would trigger dangerous market volatility. The Commission faced much resistance in the European Parliament and the Council and subsequently decided to withdraw the proposal.
- Council Directive 2006/67/EC of 24 July 2006 imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products, OJ L 217, 8.8.2006, p. 8;
- Council Decision 68/416/EEC of 20 December 1968 on the conclusion and implementation of individual agreements between Governments relating to the obligation of Member States to maintain minimum stocks of crude oil and/or petroleum products, OJ L 308, 23.12.1968, p. 19;
- Council Directive 73/238/EEC of 24 July 1973 on measures to mitigate the effects of difficulties in the supply of crude oil and petroleum products, OJ L 228, 16.8.1973, p. 1.
- The proposed directive would replace all the above three pieces of legislation.
Directive 2006/67/EC is a codified version replacing Council Directive 68/414/EEC and Council Directive 98/93/EC amending it.
This proposal is fully consistent with the objectives of the Union, especially those concerning the establishment of an internal market, solidarity among Member States and the sustainable development of Europe based on balanced economic growth and price stability.
The proposal is also consistent with the climate and energy policy, one of the pillars of which is the security of energy supply.
Consultation of interested parties
Consultation methods, main sectors targeted and general profile of respondents
A public consultation was carried out between April and June 2008 to ascertain the views of all interested parties on possible revision of the existing legislation on emergency oil stocks. The consultation was based on a document outlining the key issues in the current regime that in the Commission’s view need to be addressed and suggesting possible changes to the current legislation. In addition to several companies and industry associations, seventeen Member States submitted their contributions.
Apart from the on-line public consultation, the main platforms for the consultation of stakeholders were the Oil Supply Group and the Fossil Fuels (also known as Berlin) Forum. In addition to these structured dialogues, Member States, the stakeholder community and external experts were consulted through several informal meetings. The IEA was also a vital source of information and external expertise.
Most stakeholders supported the objectives of the revision spelled out in the consultation document. In particular, efforts to ease the administrative burden, establish coherent emergency procedures complementary to those of the IEA and strengthen compliance through reinforced verification and control received general support. However, the stakeholder community, both Member States and industry, proved divided on the proposals aimed at improving stock availability. While some stakeholders insisted that all emergency stocks should be government-owned to ensure maximum availability, others argued that Member States should be able to adapt their systems to their special circumstances.
The majority of stakeholders opposed the idea of a strict physical separation of emergency stocks and commercial stocks, arguing for commingling (storing emergency and commercial stocks in the same facilities or even the same tanks) with a view to optimising cost and location. However, proper accounting and strict control was advocated to ensure that commingled emergency stocks are not used for commercial purposes.
The expertise feeding into the impact assessment and the legislative proposal was collected through numerous formal and informal consultations and meetings held during 2007 and 2008. Members of the Oil Supply Group answered two dedicated questionnaires: one on the composition and availability of emergency oil stocks, the other on the resources used for emergency stockholding under the current rules.
No external contractor was involved in preparing the impact assessment or the legislative proposal.
Four options were considered in the accompanying impact assessment, and the outcome can be summarised as follows.
With no policy change, effective EU-wide emergency preparedness cannot be guaranteed. This gives cause for concern since supply disruptions might become more frequent and significant in the future.
This option would not entail a change to current stockholding arrangements but would introduce a reinforcement of public control of the availability of emergency stocks and of emergency mechanisms. While enabling some improvements, such an approach would not allow the full range of current shortcomings to be tackled, making it impossible to create a consistently robust system across the EU. Reinforced controls could help to detect cases of non-compliance but the underlying causes of insufficient stock availability would not be addressed.
Option 2: Establishing a centralised EU system with mandatory state/public ownership of emergency stocks
This option would require that all 90 days of dedicated emergency stocks are state-owned, managed by an agency, possibly controlled at EU level, and held separately from commercial stocks. Such stocks would unquestionably be available for emergency purposes, but some of the benefits associated with commingling (automatic turnover of stocks, stocks closer to consumers) would be lost. This option would represent a significant change to the current stockholding system of most Member States, with substantial public expenditure. This may not be justified by the experience of past disruptions and may be questioned from the point of view of proportionality and subsidiarity.
Option 3: Creating dedicated EU emergency stocks within a revised version of the existing system
Requiring Member States to hold an obligatory portion of emergency stocks in the form of government- or agency-owned stocks would result in ‘dedicated’ stocks unquestionably available as supplementary volumes in case of a disruption; levels much lower than 90 days would be sufficient to cope with disruptions such as those experienced in the past. Member States would have considerable flexibility in choosing how to satisfy the rest of the stockholding obligation. Most Member States are reasonably close to complying with this option. This option provides reasonable protection against supply disruptions while, in line with the proportionality principle, leaving scope for national decisions.
Contents
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- Grounds for and objectives of the proposal
- General context
- Existing provisions in the area of the proposal
- Consistency with other policies and objectives of the Union
- CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT
- Summary of responses and how they have been taken into account
- Collection and use of expertise
- Impact assessment
- Option 0: No policy change
- Option 1: Reinforcing control and coordination mechanisms within the existing system
- Option 2: Establishing a centralised EU system with mandatory state/public ownership of emergency stocks
- Option 3: Creating dedicated EU emergency stocks within a revised version of the existing system
- Summary of the proposed action
- Legal basis
- Subsidiarity principle
- Proportionality principle
- Choice of instruments
- ADDITIONAL INFORMATION
- Review clause
While Option 3 is clearly the preferred option for the Commission, the results of the stakeholder consultations and impact assessment seem not to make it possible for the Commission to impose the constitution of dedicated stocks in an obligatory fashion at present. The Commission proposal therefore builds on this option while leaving the constitution of dedicated stocks at the discretion of Member States for the moment. Rules for reinforced control are proposed and, in the event of stocks not complying with certain criteria, annual reporting on the location and ownership of stocks will help to verify that such stocks are at the full disposal of Member States. A review clause will enable the Commission to assess after a period of time whether Member States not constituting dedicated stocks are applying alternative solutions giving convincing assurance of reliability.
The constitution of part of stocks as stocks specifically composed of products and owned by government or an agency is highly desirable, especially in the context of the proposed alignment of the general stockholding obligations of Member States with those under IEA rules. This alignment will bring more coherence into the EU system of oil stocks and facilitate interaction with the IEA. It will also simplify compliance and reduce the administrative burden for Member States, particularly those currently facing a dual obligation on the basis of their membership of both the EU and the IEA. It can, however, also lead to looser specifications for stockholding practices and should therefore be offset by public ownership and administration of at least part of the emergency stocks, as is the case e.g. in the US, Japan or Korea.
The proposed legislation will also create more flexibility for Member States in choosing the specific arrangements for complying with the stockholding obligations. Member States will gain the possibility to delegate between themselves the execution of some of their stockholding obligations. On the other hand, should a Member State choose to impose a stockholding obligation on companies, the companies will be given the right to delegate their obligation to a central stockholding entity. This option will remove some types of potential discrimination between categories of operators and will allow eradication of the problematic use of ‘ticket’ contracts and burdensome bilateral agreements. The proposal provides for rules and procedures to be followed in case of an IEA-led action and in emergency situations when no IEA action is implemented. The EU will be able to contribute better to an IEA action: IEA member countries will be able to participate without explicit Commission approval while the Commission will coordinate the contribution of non-IEA Member States.
Finally, the proposed rules will allow audits/inspections of emergency stocks to be carried out by or on behalf of the Commission.
The legal basis for the proposal is Article 100 of the Treaty establishing the European Community.
Community action will better achieve the objectives of the proposal for the following reasons.
Energy security is a public good and — given the existence of the internal market — the benefits of the stocks released in a crisis cannot be limited to a single country. The internal market ensures that any stock released can flow freely to any buyer EU-wide. The benefits from releasing stocks will not be captured by a single country but by the EU as a whole. As a result, if the emergency systems adopted by individual Member States are too diverse and provide different levels of preparedness and reliability, this may lead to reduced efficiency and a free rider problem.
Since oil markets are global, any disruptions to oil supply — whether occurring in one or more Member States or outside the EU — will have repercussions for all Member States. Furthermore, in integrated economies such as the EU internal market, the level of emergency preparedness of any single Member State will influence the level of preparedness of the Union as a whole. If minimum requirements are imposed throughout the EU, it may be easier to avoid the emergence of a problem or to cope with a disruption.
It must also be kept in mind that several Member States are not members of the IEA, which has a mandate to tackle global disruptions. The European Commission takes part in the work of the agency, but full EU participation in an IEA action can be guaranteed only through an EU mechanism involving Member States that are not members of the IEA.
The above arguments all mean that the objective of maintaining a high level of security in the supply of oil and petroleum products within the EU can be best achieved in a coordinated way.
The proposal complies with the proportionality principle for the following reasons.
This proposal does not go beyond what is necessary in order to achieve the objectives. Member States will continue to have considerable flexibility in choosing the stockholding arrangements and the composition of the stocks, with due regard to their geographical situation, refining capacities and other relevant factors.
The proposal does not prescribe the details of the stockholding arrangements to be established by Member States. It merely defines the criteria with which the emergency stocks must comply. Some of the proposed provisions are aimed at reducing the administrative burden on Member States and economic operators.
Proposed instrument: directive.
The instrument proposed is a directive to be implemented by the Member States. A directive is the appropriate instrument as it clearly defines the objectives to be reached, while leaving Member States sufficient flexibility to implement it in the way that suits their particular national circumstances best.
The proposal will have a limited impact on the Community budget, in particular to cover expenditure on information technology and, should the Commission so decide, expenditure on audits or inspections of emergency stocks.
No major direct and unavoidable impact is foreseen for the budgets of Member States.
Simplification
The legal framework for emergency stocks in the EU and rules relating to their use are currently dispersed across three distinct pieces of EU legislation. Under the proposal, these would be replaced by a single legislative act.
By aligning the stockholding obligation with that of the IEA, the proposal also provides for the simplification of Member States’ administrative procedures.
After three years, the Commission may propose that part of the emergency stocks of each Member State is to be owned by the government or an agency.