This article is part of our special report Europe’s new Climate Law: Leaving no-one behind?.
As the European Commission prepares its proposal for a landmark EU Climate Law, Eurelectric boss Kristian Ruby urges policymakers to keep it simple and focus on the long-term.
Kristian Ruby is the secretary-general of Eurelectric, the EU power sector association. He spoke to EURACTIV’s energy and environment editor, Frédéric Simon.
- Policymakers should focus the upcoming EU Climate Law on the 2050 climate neutrality objective and avoid divisive discussions on 2030 target;
- Going climate neutral means the power sector needs to invest €100 billion per year in generation and storage alone;
- But yearly investments are currently in the range of €60 billion per year;
- Investment into electricity grids deserves more attention, especially at distribution level;
- 5 million electric cars are soon expected to hit the road every year, requiring an unprecedented upscaling of infrastructure;
- Financing the transition in heavy emitting countries like Poland implies looking at state aid rules at the EU level.
The European Commission is about to unveil its proposed Climate Law on 4 March, setting in stone the EU objective of reaching climate neutrality by 2050. What, in your view, should this law contain, what should be its main elements?
In my view, the Climate Law should be kept fairly short. It should stay simple and focus on what we don’t have today, which is a long-term climate target for 2050. That’s the critical element.
And, in order to keep the legislative process as smooth as possible, I think the Climate Law should also refrain from adding too many other elements. As you know, the climate challenge is all-encompassing – it affects every part of society and every sector of the economy. So if you try to cover everything in one law you risk ending up with a very complicated legal instrument and you risk creating overlaps with other pieces of legislation.
There’s really a risk of over-complicating this. As you know, it’s not like we don’t have other instruments, there are many different pieces of legislation to address climate-related issues.
So, I would say: keep it simple, focus on the long term and try to create a proposal that will sail smoothly through the legislative process.
Should the Climate Law contain a greenhouse gas reduction target for 2030, in addition to the 2050 climate neutrality target?
In my view, that would complicate things, because immediately there will be a discussion on what that target should be.
We already have a legally-binding 2030 target to reduce greenhouse gas emissions by 40% compared to 1990 levels. And the separate process for reviewing the 2030 targets has already been announced.
In addition, the discussion about the level of ambition for 2030 is one for which we haven’t had any impact assessment yet. That means we don’t have any analytical basis to propose anything for 2030 – whether a 50% reduction in emissions or a 55% reduction, which is what the European Commission proposed in its Green Deal.
So the impact assessment will be a prerequisite. And therefore, I think adding a 2030 target to the Climate Law would be exactly the kind of additional element that would complicate the debate and make it more difficult to pass legislation.
Reaching climate neutrality by 2050 will require more than doubling the share of electricity in the energy mix – from around 22% today to 53% at least by 2050, according to the Commission. This will require massive investments. Have you made an evaluation of the price tag associated with that?
For power generation and storage alone, we’re talking about investments of €100 billion. And that’s on an annual basis. On top of that, you need to consider the reinforcement of electricity grids and other related investments, such as charging infrastructure for electric cars, and investments needed to electrify other industries, etc.
For the economy as a whole, the Commission’s Long Term Strategy said the amount of investments needed to reach climate neutrality would be in excess of €270 billion per annum.
Where will that money come from? Do you believe that private investments will be sufficient to cover the entire amount?
Clearly, we are not there today and we will need a significant ramp-up in order to reach those levels of investments. Last year, the power generation sector in Europe saw investments in the range of €60 billion. So that leaves a €40 billion gap at least.
Much of this gap can be filled by creating a well-functioning framework for investments, combining private and public funding. This is absolutely crucial because today, some countries and companies are not in a position to raise those amounts on the money market at the speed required.
This is why we’re calling on policymakers to use the Just Transition Mechanism to get some of this done. And make sure that the EU’s sustainable investment plan identifies critical projects – be it power infrastructure, generation, or other critical projects – to ensure the success of the European Green Deal.
In my view, the so-called Juncker fund – the European Fund for Strategic Investments (EFSI) – provides a credible precedent for what needs to be done. Thanks to EFSI, the Commission was able to basically get contracts signed worth more than €400 billion in five years.
Today, with the European Green Deal, we’re roughly in the same ballpark: the EU’s so-called sustainable investment plan wants to mobilise €1 trillion within a decade. So we’re talking about the same sort of investment rate.
You alluded to a divide with some countries finding it more difficult than others to make those investments. Do you see an east-west divide here, with former communist states struggling to access finance?
There is certainly something to that, but I think it’s a little bit more complex. In Germany for example, investments needs are also very high because they’re transitioning away from coal.
Coal still constitutes a significant part of the power mix in Germany and therefore the investments are high there.
So you think it’s fair that Germany should get a slice of the Just Transition Fund, even though the country is running budget surpluses every year and has a GDP above the EU’s average?
Yes, I do think so. The just transition is more than about countries, it also has to do with regions and citizens. If we create a green transition that makes wealthy people more wealthy and poor people even poorer, then it is not going to be a societal success. So, the concept of the just transition needs to go beyond a mere split between member states.
Overall, the Commission estimates that an extra €260 billion in investments is needed every year to finance the switch to clean energy. But in the EU’s long-term budget, it only proposed adding €7.5bn of fresh money, for the Just Transition Fund. Are you concerned about a lack of public financing for the energy transition?
I am in the sense that the €7.5 billion is subject to an agreement among EU member states in the European Council. For me, the €7.5bn figure is really the bare minimum, because we know it will only cover a small part of the investment needed. And in any case, this figure will only make sense if combined with other institutional funds used to gear other investments and leverage other sources of financing.
But my prime concern here is that that the Council will be too frugal and will forget about their ambitions for the green transition when they discuss the actual budget allocation.
The EU budget is proportionately rather small. So public money will also need to come from the member states themselves…
This is all subject to a certain level of speculation. There’s a lot of ways you can get from €7.5 to €100. The good news is that the EU budget allows combining funds from different sources, not just the Just Transition Fund.
Take regional funds. If you combine one euro from the JTF with a couple of euros from other regional instruments and then add money coming from institutional investors and the member states, then all of a sudden you have several sources of funding. And you can easily channel them towards an objective that is compatible with the objectives of the European Green Deal.
For example, you could use that money to renovate buildings in a region where it is badly needed and make important energy efficiency gains.
Where can EU money be the most useful for the transformation of the electricity sector? There is a modernisation fund under the ETS, for example. So what’s the most efficient way of using those?
Electricity grids deserve more attention in our view. With the decentralisation currently happening in power generation, we will absolutely rely on strong distribution grids. And we also know some countries will struggle to mobilise those funds. So grids are absolutely something to prioritise.
Right now, money is being funnelled into gas infrastructure and transmission. So why not reprioritise and spend some of this money on distribution grids. I think that would make a lot of sense.
Then there is charging infrastructure for electric vehicles. Some 30% of all new cars will be either hybrid or fully electric in the coming years. That means 5 million cars per year. This requires an upscaling of electricity infrastructure that goes well beyond what can be expected of the market in such a short timeframe.
You need to consider that the market will look for a return on investment. So the marketplace will deploy infrastructure where it is profitable immediately. And that means you might have some holes in the map where the deployment of charging infrastructure will be lagging behind.
And this is another area where it’s obvious that the EU could prioritise spending. There is clearly a cross-border mobility challenge, where the EU could provide value-added, which was also acknowledged in the Green Deal.
For the Polish electricity sector, the financing needs were evaluated at €60 billion until 2030, just for the power sector. Do you see a risk that Poland will be “left behind” in the transition to clean electricity?
I do see a risk, yes. The good news is that Poland is changing. They are planning for offshore wind investments, and have recently issued a very big onshore wind tender. We’re also seeing some deployment of solar. And there are also plans to establish other types of low-carbon power generation, like nuclear. So there are positive developments that have to be acknowledged.
That said, Poland also faces a special challenge because they start from such a high carbon asset base. And the risk for Poland is that the majority of their money will be ploughed into compliance, to buy allowances on the EU carbon market.
With a rising CO2 price and a very carbon-intensive electricity mix, the risk is that they will end up paying a lot of money for every kilowatt hour they generate. And for individual companies, that means that it becomes more difficult to invest because they will need to spend more on carbon allowances.
A reform of the Emissions Trading Scheme is in the pipeline. Do you believe special arrangements need to be made in the ETS for such circumstances?
We should not introduce a lot of exemptions for individual member states. But the target we set should be ambitious and achievable at the same time.
What Poland and the EU as a whole need to figure out is how to use the revenues from the auction of carbon allowances in the wider economy.
Financing the transition in Poland also implies looking at state aid rules at the EU level. But I think it’s a bit premature to say we need to do exactly this or that in the ETS reform.
There is a modernisation fund in the ETS. Is it big enough to fund the modernisation of Poland’s fleet of coal power plants?
This is yet another source, but it’s not at all going to cover the actual investment needs in Poland.
In general, the success of the Green Deal will depend on the ability of policymakers to put in place financing mechanisms allowing for a rapid upscaling of investments. And we haven’t really seen that yet.
[Edited by Zoran Radosavljevic]