The Green Brief: Fossil fuel subsidies are back (and they’re here to stay)

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With the ongoing surge in energy prices, EU governments have scrambled to implement emergency measures to protect vulnerable consumers. Yet in doing so, they’re indirectly subsidising fossil fuels and undermining the green transition just weeks before the UN climate summit opens in Glasgow.

All EU governments more or less agree that the long-term response to surging energy prices is to accelerate the transition to renewable power and promote energy savings through schemes like building renovation programmes.

Yet when faced with the current global surge in energy prices, they have – understandably – resorted to short-termism with tried and tested methods: market intervention and social schemes to support the poorest households.

In France, where the 2022 presidential election campaign is already underway, the government has offered a €100 one-off payment to low-income households.

Prime Minister Jean Castex went further on Thursday last week, announcing that prices will be frozen in France as of 1 October, following an increase of 12.64% and 4% for gas and electricity respectively. No doubt the ‘Yellow Vests’ protests that swept across the country in 2018 were on their minds when they took that decision.

Across Europe, similar measures are cropping up. In Greece, the government is planning subsidies to help households shoulder higher energy bills; while in Italy, Prime Minister Mario Draghi announced a €3 billion package targeted at the most vulnerable households.

In Spain, taxes on electricity have been temporarily suspended, while the government has drawn the ire of power companies by introducing a tax on windfall profits of energy firms.

All these measures have one thing in common: they undermine the energy transition.

Although they may be necessary in the short term, caps on energy prices and subsidies for heating fuel are also indirectly a cheque in the pockets of Russia’s Gazprom and Norway’s Equinor Europe’s two biggest gas suppliers.

And exceptional taxes on power companies are only drawing resources away from electricity firms looking to invest in long-term solutions like renewables.

At a time when €260 billion is needed every year for the energy transition until 2030, this can hardly be seen as an investment into a future-proof, resilient energy system. It’s also a disastrous message to developing countries in the run-up to the UN climate summit in Glasgow.

Yet, the debate on energy prices is also exposing an inconvenient truth: as the energy transition progresses, oil and gas prices will become increasingly volatile, making fossil fuel subsidies paradoxically even more necessary to shield the poorest households from wild price fluctuations.

Claude Turmes, the energy minister of Luxembourg, alluded to this during a briefing with journalists on Friday. “The question is whether there will be more volatility on energy markets on the way to climate neutrality in the long term,” he said.

“And that is something which is not completely surprising, because fossil investments are less secure in the mid to long term and so safety margins in these markets are probably smaller.”

French economy minister Bruno Le Maire used similar terms at a meeting of EU finance ministers in Luxembourg earlier this week.

“There will be a long-term increase in energy prices because of the environmental transition,” Le Maire said as he entered the meeting on Monday (4 October). “For years, not months, we will have to face an increased level of prices because there is a need for more electricity” coming from renewables and nuclear plants, he said.

As the European Commission draws up a “toolbox” of measures for governments to respond to the crisis, the issue of energy subsidies, as well as their social and long-term environmental impact, will no doubt be central to its thinking. 

– Frédéric Simon

Good morning from Luxembourg!

Today I’ll be covering the meeting of environment ministers (the Environment Council) from Luxembourg. There’s a packed agenda for today, including discussions on the COP26 climate summit, the Fit for 55 package, forestry and energy prices.

On COP26, Poland, Bulgaria and Slovakia currently stand in the way of the EU finalising its position going into the summit. That is because they are baulking at the idea of having to report on climate progress every five years rather than every 10 as is the EU norm. There is a concern that could create more scrutiny for countries, something these three clearly do not want.

But the EU needs to come up with a deal in order to go into COP26 with a strong position. It may be a little tricky to get international consensus when the EU cannot find agreement among its own members. Watch the wording of the final deal for loopholes.

On Fit for 55 we are not expecting many “fireworks” according to an EU diplomat. EU countries have only just read through the package of proposals, tabled in July, and some are still making their minds up about some of the files. However, there may at least be sparks around the proposal for the emissions trading scheme, which has already drawn criticism from EU countries.

Europe’s current energy crisis may also make an appearance as critics raise concerns about EU countries backtracking on climate ambition to tackle the energy price crunch. While wider reforms, like the possibility of decoupling electricity prices from gas prices won’t be discussed until the European Council later this month, expect to see environment ministers stating positions and possibly some countries who’ve stayed quiet until now (like Germany) voicing an opinion.

Follow me on Twitter for all the latest on the Environment Council and let me know any comments/ tips/ news as the day unfolds.

– Kira Taylor

 

This week’s top stories

 

More stories

 

News from the capitals

BERLIN. Nord Stream 2 starts testing gas flows. As Europe faces a gas price crunch and prospects of a long, dark winter lie ahead, the first stretch of Nord Stream 2 is being filled with gas in preparation for late-stage tests. If all goes well in the trial, gas could begin flowing later this year. Read more.

PARIS. France hopes to become world leader in green hydrogen. “I believe we have the capacity to be the world leader in green hydrogen,” Finance Minister Bruno Le Maire announced on 30 September at the last meeting of the National Hydrogen Council. Read more.

TIRANA. Albanian prime minister warns of increasing energy prices driven by crisis. Albanian Prime Minister Edi Rama warned on Sunday (3 September) of rising fuel and energy prices that will bring about “shocking consequences” for Albanians during the winter. Read more.

LONDON. UK electricity green by 2035, says Johnson. All UK electricity will come from clean energy sources by 2035, Prime Minister Boris Johnson said on Monday (4 October).

Speaking in Manchester, where his governing Conservative party is meeting for its annual conference, Johnson told reporters that “we can do for our entire energy production by 2035 what we’re doing with internal combustion engine vehicles by 2030”. The government is set to ban the sale of petrol and diesel-powered cars after 2030. (Benjamin Fox | EURACTIV.com)

PARIS. French PM announces relaunch of ‘sustainable’ social housing. As tensions on the housing market have risen over the past decade, French Prime Minister Jean Castex announced some measures on Wednesday to relaunch construction and promote affordable housing. Read more.

DUBLIN. Ireland could face electricity crisis for winters to come. Ireland could face electricity deficits for the next five winters, a report produced by Irish state-owned electric power operator EirGrid has warned. Read more.

LISBON. Portugal: Lithium preliminary environmental report identifies ‘some risks’. The preliminary environmental impact assessment report for the Lithium Prospecting and Exploration Programme identified “some risks” in the eight potential areas in the north and centre of the country, but still recognised the opportunity this could have for the economy’s decarbonisation. More.

BRATISLAVA. Slovakia’s recycling numbers allegedly overrated, fraudulent. While Eurostat figures state that Slovakia recycles 38.5% of its municipal waste, the numbers could be deliberately inflated, Denník N media outlet has reported. Read more.

PRAGUE. Czech PM advocates for emission allowances cap. Czech Prime Minister Andrej Babis called on the European Council to discuss carbon emission allowances and a cap on energy prices during its next meeting. Read more.

 

News in brief

Time waits for no man … or country. The world doesn’t stop spinning just because Germany had an election, an EU diplomat told EURACTIV on the eve of the meeting of environment ministers.

It will be the first time environment ministers meet since the world spiralled into an energy crisis and, while the Environment Council will not adopt any formal conclusions, it will discuss the issue. Some countries, like France and Spain, have already made their views clear but all eyes are on Germany, which has the highest gas usage in Europe, but does not want structural reform, according to a diplomatic source. (Kira Taylor | EURACTIV.com)

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EU Parliament to hold debate, but no vote, on energy prices. The European Parliament will hold a debate on surging energy prices today (6 October) but won’t be voting on a resolution at this stage, to the disappointment of the Socialists & Democrats (S&D).

According to the S&D, all other political groups in Parliament except for The Left have blocked a debate with resolution at the plenary session taking place in Strasbourg on Wednesday (6 October).

“The rise of energy prices in the EU affects millions of citizens” across the European Union, the S&D said in a message on Twitter, voicing its disappointment that a resolution won’t be voted on in Strasbourg. 

The spokesperson of the European Parliament, Jaume Duch Guillot, told EURACTIV that a resolution could still be voted on at a later stage. “The conference of presidents can always decide to include a proposal for resolution for the next plenary,” he said referring to the conference of political group leaders, which decides on the Parliament’s agenda.

“We first want to listen to the proposals from the European Commission and the Council, and give the other institutions an opportunity to debrief the Parliament,” Duch Guillot said.

A draft motion for resolution, prepared by the S&D, was ready to be discussed by political group leaders but won’t be considered in the end. You can read it here for inspiration. (Frédéric Simon | EURACTIV.com) 

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Germany opens first carbon neutral synthetic kerosene factory. Monday (4 September) saw the launch of a Power-to-Kerosene facility in Werlte. The factory runs on renewable energy from nearby wind farms and is expected to produce 1.3 tons of kerosene per day. 

German aviation fuel regulations foresee 50,000 tons of Kerosene being used annually by 2026, of which the factory is set to produce about 1%. 

“To achieve our target of 200,000 tons of green kerosene per year by 2030, we need to significantly increase production capacities,” said acting Chancellor Angela Merkel during the opening ceremony. Power-to-Liquid fuels were still rather expensive and limited but the “technology and market would develop,” she added. (Nikolaus J. Kurmayer | EURACTIV.de)

 

Opinions

 

Upcoming events

10 OCTOBER. COP26 – can it be a game-changer? With COP26 just around the corner, join environment committee MEP Michael Bloss, Anthony Froggatt, senior research fellow and deputy director for the energy, environment and resources programme at the Royal Institute of International Affairs and more to discuss the upcoming summit. Programme and registration here. (Supported by Zurich)

 

On our radar

6 OCTOBER: Environment Council. The meeting of EU environment ministers includes a last minute debate about the rising price of energy, a deliberation on the ‘Fit for 55’ package, and a public debate on the EU’s position for COP26 as well as the bloc’s forest strategy (see meeting page for full agenda).

21-22 OCTOBER: EU summit. Agenda includes surging energy prices, preparations for COP26 in Glasgow (climate) and COP15 in Kunming (biodiversity). (See meeting page).

31 OCTOBER – 12 NOVEMBER: COP26. Global leaders will meet in Glasgow, UK, with more ambitious climate pledges and with the aim to finish negotiations around Article 6 of the Paris Agreement.

2 DECEMBER: Energy Council. EU energy ministers will meet in early December in the second session since the Fit for 55 package was tabled. (meeting page). 

14 DECEMBER: Fit for 55 – part 2. Following the publication of its huge package of climate proposals in July, the European Commission is expected to table more energy-related files, including regulations on natural gas, and proposals on the circular economy.

22 DECEMBER. European Commission to propose nature protection laws. As an early Christmas present to all you nature protection fans, the EU executive is expected to table a proposal for legally binding nature restoration targets to tackle the poor state of biodiversity in Europe and a proposal to tackle EU-driven deforestation.

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