Regulation, Supply and Demand
- The Loyola de Palacio Series on European Energy Policy
The definition of ‘network activities’ as regulated businesses is at the core of the EU gas market design. The EU gas industry has been opened to market forces in the last two decades and several activities of the gas industry chain have been reorganized under decentralized decision-making processes. To introduce competition in the gas sector, the rights of transmission network use have been unbundled from the network ownership. The owners of pipelines keep the property of their assets but they cannot use them any more as private carriers. Different players have the right to access gas consumers and suppliers by using the network infrastructures. Nevertheless, in order to give access to the same infrastructures to different users, one needs to define the conditions of usage in order to avoid ‘commons dilemma’ inefficiencies. These conditions of use and the corresponding investment decisions can be framed by a centralized management (a ‘regulation’) or by decentralized agreements (‘contracts’). The organization around contracts was the choice of the liberalization process in the US gas sector. The EU restructuration process, however, has a markedly different path, guaranteeing the access to gas transport networks through a regulated framework. Most of the differences between both approaches can be traced back to this design choice.
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