Energy price crunch risks derailing UN climate talks, Iberdrola warns

The headquarters of Spanish energy company Iberdrola in Bilbao, Basque Country, northern Spain, 30 October 2019. [EPA-EFE/Luis Tejido]

The current hike in energy prices is threatening to overshadow the COP26 climate summit this November as countries scramble to tackle the rising costs of electricity, oil and gas, warned a senior executive at Spanish power firm Iberdrola.

As the world reopens after the COVID-19 pandemic, the sudden high demand for gas, conflated by other factors, has caused a spike in energy prices.

But policies brought in by European governments to try and tackle the soaring prices risk looking hypocritical in light of the climate ambition they are demanding from the rest of the world at the COP26 summit.

Spain, for instance, has capped gas prices and cut taxes in order to help alleviate some of the strain.

“Despite the positive perspective for the energy transition at the EU level, soaring energy prices could jeopardise EU climate action,” said Gonzalo Sáenz de Miera, director of climate change and alliances at Iberdrola, the Spanish multinational electricity company.

“This situation is threatening the case for a rapid shift to clean energy sources by some measures recently passed by some EU member states,” he told a EURACTIV event on Thursday (30 September), supported by Iberdrola.

EU leaders to discuss soaring energy prices

Leaders of European Union countries will discuss surging energy prices when they meet next month, as governments scramble to cushion households from the soaring cost of gas and power.

Conflicting messages

The energy price crunch comes amid calls from the UK’s lead on COP26 for a global agreement to end the use of coal power and switch to renewables.

Yet there is a danger that the energy price crunch is having the opposite effect, undermining the incentive to decarbonise created by Europe’s carbon market, the Emissions Trading Scheme ‘ETS), where prices reached an all-time high of €65 per tonne last week.

To try and mitigate the impacts of the price crunch, coal power plants have been reopened and  governments have rolled back taxes for energy companies, essentially providing subsidies for fossil fuels.

“What is happening now, for instance in Spain, is that there is a charge for non-emitting plants to extract the income from high gas prices and from high CO2 prices. This is a very bad message in Europe,” warned de Miera.

“It does not comply with the European single market. It may break the ETS if some populist governments in EU countries say ‘Spanish users are not paying for CO2, why do I have to pay for it?’ So this is a very dangerous movement,” said de Miera.

De Miera warned that this also creates confusion in the energy market and will cause a drop in investments in renewables.

This is the exact opposite of what is needed. EU climate chief Frans Timmermans urged Europe to double down on renewables, whose prices have remained low during the crisis.

“Instead of being paralysed or slowing things down because of the price hike now in the energy sector, we should speed things up in the transition to renewable energy so that affordable renewable energy becomes available for everyone,” Timmermans said.

“That is, I think, the lesson we should draw from the present situation,” he told the European Parliament on 14 September.

More renewables best answer to energy price surge, Brussels insists

A faster rollout of renewable energies such as wind and solar is the best response to recent spikes in gas and power prices, an EU official said on Wednesday (29 September), repeating earlier statements by the European Commission.

EU needs more ambition for COP

The energy price crunch is just the latest concern in the run up to the November UN climate summit, with other problems including a lack of vaccines for the Global South and developed countries consistently failing to meet promised levels of climate finance for developing nations.

On top of all this, the EU is still not on track to reach the global warming limit envisioned in the Paris Agreement, warned the German Green MEP, Michael Bloss, who cited independent research by the Climate Action Tracker showing the EU is still not doing its fair share to tackle the climate crisis.

“It would be really helping our credibility on the international level if we would have a climate target that is in line with the 2°C or the 1.5°C temperature limit, because otherwise it’s really difficult for Europe to tell others that they should do more initiative to keep to the Paris Agreement,” Bloss told the EURACTIV event.

More than pledges, it’s actual policies that are now critically needed, added Simone Tagliapietra, senior fellow at Bruegel. “It’s of paramount importance to move from targets to pathways at this point of the climate crisis. It is very important to have clear implementation plans,” he said, pointing to China and the United States, which have not yet adopted the laws and regulations needed to meet their climate objectives.

Clear policies are needed to provide a sense of direction and boost investments in clean technologies, Tagliapietra stressed. And the current interventions against the global energy price surge is not the correct answer, he warned.

> Watch the full video of the EURACTIV event on YouTube:

[Edited by Frédéric Simon]

Subscribe to our newsletters