WHEN decision-makers call a new policy a “third way” it usually signals an unsatisfactory compromise. That is certainly true of the proposed energy-policy rules agreed on by European Union (EU) energy ministers in Luxembourg on June 6th. Andris Piebalgs, the EU energy commissioner, had set out to force governments to separate or “unbundle” energy companies' production and transmission assets. What he has achieved with the legislative proposal is a hybrid system that lets governments choose between mandating a proper break-up of their country's vertically integrated energy giants, and two watered-down forms of separation.

By his own admission Mr Piebalgs has “mixed feelings” about the compromise in the draft legislation that will now be submitted to parliamentarians. But he is under pressure from two rival factions. Britain, Spain, the Netherlands and the Scandinavians champion “Independent Transmission System Operation” (ITSO), which is jargon for full unbundling. In their view vertically integrated companies such as France's EDF and Germany's RWE and e.ON shut rivals out of their transmission systems and shy away from reinvesting their profits in network improvements.

As an alternative to ITSO the Commission also proposed a watered-down version, allowing companies to retain ownership of their spun-off networks. But even that was too much for a group of eight countries, led by France and Germany, which say that “effective and efficient” unbundling of transmission systems does not require such separation. This group proposed a “third way” that merely requires companies to have independent management teams for generation and transmission, and to boost investment. National governments will be able to decide which of these three options to adopt.

The Commission insists that it has made progress on other fronts. A new “Agency for the Co-operation of Energy Regulators” is to oversee the functioning of energy markets, notably in cross-border co-operation between network operators. But Dieter Helm, an expert on energy regulation at Oxford University, says there is not much to celebrate. He argues that the proposal is a muddled compromise that will create cumbersome regulation and more bureaucracy. In his view unbundling should have been pushed through in the 1990s, when energy prices were low, investment requirements were negligible and supply was abundant. Unbundling seems much less important today, he says.

Instead, as Russia becomes an increasingly powerful energy producer, the EU should focus on safeguarding its security of supply, in particular by forming a common front in dealings with Gazprom and other Russian energy giants. By 2030 Russia will provide about 50% of the EU's gas imports. Yet rather than working together, countries are striking bilateral deals with Russia. Combating climate change should be the EU's second priority. Talks are being held at regular intervals, but so far unrealistic targets for the use of renewable energy have been the main result. “European energy policy has been a substantive failure,” says Mr Helm.

The Commission says it had to agree on a compromise. France, an opponent of full unbundling, will take over the EU's rotating presidency on July 1st, so the reformers had to get things sorted out this month. And the new policy may yet help to foster a more unified external energy policy through the new pan-European agency and increased co-operation among network operators. But implementation will take at least two years. Meanwhile, Europe's vertically integrated giants—especially Germany's RWE and e.ON—will pursue their own foreign energy policy. And governments will do their very best to help their national champions.