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Rising energy prices weigh on European portfolios and on the bloc’s climate plans.
Concerns over a popular backlash were evident on Tuesday when members of the European Parliament debated the European Commission’s proposed climate legislation for 55.
“Citizens are starting to ask questions,” said Anna Zalewska, of Poland’s legislative and justice party. “First of all, they ask about the general price increases, because they are the ones who will pay the final bill. They are the ones who, unfortunately, will pay for the EU’s ambitions. “
Polish Prime Minister Mateusz Morawiecki points the finger at Brussels. “Polish energy prices are tied to EU climate policies,” he said last week.
The Commission insists that these prices are not the fault of the EU’s emissions trading system, which has cost more than double a tonne of CO2 emissions over the last year to around € 60. In contrast, the rise in the price of energy is largely due to high gas prices and structural issues in the European electricity market, but the Commission remains wary of the fact that the zero-net Green Deal project has the guilt.
The head of the Green Deal Commission, Frans Timmermans, told MEPs on Tuesday that only “a fifth” of higher energy costs could be attributed to the rise in the price of ETS, with the rest caused by low supply of gas.
He argued that these rising costs really reinforce the case for a rapid shift towards cleaner energy sources.
Some MEPs sided with Timmermans. “We have to act radically, but there is a problem: Slovakia and Europe are facing rising energy prices and this puts the most vulnerable and the poor at a disadvantage. Because? Because of our dependence on fossil gas, “said Slovak lawmaker Martin Hojsík of Renew Europe.
The political danger for the Commission’s Fit for 55 program is clear.
Pascal Canfin, a French MEP who chairs Parliament’s environment committee, said his Liberal group Renew Europe opposed the Commission’s proposal to expand emissions trading in road transport and buildings.
“We believe the political cost is extremely high and the climate impact is very low,” he said.
In response to a journalist’s question about the risk to the Green Deal if costs were imposed on the middle class, Green MEP Philippe Lamberts said: “How can you imagine that we are not thinking about this? We are so stupid? ”
A continental problem
Governments across the EU are feeling the pressure.
In Italy, electricity bills have risen 20 percent in the last quarter and are expected to rise 40 percent from October, according to Ecological Transition Minister Roberto Cingolani. He told POLITICO that he agreed with Timmermans that the lesson of the current price hikes was that “we should be very quick in increasing renewable power plants.”
Despite this, Cingolani was alive in the face of political risk. “You’re directly measuring the impact of the concept of decarbonisation,” he said, warning that people “shouldn’t perceive that the transition means you pay more for electricity and that’s it.” If people are forced to make gruesome changes in their lives, this “historic transformation” comes at a cost and will be difficult.
In Spain, the government is facing a political crisis caused by a record energy price, which has tripled to € 172.78 per kilowatt-hour over the last six months. On Tuesday it passed measures to reduce bills with temporary tax cuts, limit the amount that prices can raise and recoup the benefits of public services of about 2.5 billion euros to redistribute them to consumers. The goal is to keep the bills on where they were in 2018.
“We will reduce the profits of energy companies and redirect profits to consumers,” said Prime Minister Pedro Sanchez.
Outraged nuclear power companies threatened to shut down their reactors (which supply about a fifth of the country’s energy) before the government could push through its plan.
The Greek government said on Tuesday it would spend 150 million euros to cut consumer bills by the end of the year.
“There is an international energy crisis,” Energy Minister Kostas Skrekas told reporters, “Our government has decided to support those who have seen their bills grow.”
The problem, Cingolani said, is that Europe is partially moving from its transition to 100% clean energy, with “a mix of old and new energy sources in which carbon dioxide will increase in price.”
Market signals
The idea behind the ETS was to put a price on carbon, imposing higher costs on polluting energy sources such as oil, coal and gas and encouraging low-carbon energy such as solar, wind, hydraulic and nuclear. But countries have shut down both coal-fired and nuclear-fired power plants, and when there is less wind and sun available, more and more natural gas purchased on world markets is filling the vacuum.
Currently “Wind generation is low and in some markets there are a large number of offline plants,” said Glenn Rickson, head of European energy analysis at S&P Global Platts. “With the general shutdown of coal-fired power plants in recent years … there is a reduced scope to move away from gas generation when gas prices rise, which in turn fuels the price of gas.”
The EU is now shrinking as global gas prices soar.
It is exacerbated by the structure of the EU’s wholesale electricity markets, where the most expensive energy source used to meet total demand sets the price of the entire market. This means that high gas prices raise overall costs, even if fuel is responsible for only a small portion of global power generation.
As the Fit for 55 proposals go through Parliament this winter (and gas prices are expected to rise further as Europeans turn on heating this winter), the Commission is likely to face complaints during the next few months.
“The only thing we can’t afford is for the social side to oppose the climate side. I see this threat very clearly now that we have a discussion about rising prices in the energy sector,” Timmermans said.
The green transition, he said, “will be cruelly hard and no one should have any illusions that this will be easy.” But he urged lawmakers to avoid the “trap” of talking “all the time about the cost of transition and avoid talking about the cost of non-transition.”
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