Neither ‘Race to the Bottom’ Nor ‘Race to the Top’: The Effects of EU Coordination on Member States’ Energy Policies

This paper investigates the effects of energy policy decisions being increasingly preordained on EU level. With the EU Commission’s 2014 state aid guidelines, its vision for an “Energy Union” and the “Clean energy for all Europeans” regulatory package, several initiatives for governing the sustainable transformation of energy systems have recently been launched at the EU level. The question is in what way exactly this affects the Member States’ transition efforts – given that Member States’ ambitions remain heterogeneous and that the TFEU still grants them sovereignty over their energy mix. The paper proceeds in two steps, distinguishing between effects on the ambition level of national transition efforts (i.e., the substance dimension) and effects on national policy design choices (i.e., the form dimension). First, we analyze the effects from increased EU level coordination on the ambition level of Member States’ climate and energy policies. Overall, the effects seem to be limited, so that neither a “race to the bottom” nor a “race to the top” unfolds. For instance, consider the case of the revised electricity market directive: it prohibits capacity payments for all power plants emitting more than 550g CO² per kWh after 1 July 2025, thereby phasing out subsidies for coal power plants. However, the revised directive contains a major loophole in that capacity schemes introduced by the end of 2019 are exempt from this regulation. By implication, the less ambitious Member States may use this loophole to significantly delay their climate mitigation efforts compared to their more ambitious peers – but without restricting the latter. Second, we ask which national climate and energy policy choices are guided by increasing EU coordination. The various directives, guidelines and communications yield a discernible impact on the choices between alternative policy designs. The EU Commission successfully promotes its internal market agenda, pushing market-based instruments. For example, the state aid guidelines triggered the shift from feed-in tariffs to tender schemes as main support instrument for renewables. In sum, choices between alternative policy designs and framings (form dimension) are much more affected by the shift of competencies to the EU level than the degree of ambition (substance dimension). Which mechanisms lead to this result? From the Member States’ perspective, sovereignty over the national energy mix, as stipulated within the TFEU, offers considerable leverage to control ambition and speed of transition policies. Moreover, reluctant Member States can, to some extent, hide behind climate and energy targets that are set on EU level. In contrast, compliance requirements from EU directives and guidelines significantly affect national policy framings and instrument choice: the EU internal market agenda affects both lead narratives and specific policy design. The paper closes with a normative discussion of the above results: from a "fiscal federalism" perspective, harmonizing the form of policies rather than their ambition may be justifiable if this reflects national preferences. Yet a counterfactual pattern, with harmonized ambition among a variety of policies may draw on a clear rationale (“laboratory federalism”) as well.