The Green Brief: The price of freedom gas

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Confronted with a belligerent Russia at its eastern border, the European Union has started consulting with allies about possible alternatives to its supply of Russian gas. The financial and political cost could be high, however.

In the event of a war in Ukraine, Moscow is expected to turn off the gas tap, something that would only worsen the current energy crisis Europe is mired in. On Sunday (30 January), NATO urged Europe to diversify its gas supplies in preparation for a conflict.

And Europe is trying. On Friday (28 January), the EU and US joined forces to protect the region’s energy security. They issued a statement saying they were “working jointly towards continued, sufficient, and timely supply of natural gas to the EU from diverse sources across the globe to avoid supply shocks, including those that could result from a further Russian invasion of Ukraine”.

“Now is the time to prepare,” said an EU official who was briefing the press on Friday. Although there are several areas where preparation must be made, “probably the most important one is on energy,” the official added.

The European Union relies on Russia for around 40% of its gas. Any interruption would exacerbate the ongoing energy crisis, which was triggered by Russia-owned Gazprom’s reluctance to supply Europe beyond the contractually agreed volumes.

The problem is there aren’t many alternatives. “There are pipelines from Norway, Algeria and Azerbaijan, but these countries don’t have additional production capacity,” said Thierry Bros, a specialist on the European gas market at Sciences Po university in Paris, quoted by Reuters.

That leaves Liquified Natural Gas (LNG) from Qatar and the United States as the two immediate options. 

For the second month running, Europe was the top destination for US LNG exports. A few years back, the Trump administration rather aptly nicknamed US LNG as ‘freedom gas’ for its alleged ability to sever Europe from its dependency on Russia.

But the price of American and Qatari LNG is markedly higher than cheap pipeline gas from Russia. If Europe wants to import more of the liquid stuff from faraway places, it will have to pay the price – either financially, politically, or both.

In the case of Qatar, production for the coming months is already fully booked, so creative solutions would need to be found. The main idea pushed by Brussels is to agree with Asian buyers like South Korea to swap pre-booked volumes as part of existing long-term supply contracts. Those deliveries would then be diverted to Europe instead of going to South Korea, an EU official explained.

“Yes, the price will be higher,” Bros warned, telling EURACTIV that the cost is likely to be “exorbitant”. 

But more fundamentally, contract swaps would only be a stop-gap solution to deal with the immediate supply crisis. If tensions with Russia persist and alternatives have to be found in the long term, new arrangements will have to be made on the EU gas market to address the new geopolitical situation.

Doha, for one, is unlikely to agree to increase supplies to Europe unless the EU drops an ongoing antitrust investigation into long-term supply contracts for LNG

This goes against European Commission policy. For the past decade, the EU executive has fought against long-term contracts as part of its push to liberalise the EU gas market and sought to replace them with more diverse, but more volatile spot contracts. 

And Brussels isn’t willing to give up on this approach, saying spot prices were on average lower than long-term contracts during the past decade. “Comparing what would have happened if Europe had stayed with long-term contracts over the past decade compared to the spot prices, we would have lost €20 billion,” an EU official said.

This unbending posture from the EU executive is based on the assumption that the standoff with Russia will only be temporary. But it is also risky: alternative gas suppliers won’t invest in new production capacity unless they receive assurances about future volumes and a stable regulatory environment.

This is exactly the opposite of what the European Commission has on offer. With its Green Deal, the EU executive told gas suppliers that gas consumption in Europe would decline by 25% by the end of the decade, bringing the development of new gas supply projects to a standstill. 

A prolonged standoff with Russia would force the EU to reconsider its plans. At the end of the day, it is the whole European Green Deal which could be on the line.

– Frédéric Simon


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News from the Capitals

VIENNA. Austria, other EU countries, urge Commission not to give green label to gas. The European Commission should not include gas in the current EU taxonomy, Austria, the Netherlands, Sweden, and Denmark wrote in a letter ahead of the Commission’s much-anticipated delegated act that will rule whether fossil gas or nuclear power are sustainable. Read more.

BRUSSELS. Belgium to cut VAT on electricity in response to energy price spike. Belgium will cut value-added tax on electricity as part of a package to shield consumers from rising energy prices, the prime minister said on Tuesday. Read more.

STOCKHOLM. Swedish government decides where to store nuclear waste. The Swedish government has decided where to locate spent nuclear fuel from the country’s six operating reactors, though the project still needs to be approved by the Land and Environmental Court. Read more.

ROME. Putin asssures Italy gas supply will remain stable. Supplies of Russian gas will continue to arrive in Italy regularly, Russian President Vladimir Putin assured Italian Prime Minister Mario Draghi in a phone call on Monday. Read more.

PRAGUE | WARSAW. Poland dismisses its ambassador to Prague. Polish President Andrzej Duda dismissed Poland’s ambassador to Prague Mirosław Jasiński. The move came after Jasiński criticised Poland for lack of willingness to solve the Czech-Polish dispute over the Turów mine in an interview with the newspaper, Deutsche Welle. Read more.

LJUBLJANA. Government aid package to offset high energy prices in Slovenia. The government has put in place an aid package worth around €200 million to help businesses and households cope with high energy prices, a move that has been welcomed but also criticised for being long overdue. Read more.

BELGRADE. EU, Serbia to bankroll new gas interconnector between Serbia, Bulgaria. The EU and Serbia are financing a new natural gas interconnector between Serbia and Bulgaria, whose construction, beginning on Tuesday, is slated for completion in the fourth quarter of 2023, the Belgrade EU Info Centre announced on Monday. Read more.

SKOPJE. North Macedonia expects to reach 46% target for renewables by 2025. The share of renewable energy sources in North Macedonia’s electricity production is expected to reach 46% by 2025, according to the new three-year Economic Reform Programme aimed at implementing several environmental reforms from 2022-2024, presented by the finance ministry. Read more.

WARSAW. Morawiecki urges EU to allow tax cuts on gas and subsidies for fertilisers. Prime Minister Mateusz Morawiecki called on the European Commission Sunday to approve the government plans to temporarily cut value-added tax on gas, a decision that the Commission has so far been unwilling to take. The PM said lowering VAT on gas would help Polish farmers. Read more.

TIRANA. Energy poverty leads to pollution-related deaths in Albania and Western Balkans. At least 37% of Albanians are suffering from energy poverty, far above the European average of 5%, according to a study from DOOR and EIHP to address energy poverty in energy community contracting parties. This drives them to use wood to heat their homes, directly impacting the health of those around them. Read more.

BUCHAREST. Romanian energy producer moves from coal to natural gas. Romanian power producer CE Oltenia has applied for financing to invest in two gas-powered plants one day after Romania obtained the European Commission’s greenlight for a massive restructuring aid package. Read more.

PRAGUE. Close to half the households of Czech seniors suffer from energy poverty. Households of Czech seniors are highly vulnerable to current electricity and heating prices spikes. Up to 60% of them are at risk, and around 40% already suffer from energy poverty. However, the current situation related to high gas prices is not the only factor contributing to this negative trend. Read more.


News in brief

Taxonomy day! It’s been confirmed by the European Commission that today is the day that Executive-Vice President Valdis Dombrovskis and Commissioner Mairead McGuinness will present the final version of the delegated act of the EU sustainable finance taxonomy, covering nuclear energy and fossil gas. 

This is a highly controversial topic and has been the source of great tension over the last month in Brussels.

Many, including the German government and the EU’s green finance advisers who analysed the draft, have suggested changes for the controversial delegated act. And, while some EU commissioners have their reservations about it, they are unlikely to obstruct the plans.

According to one EU insider source, a majority of Commissioners will support the inclusion of gas and nuclear in the second delegated act when the 27-strong College of Commissioners meet on Wednesday (2 February). Some may be against, but it “will most likely be adopted,” the source said.

The European Commission is expected to adopt its final proposal today. After that, EU countries and the European Parliament will have four months to scrutinise it. They can then either block the proposal or accept it. You can read more about the procedure in our previous edition of the Green Brief. (Kira Taylor | EURACTIV.com)

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Parliament committee shakeup sees only minor changes. Last week saw shake ups in various committees of the European Parliament, mainly to do with changes in chairs and political group coordinators. 

However, the environment, health and food safety committee (ENVI) and the industry, research and energy committee (ITRE) saw very few changes. Centrist French lawmaker Pascal Canfin (Renew Europe) remains as chair of ENVI while ITRE maintained its European People’s Party chair Cristian-Silviu Busoi. Vice chairs – those who fill in for the chair when they are unavailable – remained the same in both committees. 

Meanwhile, the political group coordinators for the ENVI committee – the lawmakers who prepare decisions for the committee, including what legislation it works on and which lawmakers take the lead – will see a small shake up for the Socialists and Democrats, with Swedish lawmaker Jytte Guteland replaced by German Tiemo Wölken. Guteland is running for the Swedish parliamentary elections in September and is expected to return to national politics following that. (Kira Taylor | EURACTIV.com)

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New environmental state aid rules come into force. The European Commission on Thursday (27 January) formally adopted its new guidelines on state aid for climate, environmental protection and energy (CEEAG), which allow EU countries to finance projects on environmental grounds.

The guidelines were already endorsed by the Commission on 21 December but the EU executive said they would only come into force when all the language versions were available, which is now the case. 

The new guidelines broaden the categories of investments and technologies that EU countries can support to cover new areas such as clean mobility infrastructure, resource efficiency, and biodiversity protection. Generally, “all technologies that can deliver the Green Deal” can now be exempted from state aid rules, the Commission explained, citing technologies such as renewable hydrogen, electricity storage and demand response, as well as decarbonising production processes.

When she presented the new rules in December, the EU’s competition commissioner Margrethe Vestager also said the EU executive would inject “a bit of pragmatism” to state aid when it comes to natural gas, saying it is “a special case” because gas “acts as a bridge towards our path to more renewables.” Read our December article here. Full text of the new state aid guidelines here as well as press release and Q&A. (Frédéric Simon | EURACTIV.com)

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Sweden gives greenlight to burying nuclear fuel for 100,000 years. On Thursday (27 January), the Swedish government signed off on a plan to build a storage facility to hold the country’s used nuclear fuel for the next 100,000 years. It becomes the second country after Finland to approve a deep geological repository for high-level nuclear waste, according to Rafael Mariano Grossi, director general of the International Atomic Energy Agency.

“Our generation must take responsibility for nuclear waste. This is the result of 40 years of research and it will be safe for 100,000 years,” Environment Minister Annika Strandhall told reporters at a news conference, according to Reuters.

“The solution for the final storage of spent nuclear fuel through that, we ensure that we can use our current nuclear power as a part of the transition to becoming the world’s first fossil-free, developed nation.” Read more

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Oil price surge could spark investment in new projects: report. Surging oil prices may tempt oil and gas companies to make new long-term investment decisions, says a new report by Carbon Tracker, a financial think-tank.

But if they do so, oil companies risk hurting their long-term valuation, the report argues. High oil prices are “unlikely to last more than a few years” because climate action by world governments and a rapid switch to electric vehicles are expected to drive down long-term demand for oil, the report says.

“The market could be severely oversupplied as demand falls, driving prices down,” the report says, warning that “hundreds of billions of dollars of investments would be wasted.” High-risk projects singled out in the report include the $6.7bn Bosi project in Nigeria (ExxonMobil, Shell); the $3.1bn Tupi project in Brazil (Galp); and the $3bn Bacalhau/Bacalhau Norte project in Brazil (ExxonMobil, Equinor, Galp and Sinopec). (Frédéric Simon | EURACTIV.com)

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Campaign for toxic-free baby diapers. Environmental activists have urged the European Commission to introduce new restrictions on a group of hazardous substances in baby diapers under the EU’s REACH regulation on chemicals. 

In December, the European Chemicals Agency (ECHA)’s scientific committees rejected an attempt to eliminate hazardous chemicals from single-use baby diapers. But without the proposed EU restriction in place, millions of newborns and toddlers wearing single-use diapers may be potentially exposed to harmful substances on a daily basis for several years, the activists warned in a letter to the EU executive.

“All consumers have the right to products that are safe and toxic-free,” said Dorota Napierska from Zero Waste Europe. “But given the number of babies and toddlers who use single-use diapers every day and night, for a few years, hazardous chemicals present in these products need to be addressed really urgently at EU-level,” she said in a statement. The letter is co-signed by Zero Waste Europe, the European Environmental Bureau, Client Earth and the Health and Environment Alliance. (Frédéric Simon | EURACTIV.com)


Opinions


Upcoming events

3 FEBRUARY. EU methane regulation: how can policymakers raise ambition? Join Malcolm McDowell, team leader for the reduction of methane emissions in the European Commission’s energy department, Renew Europe lawmaker Martin Hojsík, Green lawmaker Jutta Paulus and more to discuss how the EU can tackle energy sector methane emissions and reach its 2030 climate targets and the 2050 climate neutrality goal. Programme and registration here. (Supported by the European Defense Fund)

4 FEBRUARY. Ensuring the effective integration of hydrogen within the EU’s energy system. Join Catharina Sikow-Magny, director of green transition and energy system integration at the European Commission’s energy department, Jerzy Buzek from the energy committee of the European Parliament and others to discuss the EU’s shift from natural gas to renewable and low-carbon gases, including hydrogen. Programme and registration here. (Supported by ENTSOG)

9 FEBRUARY. Green steel: CBAM and ETS do their current designs aid EU climate ambitions? Join Maria Elena Scoppio, director of indirect taxtion and tax administration at DG TAXUD, Emma Wiesner from the Europe Parliament’s environment committee and Miapetra Kumpula-Natri from the energy committee to discuss the impact of the carbon border levy and the emissions trading scheme on the steel industry. Programme and registration here. (Supported by Eurofer)

22 FEBRUARY. (Re)constructing Europe: What challenges are Member States facing? 

Join Fulvia Raffaelli, head of unit construction at DG Grow, Maria Spyraki from the European Parliament’s energy and environment committees and more to discuss the new economic and environmental challenges for the construction sector, particularly for South-Eastern Europe. Programme and registration here. (Supported by Glavbolgarstroy)


On our radar

2 FEBRUARY. European Commission proposal to include nuclear and gas in the EU’s sustainable finance taxonomy.

15 FEBRUARY. Proposal on sustainable corporate governance (tbc)

17 MARCH. Environment Council.

23 MARCH. Nature protection package: Revision of rules around sustainable use of pesticides and nature restoration targets.

30 MARCH. Circular economy package 1:

  • Sustainable products policy initiative, including a revision of the Ecodesign Directive
  • Review of the Construction Product Regulation
  • Proposal for a Regulation on substantiating environmental claims using the Product/ Organisation Environmental Footprint methods (green claims)
  • Strategy on sustainable textiles
  • Empowering consumers for the green transition 

5 APRIL. Emissions and pollutants package:

  • Revision of the Industrial Emissions Directive and update of the European Pollutant Release and Transfer Register (E-PRTR)
  • Review of EU rules on fluorinated greenhouse gases
  • Regulation on substances that deplete the ozone layer
  • Development of post-Euro 6/VI emission standards for cars, vans, lorries and buses 

27 APRIL. New strategy on international energy engagement (tbc) 

25-27 MAY. G7 meeting of climate and energy ministers.

27 JUNE. Energy Council.

28 JUNE. Environment Council.

20 JULY. Circular Economy Package 2:

  • Policy framework for bio-based, biodegradable and compostable plastics
  • Review of the Packaging and packaging waste directive to reinforce the essential requirements for packaging and establish EU level packaging waste prevention measures and targets
  • Review of the Urban Wastewater Treatment directive 

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