Methodology and Data

Reflecting the research question guiding this study, the methodological approaches employed in this study are twofold. On the one hand, methodology is employed to investigate how the EU managed to expand its influence in energy market regulation. On the other hand, methodology is necessary to investigate the EU’s influence on energy liberalization in the Member States in the Baltic Sea Region.

Investigating the Expansion of the EU into Energy Market Regulation

Answering how the EU gained influence over energy liberalization is done in a descriptive way by historically tracing back the EU’s expansion into electricity and gas market regulation (chapter 5). It involves investigating the origins of the EU’s role in the energy sector as well as identifying those factors permitting the EU to expand into electricity and gas market regulation. An important element consists of discussing the legal and political mandate that sustained the EU’s expansion into electricity and gas market regulation. It is followed by discussing the development of EU energy market regulation (chapter 6). This provides us with the necessary knowledge of the legal means by which the EU exerted influence on energy liberalization in Member States. In an additional chapter, we address how the EU exported energy liberalization in the past and still does today (chapter 7). This is needed as some of the countries in the case studies were not members of the EU until 2004. However, it also provides us with a comprehensive understanding of EU energy market regulation, and permits us to understand the scope and limits of EU influence on energy liberalization abroad.

Investigating EU Influence on Energy Liberalization in Member States

As already mentioned earlier, to answer how the EU exerted influence on energy liberalization in Member States this study employs a qualitative case study approach with a geographical focus on the Baltic Sea Region. The region provides an excellent starting point to analyze EU influence on energy liberalization in Member States. It is made up of a variety of Member States, such as old, rather young and very young Member States. In addition they differ in social, economic and historical terms. Particularly interesting is that they also differ in liberalization history. All that makes them an excellent mix of cases to investigate EU influence on energy liberalization. Those national differences are likely to be reflected in the role that modifying factors play in determining EU influence. This enhances the general

conclusions derived from the analytical framework in terms of validity and reliability.

Another aspect characterizes the Baltic Sea Region. It contains one of the most advanced regional electricity markets in the EU: the Nordic power market (Nord Pool). Besides the EU, energy market integration may work as an additional factor for energy liberalization in a country. In that context, the geographical focus on the Baltic Sea Region facilitates controlling the influence that energy market integration may exert on energy liberalization in Member States.

The case studies (chapter 8) cover seven countries: Germany, Sweden, Finland, Poland, Lithuania as well as Latvia and Estonia. Germany is interesting as it is in one of the largest Member States. It has a well-developed energy supply system and some of the largest energy companies in Europe. Sweden and Finland are interesting cases as they started liberalization even before the EU adopted relevant energy market legislation. They indicate that EU influence may not explain energy liberalization in all countries. Though new Member States are often treated as a homogeneous group, investigating Poland, Lithuania, Latvia and Estonia individually is intriguing as they are very different countries. As they have been Member States of the EU only since 2004, they may cast light on differences in EU’s influence on energy liberalization between Accession Candidates (de facto third countries) and Member States.

A case study approach has the benefit to look at evidence if a certain independent variable influences a dependent variable via a hypothesized causal way (Mitchell and Bauer 1998: 7).

For this study a case can be understood as an instance of EU influence on energy liberalization involving a Member State. It is likely that besides EU influence other unexpected third factors on the domestic or international levels contributed to energy liberalization in a country. By conceptualizing EU influence in terms of Europeanization, we have already distinguished EU influence from other sources of change. However, in order to check for alternative explanations to energy liberalization a systematic investigation is necessary that helps isolate EU influence on energy liberalization in a country. For this study we opted for investigating EU influence in the case studies based on a methodological four-step approach and distinguishing between electricity and gas liberalization:

1. Step: Changing the Rules of the Game in Electricity Supply

This step is concerned with tracing the historical roots of electricity liberalization in a country. In the focus are changes to national energy legislation in terms of moving towards regulating for competition, with a focus on changing the rules of the game for

electricity supply, as well as the influence of the EU with regard to that. Although the time span may cover in some countries the first efforts for liberalization to the most recent ones, the analytical focus rests on a country’s first decisive steps towards electricity liberalization. This step can be understood as a historical analysis of EU influence on energy liberalization in a country.

2. Step: Role of Energy Security, Economic and Political Justifications

This step assesses the extent to which electricity liberalization in a country was influenced by energy security concerns as well as the economic and political justifications for energy liberalization. Those factors reflect the theoretical propositions guiding our expectations concerning factors that may have modified EU influence on energy liberalization in a country. Additional internal and external factors decisive for energy liberalization are also discussed.

3. Step: The Role of the EU in Electricity Liberalization

This step discusses the EU’s contribution to electricity liberalization in a country as well as to which extent EU influence has been modified by energy security concerns as well as economic and political justifications for liberalization and other factors. This chapter also applies contra-factual analysis to further clarify the role of the EU in energy liberalization.

4. Step: Gas Liberalization and the Role of the EU

This step addresses the EU’s influence on gas liberalization. It is shorter and less comprehensive than the previous chapters on electricity liberalization. Gas liberalization has not been a particularly topical issue. This may partially be explained by the fact that it did not involve the same complex energy security concerns as electricity liberalization. Another reason may be that most countries rely on gas imports. Thus, gas liberalization may have been less likely to affect particular domestic interests and raise significant political opposition or controversy (see chapter 2.5.2). However, that may change in the coming years, as countries are becoming increasingly reliant on renewables as sources of electricity and gas may become more relevant for load balancing purposes. Methodologically this chapter employs the same approaches to EU influence on gas liberalization as applied to electricity liberalization.

The case studies provide the basis to draw general conclusions concerning EU influence on energy liberalization (chapter 9). For that, we perform a systematic analysis of the insights gained in the case studies. Drawing explicitly on the theoretical (chapter 3) and basic analytical framework (chapter 4), we first discuss the EU’s influence on energy liberalization (chapter 9.1), which is followed by a discussion of the role of modifying factors in determining EU influence (chapter 9.2). Finally, we address important additional factors identified in the case studies that were important in facilitating EU influence on energy liberalization (chapter 9.3). The aim is to infer, based on the insights of the case studies and guided by theory, general conclusions concerning the EU’s influence on energy liberalization and, eventually, the scope and limits to EU electricity and gas market regulation. This is a necessary step to answer, in particular, the second part of the research question guiding this study (chapter 1.1) concerning the factors determining EU influence on liberalization and it provides to some extent the basis to discuss the future development of EU energy market regulation.

Data for this study: Documents, Interviews, Statistics and Secondary Literature

The empirical data employed in this study spans mainly from energy statistics, official EU and national documents, EU and national energy legislation, international treaties, to secondary literature. In terms of documents, a large amount proceeded for the case studies were official energy market reports published by national regulatory authorities. In terms of statistical data, to provide for cross-country comparability, the main sources were energy policy reports from the International Energy Agency (IEA). Where IEA data was not available, official statistical data was employed and reworked in a way to ensure comparability. Finally, given the lack of secondary literature on energy liberalization in the Baltic States, not at least as the process gained impetus only in recent years, the knowledge gap was closed with open interviews with key government and regulatory officials concerning the role of the EU on energy liberalization in those countries.

“Most of them [obstacles to the internal energy market] are the end-product of domestic rules and regulations originating in an often distant past predating the European idea: this applies for example to all the potential obstacles arising from purely domestic monopolies.” –European Commission (1988)²²