Russia solves gas crisis as EU pushes for reform

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Germany and France have dug in against plans to dismantle continental Europe's massive energy monopolies after the launch of controversial measures to shake-up gas and oil supplies and curb global warming.

Berlin and Paris made it clear yesterday that they would oppose a European Commission proposal that poses the biggest-ever challenge to the grip of giant firms such as Électricité de France, or Germany's E.On.

France's Industry minister, Francois Loos, argued: "Our system works and the proof of that is that other producers - other than EDF - tell us that it is working to their satisfaction." The German Economy minister, Michael Glos, said splitting energy production and transmission, as proposed by the Commission, would be "rather difficult".

The comments are likely to reawaken the debate about economic nationalism as reformers press for liberalisation in the €250bn (£167bn) energy market.

Yesterday's energy policy launch was given added urgency by the rift between Russia and Belarus, which led to the severing of oil supplies to several European countries. Officials in Minsk announced that they had cancelled a transit tax imposed on Russian oil which was at the heart of the rift.

The European Commission president, Jose Manuel Barroso, said the row over Russian supplies underlined the need for the EU to "develop a common external energy policy and speak with one voice to third countries". He argued: "Any addiction is even worse when you depend on someone else."

The signs of a looming clash in the EU over the full-scale break-up of energy giants emerged after the launch of broader European Commission plans designed to bring about a "post-industrial revolution" to help forge a "low-carbon economy". Confronted by the prospect of an alarming rise in temperatures due to global warming, the European Commission wants to cut emissions and boost renewable energy, while liberalising the EU energy market to produce more diversity of supply and better choice for consumers.

Germany says the proposal for liberalisation may raise constitutional problems, but also fears such a move would encourage short-term profiteering by companies not committed to long-term investment.

The Commission's preferred plan would separate companies that generate power from those that supply it to consumers.

However, Berlin is ready to accept a second-best option contained in yesterday's package. Under this plan, the assets could remain under the umbrella of a large energy giant as long as their management and operation were hived off to a separate, autonomous, firm. But senior officials said that even if this more limited form of liberalisation came about, it would be an advance on the current situation.

Mr Barroso's ambitious programme also called on member states to cut carbon emissions by 20 per cent from 1990 levels before 2020 - or 30 per cent if other developed countries agree.

It calls for all new coal-fired electricity plants to be equipped with carbon capture and storage facilities by 2020. That is seen as a crucial signal to India and China, which depend heavily on coal, that this source of energy can be made environmentally friendly.

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