EU grapples with ‘regressive’ climate laws

Energy poverty “has moved up on the agenda" at EU level since 2018 and the Yellow Vest movement, said Georg Zachmann, senior fellow at the Bruegel economic think tank in Brussels. [Patrice CALATAYU / Flickr]

Avoiding another “yellow vest” movement will be crucial for the success of its energy transition as Europe moves forward with a new wave of policies aimed at cutting emissions down to net zero by 2050, policymakers say.

When the European Commission launched its Energy Poverty Observatory two years ago, stakeholders across the board welcomed the move as a much-needed addition to the EU’s energy policymaking toolbox.

But it was also a veiled recognition that Europe couldn’t do much about the issue, because tackling energy poverty involves taxation and social policy issues over which the EU has little or no say: EU legislation in these areas can only be agreed by unanimity, giving every member state a right of veto.

“It is very true that taxation is the right of the member states,” said Kadri Simson, the EU’s energy commissioner who took part in a webinar on energy poverty organised on Friday by Eurelectric, the EU electricity industry association.

“It is clear that we will not achieve our goals without closely cooperating with member states,” Simson added, saying: “We can only guide and cooperate with them closely.”

Still, many feel the time is ripe to tackle energy-related social and taxation issues at EU level.

“Policy measures making sense from a climate point of view can sometimes impact low income households unequally,” said a study led by the Enel foundation, which looked into carbon pricing and “the regressive effect” they can have on the poorest segments of the population.

“There could be more Yellow Vests in the future,” warned the study, referring to the 2018 riots that swept through France after the government attempted to increase fuel taxes by about €0.10 per litre of petrol or diesel.

Energy poverty “has moved up on the agenda” at EU level since 2018 and the Yellow Vest movement in France, said Georg Zachmann, senior fellow at the Bruegel economic think tank in Brussels.

And current discussions on the economic recovery from the coronavirus pandemic are placing more emphasis on the “distributional effects” of climate policies, with debates focusing on a “just transition” from the crisis, he said.

According to trade unions, 11 million jobs in Europe are directly at risk from the green transition, in industries like steelmaking, extraction and mining as well as automotive.

Policymakers must now ensure that public statements in favour of a green and just transition are “not just lip service” and are followed up by actual initiatives, Zachmann said.

At EU level, the most visible initiative taken by the European Commission was its proposed Just Transition Fund to wean carbon-intensive regions off fossil fuels.

Initially endowed with €7.5 billion, the fund was boosted to reach a total of €40 billion thanks to fresh money from a proposed new recovery fund designed to help Europe’s economies rebound after the coronavirus pandemic.

It still needs approval by the EU’s 27 member states and the European Parliament before going ahead, though.

EU boosts 'just transition fund', pledging €40 billion to exit fossil fuels

The European Commission has increased five-fold its proposed EU fund to wean carbon-intensive regions off fossil fuels, with fresh cash from a new recovery fund to help Europe’s ailing economies rebound after the new coronavirus pandemic.

Energy taxation directive

Another closely watched EU initiative will be a proposal, scheduled for June next year, to revise the 2003 energy taxation directive.

Simson said the EU executive had started working on the revision of the directive, which sets minimum levels of taxes on transport and heating fuels as well as electricity.

In an evaluation made in September last year, the European Commission warned about a “significant misalignment” of the directive with the bloc’s energy and climate objectives. “For example, no link exists between the minimum tax rates of fuels and their energy content and CO2 emissions,” the Commission pointed out in its evaluation.

Since the directive’s adoption in 2003, the share of renewables has tripled to reach 18% of the EU’s total energy mix and 31% of the bloc’s electricity consumption, it said, citing statistics from Eurostat.

“The current tax framework has not changed since 2003, and contains a range of incentives for fossil fuels, despite the EU’s ambitious energy and climate objectives and international commitments,” the Commission adds on its website, saying those tax benefits amounted to €40 billion in 2016.

“Electricity is one of the most heavily-taxed and levied goods in the economy,” said Artur Runge-Metzger, a senior Commission official, at a EURACTIV online event last month.

Lowering taxes on electricity “might be an area that member states could look at” as part of national energy and climate plans that EU member states must submit to the Commission, Runge-Metzger suggested.

Even oil refiners are calling for tax reforms, saying fuel taxation in Europe should be turned into “a proper carbon price” in order to favour low-carbon fuels like hydrogen and second generation biofuels.

Europe’s oil refiners outline path to climate neutrality by 2050

The European oil refining industry association, whose members includes Shell, BP, ExxonMobil and Total, outlined on Monday (15 June) a €650 billion plan to completely decarbonise transport fuels by 2050.

Anything to do with taxation is a political minefield, however.

In Denmark for example, the government wants to put 1 million electric cars on the road by 2030, said Niels Fuglsang a Danish lawmaker from the socialists and democrats group in the European Parliament.

And to achieve that, “the logic is that you should tax the bad things, like gasoline cars,” and spend the money on green and social initiatives, he told participants at the webinar.

But with more electric cars on the road, governments are also going to lose on taxation revenue from petrol cars, which will make it harder to fund other policies, he added.

“It’s really a great dilemma because some people will be hurt by this – those who work in the fossil industry and those driving gasoline cars,” he said. The answer, he added, is “to compensate those people” who are hurt by climate policies and put in place reskilling and retraining programmes for laid-off workers.

“We cannot leave this to the market,” he insisted, calling on policymakers to manage the transition.

Researcher: Lowering electricity taxes is cheapest way of meeting EU climate goals

The energy transition will hit the poor hardest unless it’s balanced by a shift in taxation, says Christian Egenhofer. The EU needs to acknowledge this and get started by lowering taxes on electricity to achieve the EU’s carbon reduction goals at least cost, he argues.

[Edited by Benjamin Fox]

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