Soaring power prices drive anxiety over EU climate plans

News from Brussels

Source: Politico, 2021-09-14

Surging energy prices are weighing on European wallets — and the bloc’s climate plans.

Concerns over a popular backlash were evident on 14 September when members of the European Parliament debated the European Commission’s Fit for 55 climate legislation proposals.

“Citizens start asking questions,” said Anna Zalewska of Poland’s ruling Law and Justice party. “First of all, they ask about price increases across the board, because it's them who are going to foot the final bill. It's them who are going to unfortunately pay for the ambitions of the EU.” 

Polish Prime Minister Mateusz Morawiecki points the finger at Brussels. "Polish power prices are tied to the EU's climate policies," he said last week.

The Commission insists that those prices aren't the fault of the EU's Emissions Trading System, which has seen the cost of a permit to emit a ton of COmore than double over the last year to around €60. The power price increase is instead largely driven by high gas prices and structural issues in Europe’s electricity market — but the Commission is still wary of its net-zero Green Deal project getting the blame.

Commission Green Deal chief Frans Timmermans told MEPs 14 September that just “one-fifth” of the higher power costs could be attributed to the rising ETS price, with the rest caused by low gas supply. 

He argued that those increasing costs actually strengthen the case for a rapid shift to cleaner energy sources.

Some MEPs sided with Timmermans. “We need to act radically, but there is a problem: Slovakia and Europe are facing rising power prices, and this puts the most vulnerable and poorest at a disadvantage. Why? Because of our dependence on fossil gas,” said Slovak lawmaker Martin Hojsík of Renew Europe. 

The political danger to the Commission's Fit for 55 program is obvious. 

Pascal Canfin, the French MEP who chairs the Parliament’s environment committee, said his liberal Renew Europe group opposed the Commission’s proposal to expand emissions trading to road transport and buildings. 

“We believe that the political cost is extremely high and the climate impact is very low,” he said.

In response to a reporter’s question about the risk to the Green Deal if the costs were laid on the middle class, Green MEP Philippe Lamberts said: “How can you imagine that we are not thinking about this? Are we so stupid?” 

Governments across the EU are feeling the pressure.

In Italy, electricity bills have risen by 20% in the last quarter and are expected to rise by 40% from October, according to Minister for the Ecological Transition Roberto Cingolani. He told POLITICO he agreed with Timmermans that the lesson from the current price hikes was that “we should be super fast in increasing the renewable energy power stations.”

Despite this, Cingolani was alive to the political risk. “You're measuring directly the impact of the decarbonisation concept,” he said, warning that people "should not perceive that the transition means you pay more for electricity and that's all." With people being forced to make wrenching changes to their lives, such a "historical transformation" carries costs and will be difficult. 

In Spain, the government is facing a political crisis caused by record-breaking power prices — which have tripled to €172.78 per megawatt-hour over the last half-year. On 14 September it approved measures to lower bills with temporary tax cuts, limiting the amount that prices can rise, and clawing back about €2.5bn in utilities' profits to redistribute to consumers. The goal is to keep bills about where they were in 2018.

"We are going to reduce the profits of energy companies and redirect the benefits to consumers," Prime Minister Pedro Sánchez said.

Outraged nuclear power companies threatened to shut down their reactors — which supply about a fifth of the country's power — early if the government goes ahead with its plan.

The Greek government said on 14 September that it would spend €150m to cut consumer bills through the end of the year.

"There is an international energy crisis,” Energy Minister Kostas Skrekas told reporters. “Our government has decided to support those who have seen their bills growing.”

The problem, said Cingolani, is that Europe is part-way through its transition toward 100% clean energy, with “a mix of old and new power sources in which the carbon dioxide will increase its price.” 

The idea behind the ETS was to put a price on carbon, imposing higher costs on polluting energy sources like oil, coal and gas and encouraging low-carbon energy like solar, wind, hydro and nuclear. But countries have been closing both coal-fired plants and nuclear power stations — and when there’s less wind and sun available, it’s increasingly natural gas purchased on global markets that fills the gap.

Currently “wind generation is low, and in some markets there are a high number of plants offline,” said Glenn Rickson, head of European power analysis at S&P Global Platts. “With the general closure of coal plants in recent years ... there is reduced scope to shift away from gas generation when gas prices get high, which in turn feeds back into the gas price.” 

The EU is now being squeezed as global gas prices soar.

It's made worse by the structure of EU wholesale electricity markets, where the most expensive power source used to meet total demand sets the price for the entire market. That means high gas prices drive up overall costs even if the fuel is responsible for only a small part of overall power generation.

As the Fit for 55 proposals make their way through Parliament this winter — and gas prices are expected to surge even higher as Europeans turn on heating this winter — the Commission will likely face complaints for months to come. 

"The one thing we cannot afford is for the social side to be opposed to the climate side. I see this threat very clearly now that we have a discussion about the price hike in the energy sector," Timmermans said. The green transition, he said, is "gonna be bloody hard, and nobody should have any illusions that this is going to be easy." But he urged lawmakers to avoid the "trap" of talking "all the time about the cost of the transition and avoiding to talk about the cost of non-transition."


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