Moral hazard arises because the Member States do not bear the full cost of their own risky energy consumption. Therefore, the Member States may have a tendency to increase the consumption of risky energy, which could increase the risk exposure of the European Union.
The authors stress that there is a need to establish a strong regulatory energy agency to coordinate the energy decisions of the Union and to solve the problems that are related to a common energy policy. They also discuss the benefits of integrating all energy policy issues into one single agreement and achieving more equal allocation of decision power within the Union. In addition, they provide a set of new indexes that measure the risks associated with the external supply of gas, oil and coal for each Member State.
The report was presented at the seminar Security of Energy Supply. EU-Russia and Transit Countries and is a part of the research project Energy: towards a common (green) energy policy?
2008:1 Common Energy Policy in the EU: The Moral Hazard of the Security of External Supply (2.09 MB)