An Economic Analysis
Chapter 1: Introduction
1.1 THE EUROPEAN ENERGY MARKET – CHALLENGES AND TRENDS Energy issues are regularly at the top of the agenda of European news and policies. The reason is simply that energy involves important aspects of human welfare. Energy is used for heating, cooking and electrical appliances in everyone’s homes, and for transporting people to work and on holidays. Energy is also an essential input in the production of most consumer goods. Unfortunately for Europe, the supply of energy is not abundant in this part of the world. In fact, about half of Europe’s energy consumption is based on imports from other regions, and this share will most likely rise in coming decades. Moreover, the main exporters of energy are often situated in politically unstable parts of the world, such as Russia and the Middle East. Therefore, security of energy supply is one of the main concerns for European policy makers. Another major concern in Europe, and in the world generally, is the climate change issue. Energy use is clearly the most significant contributor to this environmental problem, as well as to other kinds of air pollution. The vital importance of energy, and the challenges associated with it, necessitates the efficient structuring of energy markets, and well-designed policies. These challenges are focused upon in the European Union’s 2006 Green Paper subtitled ‘A European Strategy for Sustainable, Competitive and Secure Energy’ (EU, 2006). Even before the turn of the century, the EU Member States agreed upon directives to promote the liberalization of energy markets...